‘Split roll,’ the ghost of Prop. 13, haunts 2018

Months after President Trump slashed corporations’ federal tax rate, a coalition of progressive California groups is hoping to raise their property taxes.

The Schools and Communities First Coalition, which includes the League of Women Voters, Evolve California and other organizations, is seeking signatures to put an initiative on the ballot that would institute a “split roll” property tax system.  The initiative would tax corporations with more than $2 million in property holdings at market rates, while maintaining Proposition 13 property tax limits for small businesses and residences.

“We were opposed to Prop. 13 when it passed 40 years ago and have been looking for an opportunity to reform it.” — Helen Hutchison

The Legislative Analyst’s Office, the Legislature’s nonpartisan fiscal adviser,  estimated that if approved, the split roll system would net local governments and schools an additional $6.5 billion to $10.5 billion in annual revenue most years.

Supporters say that corporations are benefitting from a “loophole” allowing them to avoid paying their fair share in property taxes. They say voters who approved Proposition 13 were concerned about protecting seniors from being taxed out of their homes, not wealthy corporations.

But taxpayer advocates say the state is already getting plenty of property tax revenue and doesn’t need anymore. They also point out that most voters don’t want a split roll. A recent poll by the Public Policy Institute of California showed that 46 percent of likely voters favor the split roll, 43 percent oppose it and 11 percent don’t know. The survey had a margin of error of plus- or minus-4.35 percent.

Helen Hutchison, president of the League of Women Voters California, said Proposition 13’s effects on schools have been devastating. Forty years ago, California schools were rated the top of the country and now they are rated near the bottom, she said.

“We were opposed to Prop. 13 when it passed 40 years ago and have been looking for an opportunity to reform it,” she said. “We foresaw that it would put a stranglehold on services provided to those in California and lo and behold, that is what has happened.”

Under the current system, local governments in California are forced to put measures on the ballot to get enough money to fund their projects.

Property taxes generate nearly $60 billion a year for local governments in the state. About 60 percent goes to cities, counties and special districts, like fire districts, while 40 percent goes to schools and community colleges.

California has always taxed resident and business property at the same rate. Proposition 13, approved by voters in 1978, caps property taxes at 1 percent of the assessed value. Subsequent increases can be no more than 2 percent a year unless the property changes ownership.

Ben Grieff, campaign director for Evolve California, calls the split roll initiative a common-sense reform. He said that most states do assess commercial properties at market value.

Under the current system, local governments in California are forced to put measures on the ballot to get enough money to fund their projects. He pointed out that in 2016, there were 430 such measures. “That’s bringing in pennies compared to what we could bring in on an annual basis” with a split roll, he said.

“Prop. 13 has worked well, it’s worked fair, it’s generated a vast amount of property tax revenues for schools and local governments.” — Jon Coupal

Mac Zilber, a spokesperson for the Schools and Communities First Coalition, said corporations that have owned their property a long time and thus have lower property taxes aren’t passing on their savings to customers. As an example, he said a gas station with lower property taxes than one across the street doesn’t usually offer lower gas prices.

“Consumers are not getting a Prop. 13 discount from places that are getting huge amounts of this loophole money,” he said.

Jon Coupal, president of the Howard Jarvis Taxpayers Association, named after the principal proponent of Proposition 13, said a change to the property tax system is unnecessary. “We’ve got a state surplus,” he said. “California has the highest income tax rate in America, we have the highest sales tax in America, we have the highest gas tax in America.”

Even with Proposition 13 protections, California has higher property taxes than two-thirds of the nation, Coupal said.

“Prop. 13 has worked well, it’s worked fair, it’s generated a vast amount of property tax revenues for schools and local governments,” he said. “Prop. 13 has served California well for 40 years and we will defend it for the next 40 years.”

David Kline, a spokesperson for the California Taxpayers Association, pointed out that K-14 schools have had a 66 percent increase in funding over the last seven years. “With the state having major reserves and increasing spending on the programs the public supports, it makes no sense to be talking about increases of taxes on anyone,” he said.

He said a split roll initiative would lead to even more businesses fleeing California to lower tax states.  “It sends a huge signal to California employers that the state is looking to them mostly for money and doesn’t really value the jobs and other benefits they provide.”