News

Defeat of Prop. 15 denies schools more revenue

Nancy Smith teaches her first grade class of in-person and full-distance students at Fairmeadow Elementary School in Palo Alto on Oct. 12. Photo by Magali Gauthier.

Voters have rejected a large tax increase on commercial properties, depriving schools of what could have been a significant source of revenue. Backers of Proposition 15, the first major effort to revise the iconic tax limitation initiative, Proposition 13, since its passage in 1978, conceded defeat on Tuesday.

Although 1.5 million votes, about 10% of the total cast, remain to be counted, Prop. 15 has remained narrowly behind, with the margin of difference about the same as on Election Day: 48.2% for, 51.8% against.

The defeat leaves schools and community colleges without a prospect of additional long-term revenue while they're facing a pandemic that has hit low-income communities particularly hard, and potentially years of funding cuts and slow economic growth.

The initiative would have provided an estimated $2.5 billion to $4.5 billion annually statewide to schools and community out of an estimated $10.3 billion to $12.6 billion in revenue, with the rest going to cities and counties where the commercial properties are located.

The new revenue promised by Prop. 15 would not have provided any relief right away, however. The funding would have been phased in over five years, starting in 2022-23 — a fact that both supporters and opponents underplayed in ads that emphasized immediate benefits or dire consequences.

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Nonetheless, Pedro Noguera, dean of the USC Rossier School of Education, called Prop. 15's defeat "a significant loss."

"We had a chance to really move California forward in per pupil spending," Noguera said on EdSource's most recent podcast. "We have made some progress, but at best we're in the middle of the pack now. We could do so much more and this has implications for California's future."

Dozens of prominent California Democrats announced their support, but Noguera said the lack of an identifiable spokesperson hurt the cause. Gov. Gavin Newsom nominally backed the initiative but didn't campaign for it — unlike former Gov. Jerry Brown, who led the successful effort in 2012 to pass Prop. 30. It generated billions of dollars in additional temporary sales and income taxes.

Prop. 15 was an expensive and contentious campaign pitting Schools and Communities First, a coalition of community, religious and advocacy groups, and public service unions led by the California Teachers Association, against business and real estate interests, including the California Business Roundtable, the California Chamber of Commerce and the anti-tax California Taxpayers Association.

Next to Prop. 22, the successful $220-plus million mega-fight by Uber, Lyft and DoorDash to establish their drivers as private contractors, not company employees, Prop. 15 was the second-most expensive initiative, with more than $140 million raised. The No on Prop. 15 ended with a modest edge in money.

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Prop. 15 would have changed rules for assessing properties for commercial and industrial properties while leaving Prop. 13's provisions for homes and all apartments intact. That's why it was referred to as a "split-roll" tax.

Under Prop. 13, the taxable value of a property can increase a maximum of 2% annually, and properties can be reassessed only when sold. Prop. 15 called for reassessing commercial properties every three years. Since some large commercial properties hadn't reassessed in decades, their taxes might have risen multifold, particularly in the Bay Area and parts of Los Angeles.

Losers take heart, winners feel vindicated

Proponents were unbowed in acknowledging defeat.

"Nobody said it would be easy, but the Schools & Communities First coalition took on this fight for the right reasons — to address our state's most pressing challenges and inequities by investing in Californians," said Alex Stack, spokesman of Yes on Prop. 15. "Against all odds, Prop. 15 made history by taking on the status quo to ensure California becomes a more prosperous and equitable state for everyone."

Elisha Smith Arrillaga, executive director of the advocacy organization Education Trust-West echoed that sentiment. "Schools lack the financial resources necessary to provide a high-quality learning environment for all students. Prop 15 presented an opportunity to reimagine how educational resources are directed rather than maintain the status quo," she wrote in a statement.

California Teachers Association president E. Toby Boyd said he was heartened by the strength of the grassroots coalition that organized to pass Prop. 15. "We came very close, but we demonstrated the power of democracy in action. We demonstrated the difference we can make for ourselves and the next generation. That alone is a victory."

Opponents said the defeat proved their point.

'The one thing we did learn is that Prop 13 is still the third rail of California politics. You touch it even peripherally and you die.'

