A state ballot measure that would upend decades of property tax protections for large commercial owners will soon have another proponent, after Santa Clara County supervisors voted 4-1 Tuesday to draft a resolution endorsing Proposition 15.
The so-called "split roll" initiative, which will be on the November ballot, would require all commercial and industrial properties worth more than $3 million to be taxed based on their market value instead of the purchase price. If passed, these properties would lose a longstanding cap on property tax growth under a 1978 state law, Proposition 13.
Proposition 15 is projected to create a windfall for cities, counties and school districts, with property tax revenue expected to grow by more than $11 billion. The biggest winner would be K-12 schools, which receive more than 40% of property tax revenue, followed by Santa Clara County and individual cities.
A study published in May found that local agencies could receive a combined $504 million in additional tax revenue, more than half of which would flow into the county budget. Cities that stand to gain the most under Proposition 15 include San Jose ($76.8M), Sunnyvale ($22.6M), Palo Alto ($20.9M) and Mountain View ($18.6M).
Supervisor Susan Ellenberg, who proposed the idea to officially endorse Proposition 15, said the ballot measure would be a way to raise more money for schools and public agencies strapped for cash during the coronavirus pandemic. What's more, she said, it would signal that the board of supervisors is willing to "think creatively" about ways to bring revenue into its communities, particularly areas with vast wealth inequities.
"This ballot measure has the potential to stave off devastating cuts to programs for children, families and our county's most marginalized populations, and it's not regressive," Ellenberg said, referencing her opposition to a sales tax measure earlier in the meeting.
School advocates speaking at the meeting largely derided Proposition 13 as a major blow to public education, describing it as a way to subsidize wealthy companies at the expense of quality childhood education. Parent and PTA activist Nancy Krop said schools have been "decimated" ever since commercial property tax rates were locked in at 1978 rates under the controversial law.
"California schools bear no resemblance to the top quality schools I attended, and every child deserves," Krop said.
Palo Alto resident and City Council candidate Rebecca Eisenberg said she has dedicated her career to fighting the "scourge" caused by Proposition 13, while Emily Cagape, a member of the group Evolve California, said the 1978 law amounts to a tax loophole that lets corporations get away with billions of dollars at the expense of local schools and communities.
Multiple form letters sent from county residents pointed out that data from a 2012 report shows that Proposition 13 enables IBM to pay an annual $200 per acre in property taxes on 200 acres of land, while Palo Alto homeowners are paying the equivalent of $130,000 an acre. Companies with more recently purchased properties are paying much more. The report found Google was paying closer to $15,800 per acre.
Perhaps the biggest critic of Proposition 15 at the meeting was the county's own assessor, Larry Stone. Reading from a memo, Stone told supervisors that he has always been a vocal critic of Proposition 13 and describes it as one of the worst things that has happened in California, but nevertheless felt that Proposition 15 was the wrong fix. He worried that it would be difficult to scale up his office's staffing in order to reassess commercial properties more frequently, not to mention a crush of something like 25,000 appeals from property owners in the first year.
Stone also warned that small businesses, either owning properties worth more than $3 million or renting as commercial tenants, will be "crushed" by Proposition 15 because of its blunt approach to quickly bring tax assessments up to market value.
"The independent restaurant, cleaners, hair or nail salons, gift stores, grocery stores, and small accountants and attorneys could face increases in property taxes by eight, nine or 10 times," Stone wrote in the memo. "Trying to change 42 years of property tax inequity in a single, convoluted ballot measure and do it fairly is not possible."
The National Association of Industrial and Office Properties, an organization of property owners and real estate developers, also sent a letter to supervisors blasting Proposition 15, writing that it would cause 120,000 job losses at a time when unemployment is at record highs. While the bill would raise taxes on commercial property owners, the association said the costs will be filtered down to tenants and consumers.
Speakers at the meeting criticized Larry Stone for his stance, saying the work to reassess properties is his office's job and that the logistical challenge isn't enough of a hurdle to derail the ballot measure. Resident Bob Brownstein said Stone was taking a defeatist approach, but was also being dishonest by saying his office only had 18 months to begin the grueling process of reassessing properties. Proposition 15 starts the phased approach in the 2022-23 fiscal year.
"The U.S. Air Force has a slogan: The difficult we do immediately, the impossible takes a little longer," Brownstein said. "Mr. Stone's slogan seems to be 'If it's hard to do, don't even try.'"
Palo Alto resident Kelsey Banes argued it was disingenuous to say commercial landlords are going to raise the rent on their tenants in order to offset higher taxes, noting that many are already charging market rate.
Supervisor Dave Cortese said he was torn on whether to support Proposition 15, and that he himself is a property owner. He said many commercial lease agreements are what's called a "triple net" lease, meaning that the costs of property taxes will inevitably hit small businesses and ultimately raise prices for the consumer.
At the same time, Cortese said he really doesn't see another option. Sales taxes are already high and being used for transportation projects, he said, and residential property taxes are largely spent supporting schools through local measures and the state's funding formula.
Supervisor Mike Wasserman, who cast the lone dissenting vote, said a huge number of commercial properties in Santa Clara County are worth more than $3 million and will almost assuredly get hit with higher taxes, a burden that will likely get passed down to tenants.
"We are already close to, if not, the highest taxed county in the state," Wasserman said. "We are already, if not close, to the highest taxed state in the nation. To pass on any new tax from government — I just can't support that."