PD Editorial: Props 15 and 19 are bad tax policy

For public employee unions, Proposition 15 on the Nov. 3 ballot is the preferred solution to California’s pension crisis: a steep tax hike on someone else.

Proposition 15 would raise property taxes by an estimated $12.5 billion a year by taking Proposition 13 protections away from some commercial and industrial properties.

The chief advocates, unions representing school teachers and other government employees, say small business owners would be protected. That may have been their intention, but it almost certainly wouldn’t be the result.

Proposition 13, passed by voters in 1978, established a statewide property tax rate of 1% of assessed value with annual increases of no more than 2%. Property is reassessed at the time of a sale.

Proposition 15 would create a “split roll” for commercial and industrial properties with a cumulative value of more than $3 million. Instead of being taxed on their most recent sale price, they would be taxed on their market value.

That mirrors the pre-Proposition 13 system that created a crisis in California. With real estate prices rising and property taxes assessed on paper gains, many homeowners had to sell their homes.

Proposition 13, whatever its faults, largely solved that problem.

Supporters of Proposition 15 say the $3 million floor exempts all but the richest property owners. However, like homeowners four decades ago, there’s no guarantee that they have cash on hand to pay tax bills based on unrealized gains.

And nothing in Proposition 15 stops commercial landlords from passing the cost to tenants, including small business owners. Indeed, many business leases include charges for property taxes.

Proposition 15 would increase property tax revenue by about 20% annually, a huge windfall for schools and local governments. Many of them are struggling, but rising pension costs associated with generous increases in retirement benefits are — and will continue to be — a primary contributor to their fiscal problems.

Unions have stubbornly fought efforts to control those costs, even opposing restrictions on abusive practices like pension spiking. Their solution is raising taxes. Voters should say no until the unions, and public employers, get serious about real pension reform.

Proposition 19 is another Proposition 13 rewrite on the November ballot, and voters should reject it, too.

Homeowners over 55 are allowed to sell a home and buy another in the same county without getting hit with a larger property tax bill as long as the new home is less expensive than the old one. The idea is to free up larger homes without penalizing people who want to downsize. A handful of counties have reciprocal agreements, allowing people to move to other areas without a penalty.

Proposition 19 would allow people to buy more expensive homes anywhere in the state, while capping their property taxes. Moreover, they could repeat the maneuver three times. That might provide lots of business for real estate agents, but it would undercut school districts and local governments, the beneficiaries of property taxes.

To offset some of the lost revenue, Proposition 19 would slap a new tax on people who inherit a home or small business from their parents or grandparents.

Currently, property can be transferred between generations without reassessment. Proposition 19 would allow such a transfer only for residences and only if the recipient moved into the home. Anyone else would get a tax bill, and many would have to sell a family home.

California’s tax system is overdue for an overhaul, but these measures make piecemeal changes that are as likely to create new problems as solve old ones. The Press Democrat recommends no votes on Propositions 15 and 19.

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