READ IT FOR YOURSELF

Read It For Yourself

PROP 15 IS A FLAWED INITIATIVE

READ IT FOR YOURSELF

PROP 15

HURTS FARMERS & CONSUMERS

 

 

The Initiative Says:

“Real property used for commercial agricultural production” means land that is used for producing commercial agricultural commodities.”

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know Prop 15 Hurts Farmers and Consumers:

Under current law, “real property” is divided up into “land” “improvements” and “fixtures,” which all have different specific meanings, and are applied to different types of property. They are all separately assessed and are separated on the property tax bill.

Existing California Revenue & Taxation Code, Section 104:
“Real estate” or “real property” includes:
(a) The possession of, claim to, ownership of, or right to the possession of land.
(b) All mines, minerals, and quarries in the land, all standing timber whether or not belonging to the owner of the land, and all rights and privileges appertaining thereto.
(c) Improvements.
Existing California Revenue & Taxation Code, Section 607:
Land and improvements thereon shall be separately assessed

 

Assessor’s Handbook Section 501: Basic Appraisal,” Board of Equalization, January 2002, Page 22:
Fixtures is a category of improvements…. A fixture is classified as real property.”

 

Examples of “land” and “improvements” can be found in Board of Equalization Property Tax Rule 124. Some examples of “land” include alfalfa, artichokes, bushes, ditches, levees, shrubs and strawberry plants. Some examples of “improvements” include mature fruit and nut trees, grape stakes and trellises, buildings, fences, dams, paved roads, sprinkler systems, and mature grapevines.

Examples of “fixtures” can be found in the Assessors Handbook Section 501: Basic Appraisal from Pages 196 – 200. Some examples of “fixtures” include air compressors, ovens, walk-in refrigerators, and silos or tanks, like ones used for breweries and refineries.

Board of Equalization Property Tax Rule 131 defines mature fruit and nut trees and vineyards as taxable improvements.
The fruit, nuts, or grapes, until harvested, are growing crops exempt from taxation under Section 3(h), Article XIII, California Constitution. … After the exemption expires their value is to be enrolled in the improvement column.

The Initiative Says:

“Residential property” shall include real property used as residential property, including both single-family and multi-unit structures, and the land on which those structures are constructed or placed.

AG 2019-0008, Amdt. #1, Initiative Sec. 6

What Prop 15 Means for Farmers and Consumers:

Prop 15 defines “real property used for commercial agricultural production” to exclude improvements and fixtures – and only apply to land. In other places, Prop 15 excludes residential “land” and “structures,” so the proponents knew what they were doing when they drafted the initiative to apply to agriculture. Further, Prop 15 sweeps in all commercial and industrial “real property” for reassessment. This means that other “real property” (i.e., improvements and fixtures) used by agriculture will be reassessed with a huge financial impact on California’s agricultural industry.

Note: Agricultural “land” is excluded from reassessment. However, agricultural “improvements” and “fixtures” will be reassessed at least every three years if their value exceeds $3 million. “Fixtures” and “improvements” could also be reassessed under that value if certain ownership requirements are met.

 

PROP 15

HURTS CALIFORNIA’S RENEWABLE ENERGY GOALS

The Initiative Says:

Notwithstanding Section 2 of this Article, for the lien date for the 2022-23 fiscal year and each lien date thereafter, the “full cash value” of commercial and industrial real property that is not otherwise exempt under the Constitution is the fair market value of such real property as of that date as determined by the county assessor of the county in which such real property is located, except as provided by the Legislature pursuant to subdivision (b).

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know Prop 15 Hurts California’s Renewable Energy Goals:

Under current law (Prop 13), real property is not reassessed at current market value unless it changes ownership or is “newly constructed.”

In November 1980, voters passed Prop 7 which authorized the Legislature to exclude the construction of any active solar energy system from the term “newly constructed.” Upon Prop 7’s passage, the Legislature added Section 73 to the Revenue and Taxation Code:
(a) Pursuant to the authority granted to the Legislature pursuant to paragraph (1) of subdivision (c) of Section 2 of Article XIII A of the California Constitution, the term “newly constructed,” as used in subdivision (a) of Section 2 of Article XIIIA of the California Constitution, does not include the construction or addition of any active solar energy system, as defined in subdivision (b).

