A proposed change to California’s sacrosanct Proposition 13 that seeks to raise $12 billion annually for schools and local government was already primed to be one of the hottest battles on the November ballot before the coronavirus pandemic hit.
But the financial damage brought on by the disease is transforming the fight over a measure that would raise property taxes for many businesses into a struggle over the future of California.
Passing the initiative “was critical a few months ago,” said Oakland Mayor Libby Schaaf, whose city is one of many in California that are teetering on the edge of a financial abyss. “Now, it is a matter of life and death for many California families.”
The initiative’s opponents are sounding equally dire messages about how the pandemic has changed the political and economic climate. Changing Prop. 13’s formula to raise commercial property owners’ taxes is “tone deaf” at a time when countless small businesses are already dying, opponents say.
“It will increase the cost of living in California,” said Rob Lapsley, president of the California Business Roundtable, which opposes the initiative as part of a coalition called Californians to Save Prop. 13 and Stop Higher Property Taxes. “People are already gravely concerned that California is too expensive a place to live.”
The Schools and Communities First initiative would create a new stream of tax revenue for local governments and public schools by reassessing commercial and industrial properties in California every three years instead of whenever they are sold, the system voters put in place when they approved Prop. 13 in 1978. Now, property assessments are capped at 2% a year.
Properties now assessed at less than $3 million would be exempt from the initiative — an attempt by backers to shield smaller commercial property owners from higher taxes.
The proposed initiative wouldn’t touch residential property taxes. Many homes change hands every few years, so they’ve been repeatedly reassessed since Prop. 13’s passage. Large businesses, however, often remain under the same ownership for a long time. Some California businesses are paying property taxes based on assessments that haven’t changed in 40 years.
Proponents have submitted far more than the 997,139 signatures needed to qualify the measure for the November ballot, and should know by Friday whether enough of them have been verified as valid to put it before voters. An April survey by the nonpartisan Public Policy Institute of California found that 53% of likely voters would support such a measure, nearly the same support that a similar survey found a year ago.
A new $12 billion revenue stream sounds great to many city and school officials. California’s estimated $54 billion deficit could lead to deep cuts in school budgets — as much as $19 billion. San Francisco is looking at a $1.7 billion shortfall, and Oakland has to solve a $122 million budget problem over the next 14 months — which is more than the cost of paying half the city’s police force for a year.
“The worst thing we can do in this crisis is to simply cut health and other vital services — it endangers our public health and a potential recovery,” said Anthony Wright, executive director of Health Access California and a supporter of the initiative. Raising business property taxes would not only provide “an important lifeline for people who depend on the safety net, but frankly for all of us,” he said.
Sasha Cuttler, a public health nurse in San Francisco, experiences the pandemic’s impact every day. Half the calls Cuttler fields on advice lines are from people who either fear that they have COVID-19 or need help finding services to treat it.
Cuttler worries about potential cuts to public health programs.
“For many nurses, the prevalent feeling is one of betrayal,” Cuttler said. “We’re constantly told that we need to save money. How are we supposed to save lives if we don’t have enough money?”
Opponents of the proposed initiative point out that the pandemic has hit small businesses hard, too.
An April survey by the Small Business Majority advocacy group found that 44% of small-business owners, most of whom employed fewer than 25 people, either had closed their operations or expected to by July.
A report last week by the nonpartisan Public Policy Institute of California found that 56% of California small businesses have experienced “large negative” losses from the pandemic. Small businesses owned by women, Asian Americans and Latinos have been disproportionately hurt, according to the policy institute’s analysis.
Even though the initiative’s changes are directed at larger commercial and industrial property owners, Lapsley, the California Business Roundtable leader, predicted that its costs will trickle down to small-business owners who rent space in those buildings.
“They will pay for it and pass (the cost) along to consumers at exactly the wrong time,” Lapsley said.
Proponents say the $3 million floor for properties subject to higher taxes would assure that the burden would fall on wealthier owners. A February study by the University of Southern California found that 78% of the tax revenue generated by the initiative would come from properties valued at more than $5 million.
Nevertheless, representatives of California’s $50 billion agricultural industry are also fearful of the initiative’s impacts at a time when farmers expect upward of $10 billion in losses because of the pandemic, said Rob Spiegel, a policy advocate for the 36,000-member California Farm Bureau Federation, which opposes the initiative.
Although the proposed measure would exempt agricultural land from its provisions, Spiegel worries that it would not apply to what is planted on that land.
But those concerns “are completely distorting” the initiative’s provisions regarding agriculture, said Lenny Goldberg, a policy consultant to the supporters.
Lapsley said supporters are overstating how soon the proposal could provide help. If the initiative passes, the new property tax revenue wouldn’t start pouring in until 2022 at the earliest, by which time budgets might be recovering in a post-pandemic world.
Schaaf, however, said the measure represents the kind of “fundamental shift” that California needs to make, pandemic or no pandemic.
“This is a moment to actually make people uncomfortable,” Schaaf said. “Businesspeople should be uncomfortable about the level of income inequality that we have.”