-Bob Blattner, Sacramento-based consultant and a school finance expert

"From day one, we knew that if voters understood the harm this deeply flawed tax hike would impose on California's economy and its families, farmers and small businesses, voters would reject this ill-advised effort," said Rob Lapsley, president of the California Business Roundtable and co-chair of the No on Prop 15 campaign. "Today's victory should send a clear message to the proponents and warn all politicians that voters will continue to reject attempts to dismantle Prop 13."

Added Rex Hime, president and CEO of the California Business Properties Association, "Small businesses and property owners now have the opportunity to focus on making ends meet instead of formulating plans to close their doors. Every tax gets passed along or increases the cost of everyday goods and services. And that was certainly the case with Prop. 15."

In several polls preceding the vote, support for Prop. 15 was just shy or slightly above 50%. But a rush of "No On 15" ads in the final weeks may have swayed wavering voters. Prop. 15 would have exempted owners of commercial properties valued less than $3 million.

But small business owners in ads said the increased property taxes would be passed on to them in rents at a time when they're already suffering losses due to COVID 19. Other ads falsely claimed Prop. 15 would equal a $900 tax increase for every family in the state.

Prop. 15's defeat will likely discourage future efforts to change Prop. 13 — though it may not hold the same sway among young and middle-age voters born after its passage.

A more palatable version of Prop. 15, further raising the exemption for small business, with a tradeoff of less revenue, could rise again someday. But Bob Blattner, a Sacramento-based consultant and a school finance expert, dismissed that as unlikely.

"The one thing we did learn is that Prop 13 is still the third rail of California politics," he said. "You touch it even peripherally and you die."

Ryan Smith, chief external officer for the L.A. Partnership for Schools, said that he hopes that the defeat of Prop. 15 will create the conditions for a more constructive dialog with the business community.

Herbert Hoover Elementary School teacher Victoria Chavez asks her students to enter the classroom one by one after recess in Palo Alto on Oct. 12. Photo by Magali Gauthier.

"We have an economic imperative to ensure that our schools and communities are funded well because they are the future of our labor force," he said. "Our business partners should come to the table with our community-based partners and many others so that we can have a discussion about what's the long-term interest of the state."

With Prop. 15's defeat, many public school advocates will look to Washington for a significant federal bailout for schools, especially since CARES Act funding approved by Congress last March must all be spent by December. But the poor showing of Democrats in U.S. Senate races has dimmed those prospects.

"I think that most people believed that a Democratic trifecta, meaning a unified government where the Senate, the House and the presidency were all in same hands, was not only most likely but also would provide the most resources for schools," said Blattner. "That's looking pretty unlikely now."

USC's Noguera essentially agreed. "Education is still largely the state's responsibility," he said. "So we have to look to the state Legislature and to Gov. Newsom for some new ideas and new approaches to improve funding for our schools."

This story was originally published in EdSource.

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Defeat of Prop. 15 denies schools more revenue

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Uploaded: Fri, Nov 13, 2020, 9:06 am

Voters have rejected a large tax increase on commercial properties, depriving schools of what could have been a significant source of revenue. Backers of Proposition 15, the first major effort to revise the iconic tax limitation initiative, Proposition 13, since its passage in 1978, conceded defeat on Tuesday.

Although 1.5 million votes, about 10% of the total cast, remain to be counted, Prop. 15 has remained narrowly behind, with the margin of difference about the same as on Election Day: 48.2% for, 51.8% against.

The defeat leaves schools and community colleges without a prospect of additional long-term revenue while they're facing a pandemic that has hit low-income communities particularly hard, and potentially years of funding cuts and slow economic growth.

The initiative would have provided an estimated $2.5 billion to $4.5 billion annually statewide to schools and community out of an estimated $10.3 billion to $12.6 billion in revenue, with the rest going to cities and counties where the commercial properties are located.

The new revenue promised by Prop. 15 would not have provided any relief right away, however. The funding would have been phased in over five years, starting in 2022-23 — a fact that both supporters and opponents underplayed in ads that emphasized immediate benefits or dire consequences.

Nonetheless, Pedro Noguera, dean of the USC Rossier School of Education, called Prop. 15's defeat "a significant loss."