What Prop 15 Means for California’s Renewable Energy Goals:

Prop 15 eliminates the term “new construction” and subjects all nonexempt property to reassessment at least every three years. In doing so, Prop 15 also eliminates all existing exclusions from new construction which will increase property taxes on current and future solar energy products.

Unless Prop 15 is defeated by voters, all active solar systems excluded from property taxes will be subject to property taxes at their current market value as of January 1, 2022. Active solar energy systems on commercial/industrial property – and even major solar energy facilities selling renewable energy to California utilities – will lose their property tax protections. Prop 7 was passed to encourage the production of solar energy by deferring the cost of property taxes onto a new owner. Prop 15 will undermine California’s renewable energy goals that help our state reduce its reliance on fossil fuels by removing the incentive to build solar energy systems. It will also drive the cost of energy up for California families.

 

 

PROP 15

HURTS SMALL BUSINESSES

The Initiative Says:

“…each commercial and industrial real property with a fair market value of three million dollars ($3,000,000) or less shall not be subject to reassessment…”

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know There Is No Exemption From Reassessment for Small Businesses (Part 1):

Contrary to claims by the measure’s proponents, there is absolutely NO exemption for small businesses in Prop 15’s reassessment provisions. In fact, there is no mention of the term “small business” at all in the reassessment provisions as you can read to the left.

The size of the business – owning or occupying the property – is irrelevant. Instead, the exemption hinges on a property’s dollar amount being worth less than $3,000,000.

The Initiative Says:

“…real property that would otherwise comply with the exclusion set forth in paragraph (1) of this subdivision shall be subject to reassessment pursuant to paragraph (1) of subdivision (a) if any of the direct or indirect beneficial owners of such real property own a direct or indirect beneficial ownership interest(s) in other commercial and/or industrial real property located in the State, which such real property in the aggregate (including the subject property) has a fair market value in excess of three million dollars ($3,000,000) .

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know There Is No Exemption From Reassessment for Small Businesses (Part 2):

The next section of the proposition revokes the exemption for property worth less than $3 million if any direct or indirect owner of the property in question also has a direct or indirect ownership interest in other commercial or industrial property with an aggregate of $3 million.

Example: A $50,000 building can be reassessed if a 1% partner that owns the building is also a partner in owning other commercial/industrial property with an aggregate value exceeding $3 million in California. This loophole means that the alleged “exclusion” for properties under $3 million is nothing more than an illusion.

Furthermore, most small businesses do not own the property on which they operate. Instead, they rent and have what is called a “triple net lease,” where property owners pass along property taxes, insurance, and maintenance costs directly to the tenants. Prop 15 includes ZERO protections for small businesses who rent their property.

There is no exemption for small businesses, but there is a so-called deferred reassessment for landlords that rent to “small businesses” as narrowly defined by the proposition.

 

The Initiative Says:

Provided fifty percent (50%) or more of the occupied square footage of a commercial or industrial real property is occupied by a small business as defined in paragraph (4) of this subdivision, the provisions of paragraph (1) of subdivision (a) shall not take effect prior to the lien date for the 2025-26 fiscal year

AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know Prop 15’s So-Called “Deferred Reassessment” Won’t Help Most Small Businesses

Prop 15 claims to defer reassessment until 2025-26 for properties where 50% or more of the occupied square footage is in use by a “small business.” But we know that a fraction of businesses will actually meet the new definition of a “small business” created by the proposition because…

The Initiative Says:

“… the term small business shall include only those businesses which meet all of the following conditions:
(A) The business has fewer than 50 annual full-time equivalent employees.
(B) The business is independently owned and operated such that the business ownership interests, management and operation are not subject to control, restriction, modification or limitation by an outside source, individual or another business.
(C) The business owns real property located in California.
AG 2019-0008, Amdt. #1, Initiative Sec. 6

How We Know Prop 15’s Definition of “Small Business” Doesn’t Really Mean Small Business:

Prop 15 defines the term “small business” so narrowly that it is virtually impossible for a small business to meet the requirement. Prop 15 requires all three criteria must be met. The business must:
1) Have fewer than 50 full-time employees
2) Be independently owned and operated
3) Own real property in California

It is worth noting that franchisees of a major chain, like a small business Subway franchisee, would likely fail the second criterion as it is not “independently owned and operated” as defined by the initiative.

