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California Property Owners Brace for Vote to Repeal Limit on Tax Increases

Changes to Proposition 13 Could Boost Property Taxes by $11 Billion

California’s landmark property tax law may be facing a change.

An effort to repeal protections of the property tax-cutting measure known as Proposition 13 for commercial real estate has qualified for the state’s 2020 ballot. And everyone from commercial property owners and tenants to parents, students and users of local community programs could feel the effects of the ballot initiative should it pass in two years.

The measure, which qualified for the ballot this month after proponents collected more than the 644,000 signatures required by state law, could trigger the largest seismic shift in the state’s property tax system since voters approved Proposition 13 four decades ago. Commercial real estate owners and developers are already warning that hundreds of companies could leave California, taking thousands of jobs with them, to avoid paying higher state taxes -- and that could drive up commercial vacancy rates, discourage development and alter the economics of real estate investment in the state.

Meanwhile, backers of the measure project it could raise as much as $11 billion annually for California schools and colleges, affordable housing, emergency services and local programs that they argue have been chronically underfunded for decades.

Passed in 1978 during a period of surging home prices that prompted a revolt against taxation across the United States, Proposition 13 has been one of the most popular and potent tools of anti-tax advocates in California and across the country. The measure capped annual property tax increases on California properties at 2 percent, with valuation reassessments allowed only when properties are sold.

At the time it was passed, the measure immediately slashed property taxes for businesses, homes and agriculture by 57 percent and rolled back assessed valuations to 1976 levels.

However, Proposition 13 has long been criticized as draining state coffers of crucial funds for schools, emergency services and local community programs, and it has been tested several times over the past four decades. All but one of those efforts failed to make the ballot because of political distaste for raising property taxes, which has been called the “third rail of California politics” for decades.

This proposed ballot measure, which backers are calling “the California Schools and Local Communities Funding Act,” would amend the state constitution to end Proposition 13's restrictions on taxing commercial and industrial properties, creating a so-called "split-roll" property tax system. Single-family homes would retain their current tax rate under the amended proposition.

Business and real estate groups are warning that its passage would contribute to what they call an already unfriendly business and regulatory climate and cause more companies to move out of California.

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