"We had a chance to really move California forward in per pupil spending," Noguera said on EdSource's most recent podcast. "We have made some progress, but at best we're in the middle of the pack now. We could do so much more and this has implications for California's future."

Dozens of prominent California Democrats announced their support, but Noguera said the lack of an identifiable spokesperson hurt the cause. Gov. Gavin Newsom nominally backed the initiative but didn't campaign for it — unlike former Gov. Jerry Brown, who led the successful effort in 2012 to pass Prop. 30. It generated billions of dollars in additional temporary sales and income taxes.

Prop. 15 was an expensive and contentious campaign pitting Schools and Communities First, a coalition of community, religious and advocacy groups, and public service unions led by the California Teachers Association, against business and real estate interests, including the California Business Roundtable, the California Chamber of Commerce and the anti-tax California Taxpayers Association.

Next to Prop. 22, the successful $220-plus million mega-fight by Uber, Lyft and DoorDash to establish their drivers as private contractors, not company employees, Prop. 15 was the second-most expensive initiative, with more than $140 million raised. The No on Prop. 15 ended with a modest edge in money.

Prop. 15 would have changed rules for assessing properties for commercial and industrial properties while leaving Prop. 13's provisions for homes and all apartments intact. That's why it was referred to as a "split-roll" tax.

Under Prop. 13, the taxable value of a property can increase a maximum of 2% annually, and properties can be reassessed only when sold. Prop. 15 called for reassessing commercial properties every three years. Since some large commercial properties hadn't reassessed in decades, their taxes might have risen multifold, particularly in the Bay Area and parts of Los Angeles.

Losers take heart, winners feel vindicated

Proponents were unbowed in acknowledging defeat.

"Nobody said it would be easy, but the Schools & Communities First coalition took on this fight for the right reasons — to address our state's most pressing challenges and inequities by investing in Californians," said Alex Stack, spokesman of Yes on Prop. 15. "Against all odds, Prop. 15 made history by taking on the status quo to ensure California becomes a more prosperous and equitable state for everyone."

Elisha Smith Arrillaga, executive director of the advocacy organization Education Trust-West echoed that sentiment. "Schools lack the financial resources necessary to provide a high-quality learning environment for all students. Prop 15 presented an opportunity to reimagine how educational resources are directed rather than maintain the status quo," she wrote in a statement.

California Teachers Association president E. Toby Boyd said he was heartened by the strength of the grassroots coalition that organized to pass Prop. 15. "We came very close, but we demonstrated the power of democracy in action. We demonstrated the difference we can make for ourselves and the next generation. That alone is a victory."

Opponents said the defeat proved their point.

"From day one, we knew that if voters understood the harm this deeply flawed tax hike would impose on California's economy and its families, farmers and small businesses, voters would reject this ill-advised effort," said Rob Lapsley, president of the California Business Roundtable and co-chair of the No on Prop 15 campaign. "Today's victory should send a clear message to the proponents and warn all politicians that voters will continue to reject attempts to dismantle Prop 13."

Added Rex Hime, president and CEO of the California Business Properties Association, "Small businesses and property owners now have the opportunity to focus on making ends meet instead of formulating plans to close their doors. Every tax gets passed along or increases the cost of everyday goods and services. And that was certainly the case with Prop. 15."

In several polls preceding the vote, support for Prop. 15 was just shy or slightly above 50%. But a rush of "No On 15" ads in the final weeks may have swayed wavering voters. Prop. 15 would have exempted owners of commercial properties valued less than $3 million.

But small business owners in ads said the increased property taxes would be passed on to them in rents at a time when they're already suffering losses due to COVID 19. Other ads falsely claimed Prop. 15 would equal a $900 tax increase for every family in the state.

Prop. 15's defeat will likely discourage future efforts to change Prop. 13 — though it may not hold the same sway among young and middle-age voters born after its passage.

A more palatable version of Prop. 15, further raising the exemption for small business, with a tradeoff of less revenue, could rise again someday. But Bob Blattner, a Sacramento-based consultant and a school finance expert, dismissed that as unlikely.

"The one thing we did learn is that Prop 13 is still the third rail of California politics," he said. "You touch it even peripherally and you die."