Additionally, we know that most small businesses rent their property, so they would fail the third criterion that requires them to own their property.

The Initiative Says:

(A) (i) For a taxpayer that is a small business, as defined in paragraph (4) of subdivision (e) of Section 2.5 of Article XIII A, all tangible personal property owned and used for business purposes is exempt from taxation…
(B) Except for a taxpayer subject to subparagraph (A) of paragraph (1) of this subdivision, an amount of up to five hundred thousand dollars ($500,000) of combined tangible personal property and fixtures, per taxpayer, is exempt from taxation.

AG 2019-0008, Amdt. #1, Initiative Sec. 7

How We Know The “Personal Property Tax Exemption” is an illusion:

Lastly, Prop 15 claims that “small businesses” are completely exempt from the personal property tax. This is yet another illusion because the personal property tax exemption applies only to “small businesses” as defined in the initiative. In order to qualify as a “small business” and receive the personal property tax exemption, all three criteria must be met. As discussed above, very few businesses will meet the definition of a “small business,” and thus will not qualify for the personal property tax exemption.

 

What Prop 15 Really Means For Small Businesses:

While Prop 15 flawed measure claims to exempt small businesses, it is simply an illusion – smoke and mirrors – to hide the truth. Almost all businesses, no matter size, the value of the property, or number of employees, will pay higher property taxes or higher rents.

 

PROP 15

IS AN ADMINISTRATIVE NIGHTMARE

The Initiative Says:

(b) After transferring the necessary funds pursuant to subdivisions (c), (d) and (e) and subparagraph (B) of paragraph (1) of this subdivision, all additional revenue resulting from the application of the tax rate specified in subdivision (a) of Section I of Article XIII A and the application of Section 2.5 of Article XIII A shall be allocated and transferred by the county auditor as follows:
(l) (A) First, to the Local School and Community College Property Tax Fund…

AG 2019-0008, Amdt. #1, Initiative Sec. 5

How We Know Administrative Costs Get Paid First Before Local Governments and Schools Receive ANY Tax Revenue:

Prop 15 clearly states that administrative costs will be paid first before any new tax revenue goes toward the initiative’s stated purpose.

 

The Initiative Says:

(d)(1) Each county or city and county shall be annually compensated for the actual direct administrative costs of implementing Section 2.5 of Article XIII A and Section 3.1 of Article XIII as identified by the board of supervisors of the county or city and county consistent with statutes identifying those costs. The Legislature shall determine by statute what constitutes actual direct administrative costs for purposes of this subdivision. Such costs shall at a minimum include the costs of assessment, assessment appeals, legal counsel, tax allocation and distribution, and auditing and enforcement of the provisions of Section 3.1 of Article XIII and Section 2.5 of Article XIII A. It is the intent of this subdivision to provide full adequate funding to counties to cover all costs associated with implementation of the Act.

 

AG 2019-0008, Amdt. #1, Initiative Sec. 5

How We Know Implementing Prop 15 Massive Tax Hike Will Be An Administrative Nightmare:

Prop 15 will create hundreds of millions of dollars in new costs for local governments due to the substantial increase in the number of assessments and appeals. These costs include assessment, assessment appeals, legal counsel, tax allocation and distribution, and auditing and enforcement.

The California Assessors’ Association commissioned a study which projected more than a billion dollars in administrative costs over the first three years – a number that increases when other downstream costs to local governments are factored.

These administrative costs will be paid before any new revenue goes to schools.

 

What Prop 15 Means For Local Government Budgets:

County assessors will need to quickly hire and train as many as 900 new appraisers and support personnel to administer the tax increase. Assessors already face difficulties hiring new staff given the job’s required level of expertise.

Prop 15 includes a provision for the state to provide counties with a loan to cover startup and administrative costs, but the Legislature shall determine by statute what costs will be covered and the terms of those loans.

It is not clear if local governments will receive these funds before counties incur the increased staffing and administrative costs or if they will need to wait for the state to pay them back. While Prop 15 states its “intent” is to provide full adequate funding, there is no guarantee the Legislature will determine that all local government expenses are eligible.

If the Legislature fails to fully reimburse all administrative costs, local governments will have no legal recourse to make their budgets whole without cutting other services or redirecting revenues from their intended purposes. This vague reimbursement provision will likely hurt local governments as many already face budget deficits due to COVID-19 and the economic shutdown.

