Proposition 13 Ballot Initiative Qualifies for Signature Gathering

Public Finance Alert | March.06.2018

Proponents of The California Schools and Local Communities Funding Act of 2018 have received clearance from the California Attorney General to gather signatures in support of a ballot initiative to revoke Proposition 13 protections for commercial and industrial real properties.  Under the ballot measure, covered properties would be reassessed and taxed at fair market value, with future reassessments occurring at least every three years.  If required signatures are timely received, the measure will be included in the November 2018 general election.

The initiative calls for commercial and industrial real estate, including vacant land not used or zoned for residential use or commercial agricultural production, to be reassessed and taxed at fair market value.  The ballot measure calls for a phase-in of the reassessment program over two or more years, starting with the 2020-2021 fiscal year lien date.  Future reassessments would occur at least every three years, as determined by the state legislature.  For mixed-use property, only the portion of the property used for commercial and industrial purposes is affected.  The ballot measure also includes a small business exemption for businesses who operate their business on their own real property with a fair market value of less than $2,000,000.

The California Legislative Analyst’s Office has calculated that annual property taxes would increase by $7 billion to $11 billion in most years as a result of the measure.   Tax revenues would be allocated first to offset reductions in state personal income tax and corporate tax revenues resulting from higher property tax deductions and to compensate counties and cities for administrative costs of implementing the measure.   Remaining funds would be allocated 60 percent to cities, counties and special districts and 40 percent to local schools and community colleges.

To proceed with the ballot measure, 585,407 signatures must be received.  Once 25% of the required signatures are gathered the proposed initiative is sent to the state legislature for public hearings.   The Public Policy Institute of California’s statewide survey released January 2018 reports that 46% percent of likely voters favor taxing commercial properties at their fair market value, 43% are opposed, and 11% do not know.