Ryan Smith, chief external officer for the L.A. Partnership for Schools, said that he hopes that the defeat of Prop. 15 will create the conditions for a more constructive dialog with the business community.

"We have an economic imperative to ensure that our schools and communities are funded well because they are the future of our labor force," he said. "Our business partners should come to the table with our community-based partners and many others so that we can have a discussion about what's the long-term interest of the state."

With Prop. 15's defeat, many public school advocates will look to Washington for a significant federal bailout for schools, especially since CARES Act funding approved by Congress last March must all be spent by December. But the poor showing of Democrats in U.S. Senate races has dimmed those prospects.

"I think that most people believed that a Democratic trifecta, meaning a unified government where the Senate, the House and the presidency were all in same hands, was not only most likely but also would provide the most resources for schools," said Blattner. "That's looking pretty unlikely now."

USC's Noguera essentially agreed. "Education is still largely the state's responsibility," he said. "So we have to look to the state Legislature and to Gov. Newsom for some new ideas and new approaches to improve funding for our schools."

This story was originally published in EdSource.

Comments

What Will They Do Next
Registered user
Old Palo Alto
on Nov 13, 2020 at 11:04 am
What Will They Do Next, Old Palo Alto
Registered user
on Nov 13, 2020 at 11:04 am
33 people like this

"We had a chance to really move California forward in per pupil spending." Once again repeating the false narrative that throwing more money at schools will improve performance in the classroom. Spending already exceeds $20,000 per student (californiapolicycenter.org). Look where that's gotten us. Ranking of 38th in the nation overall, 44th in math and 38th in reading.

Prop 13 was voted into law by the tax paying citizens of California who demanded an end to wasteful spending and accountability in Sacramento. Trying to change it with Prop 15 was soundly rejected again. When will they learn?



Prop 15 was to fund Teacher Pensions- not students in the classroom
Registered user
Downtown North
on Nov 13, 2020 at 11:38 am
Prop 15 was to fund Teacher Pensions- not students in the classroom, Downtown North
Registered user
on Nov 13, 2020 at 11:38 am
32 people like this

Not a dollar from Prop 15 was ear marked to reach the students of California. This tax was created to pay for the ever increasing cost of teacher's pensions because the CA teacher pension fund has not been properly invested (it's been losing money since 2008.) Rising pension costs will continue eating up a significant portion of new state revenue that districts could use in other ways, such as expanding academic programs, hiring school nurses and school counselors, or raising teachers’ pay. It's time the teacher's union and state of California were honest with tax payers about where these proposed tax dollars will be spent. Clarity goes a long way!


Citizen PA
Registered user
Another Palo Alto neighborhood
on Nov 13, 2020 at 12:02 pm
Citizen PA, Another Palo Alto neighborhood
Registered user
on Nov 13, 2020 at 12:02 pm
11 people like this

I heard a caller on Forum today say that they would have voted for Prop 15 if the threshold had been higher. $3 million is just too low.

I think proponents need to be more aware of what living in California is like for people in the most expensive urban areas. Getting into a home in the first place is for most people not because they make so much money they can waltz in and buy a home on their income or because of a trust fund. Usually, people make the extended sacrifices necessary only because renting is such a bad deal, especially when there are booms. When ordinary people buy, there are usually extreme sacrifices for decades in order to just stabilize costs. People who want to reform residential just don't get that.

So I think most people want to reform the unfairnesses in commercial, but they understand based on their experiences that $3million is not a high enough threshold and that people struggling the hardest will get hit. The caller on the program suggested $15 million, but I think both a higher threshold AND some kind of rough cost-of-living adjustment for the threshold depending on area (which really should be acknowledged in the federal and state tax code, too, because being middle class in California is just a squeeze -- it's why the middle class are actually going to college in lower numbers than the poor and wealthy). It's always going to be looked at differently depending on the area if we don't start dealing with the issue of cost-of-living differences.


Novelera
Registered user
Midtown
on Nov 13, 2020 at 2:01 pm
Novelera, Midtown
Registered user
on Nov 13, 2020 at 2:01 pm
33 people like this

I believe Prop. 15 lost because of deceptive advertising. It was just excruciating to watch a commercial with a warm, friendly BLACK person saying that their small business would be harmed. The ones who paid for the anti-15 television ads were large property owners who didn't want to pay their fair share.