 

PROP 15 HAS

NO ACCOUNTABILITY AND LACKS TRANSPARENCY

The Initiative Says:

The Legislature shall provide by statute a methodology, based on historical experience, for determining the additional revenue generated in each county each fiscal year as a result of the application of the tax rate specified in subdivision (a) of Section l of Article XIII A and the application of Section 2.5 of Article XIII A. The determination as to the amount of additional revenue in each county shall be transmitted to the county auditor annually for use for the calculations required by this section.

AG 2019-0008, Amdt. #1, Initiative Sec. 5

How We Know The State Legislature Can Change The Rules And Divert The New Tax Money:

Prop 15 states the Legislature shall provide by statute a methodology to determine annually the amount of new tax money that is generated in each county to be transferred to local governments and schools. This gives the Legislature the power to tinker with the amount of “additional revenue” that is subject to the spending plan in the initiative, simply by changing the methodology by which it is computed.

It is worth noting that the methodology the Legislature adopts can be changed with a simple majority vote—essentially giving Sacramento politicians a blank check. The state can easily divert the new tax money, which is especially tempting during an economic crisis.

By allowing the Legislature to determine yearly the amount of revenue generated by the initiative, it creates a built-in incentive for the Legislature to understate that amount because of Proposition 98 (the state’s minimum funding guarantee for schools). By understating the amount of revenue generated by the initiative, the school districts’ share of K-14 funding will be increased. Increasing the school districts’ share of K-14 funding decreases the state’s share of K-14 funding under Prop 98. The less the state has to spend on K-14 funding under Prop 98, the more the Legislature can spend on its own priorities.

 

The Initiative Says:

There is NO mention of a special fund or trust for the new local government tax money in AG 2019-0008, Amdt. #1

 

How We Know Prop 15 Fails to Include A Lock Box For Local Government Revenue:

There is absolutely NO lock box fund to protect the new tax money for local governments. Other existing protections for local government funding like Proposition 1A (2004) also do not apply.

Proposition 1A only protects existing local government property tax revenue. The split roll initiative, however, creates a new ad valorem property tax revenue source that is treated differently than the existing revenues protected by Proposition 1A. The initiative distributes this new revenue differently than existing property tax revenue, for example by sending a large portion to the state for redistribution to other counties or to backfill state general fund losses. Proposition 1A will not apply to new funds or funds that are eligible to be distributed under a different property tax formula.

This is problematic because it leaves the door open for Sacramento politicians to divert the new local government tax money for other purposes that benefit special interests and fund pet projects–just like they have done with the gas tax.

 

The Initiative Says:

All local education agencies, community colleges, counties, cities and counties, cities, and special districts that receive funds from the revenues generated by Section 2.5 of Article XIII A shall publicly disclose for each fiscal year, including in their annual budgets, the amount of property tax revenues they received for that fiscal year as the result of Section 2.5 of Article XIII A and how those revenues were spent. Such disclosure shall be made so that it is widely available to the public and written so as to be easily understood.

AG 2019-0008, Amdt. #1, Initiative Sec. 5

How We Know Prop 15 Includes The Illusion Of Transparency:

Prop 15 includes no requirements that new local government tax money is invested in beneficial programs for communities. Local politicians can spend the new tax money without any restrictions..

In addition, Prop 15 contains only the illusion of transparency. All the initiative requires for local government agencies to disclose is the amount of additional property tax revenues they received and an ambiguous statement of “how those revenues were spent.”

Without any clear guidance for how this disclosure will be made, local politicians and bureaucrats can easily shield where the new tax money is spent from the public’s view.

 

What Prop 15 Means For Open, Transparent, And Accountable Government:

Prop 15 contains no safeguards to require that funds are invested in communities. Due to the lack of accountability, the proposition essentially hands politicians a BLANK CHECK for billions in new tax revenue.

Considering Prop 15 is the largest property tax increase in state history, it has a shocking lack of transparency and accountability. Californians will have little idea how the money is being spent or whether the revenue is being used for its intended purpose. This is terrible precedent for California and is sure to spawn future tax measures with just as little transparency.

PROP 15 IS A FLAWED INITIATIVE

VOTE NO IN NOVEMBER

JOIN THE COALITION