Citizen PA
Registered user
Another Palo Alto neighborhood
on Nov 13, 2020 at 3:07 pm
Citizen PA, Another Palo Alto neighborhood
Registered user
on Nov 13, 2020 at 3:07 pm
12 people like this

@ Novelera,
While I can agree with that, I also think the people who crafted many of these do not appreciate the reality of what cost-of-living does to the middle class in California. Someone with a single building and family business that they scrapped to pull together for decades can easily be worth $3million -- even though they could never pay for a new property or newly assessed property at $3million. It's very different if the cost of living on place is five times someplace else. The crafters would never consider making the limit $60,000, but that's effectively what's happening to people in very high cost areas. I'm not a business property owner, but knowing the housing market in CA very well for a long time, I could really see that the limit was too low and would pick off people on the lowest rungs. The same is true of Prop 19 which passed, it limited inheritance assessment to those living in the home, but would reassess if people can't afford the property and have to rent it out for awhile, or if they even rent out rooms to afford the home. Again, it's just either oblivious to people on the bottom trying desperately to get stable in their businesses and housing in this high cost area, or is deliberately designed to pick them off.


What Will They Do Next
Registered user
Old Palo Alto
on Nov 13, 2020 at 6:35 pm
What Will They Do Next, Old Palo Alto
Registered user
on Nov 13, 2020 at 6:35 pm
10 people like this

@ Novelera ... there is nothing deceptive about that ad. Many small businesses operate from properties owned by people who worked hard and invested in commercial real estate, mostly smaller buildings. We're not talking about Page Mill Square, 525 University Ave. and other large commercial buildings in Palo Alto. For many of these smaller property owners, it's their sole source of income. Passing this bill would have forced them to increase costs to their tenants in the form of rent hikes and making it harder for them to succeed. Prop 15 was another attempt at a money grab by Sacramento legislators. It failed again, as it should. Voters are finally starting to get on to the scam. Sacramento will never have enough of your money to spend on progressive party dream projects. And why did you find it necessary to capitalize BLACK person, as if a black person can't be a business owner?


What Will They Do Next
Registered user
Old Palo Alto
on Nov 13, 2020 at 6:43 pm
What Will They Do Next, Old Palo Alto
Registered user
on Nov 13, 2020 at 6:43 pm
6 people like this

@ Prop 15 was to fund, etc...... I couldn't agree more. The only reason I didn't add that to my post was that it was already lengthy enough, but my thoughts exactly.


Citizen PA
Registered user
Another Palo Alto neighborhood
on Nov 15, 2020 at 10:54 am
Citizen PA, Another Palo Alto neighborhood
Registered user
on Nov 15, 2020 at 10:54 am
Like this comment

To be clear, I still voted for Prop 15, but mainly because businesses have paid so much less over time since Prop 13 than homeowners, and cynically expecting businesses to be more likely to propose something to fix Prop 15's flaws. That said, Prop 15's flaws were what sank it, I believe. It was too tone deaf to what actually constituted a small and large business concern.


Me 2
Registered user
Old Palo Alto
on Nov 15, 2020 at 5:27 pm
Me 2, Old Palo Alto
Registered user
on Nov 15, 2020 at 5:27 pm
6 people like this

The legislature and governor can choose to allocate more money for education if they want. They don't need something like Prop 15 to do that.

This is why the proposition system is so messed up. Now they can blame taxpayers for underfunding education instead of doing what they should be doing, which is moving budget away from other areas that are overfunded, thanks to lobbying by special interest groups and being beholden to public sector unions.

Prop 15 could have been a way to restructure how we're being taxed by making it revenue neutral. We should be less dependent on income tax and regressive sales tax (thanks to all the poor people paying for a shiny new electrified train for tech workers!). But it wasn't a way to restructure our tax burden - it was simply a tax increase that we would have all ending up paying ourselves.

(remember from Econ 101 - all taxes are eventually paid by the end consumer)

In the end, the Governor and Assembly are fully responsible for underfunding education. Period.

Don't let them off the hook.


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