The Ripple Effects of Proposition 15
September 22, 2020 5 Minute Read
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Over the past couple of years, this blog has focused on Southern California’s rich talent base, educational institutions and diverse economy – the things that make Southern California such a dynamic place to work and live in. I’ve also addressed ways the corporate community and civic leaders have banded together to address our challenges, especially homelessness and sustainability. Now we face a looming threat to the vibrancy of Southern California’s economy—Proposition 15.
Also known as Split Roll, Prop 15 would dramatically impact commercial property owners and small businesses here in Southern California. Overturning statewide property tax policy that has been in place since 1978, commercial real estate would be reassessed at least every three years and taxed at current market values. What does this mean? While this measure would be harmful to our region and its economy at any time, in the midst of the worst economic crisis since the Great Depression it would likely have devastating effects.
The initiative is projected to hike taxes on commercial real estate property by $7 to $11 billion1 annually once the new standards are fully implemented. Keep in mind, property owners are already shouldering a larger share of the state’s tax burden than before Proposition 13 became law in 1978. Many incorrectly assume that Prop 13 has meant that property taxes haven’t risen with the state’s economic growth. In fact, the increase in property taxes has outpaced growth in both the state’s total output and personal income tax receipts.
In Los Angeles County, 46% of the tax increase will be borne by smaller properties under 50,000 square feet (roughly the size of a small strip center or average grocery store). For many of the smaller Los Angeles County properties, the tax burden could jump a staggering 44%. These properties are often owned by local individuals who do not have the wherewithal to absorb this sort of increase. They will have no choice but to pass those taxes on to small businesses—and in turn to consumers -- in order to stay afloat. Some small property owners may have to shut their buildings all together if they are no longer economically viable.
The end result would be to make California a much more difficult place in which to do business. Already California ranks third to last for the state’s business climate, according to the independent tax policy research organization Tax Foundation. It is estimated that some 10,000 businesses left California between 2008 and 2016; this proposition would accelerate the trend.
Our region continues to grapple with the COVID-19 pandemic, stay-at-home orders and exceptionally high unemployment – it is undeniably an understatement to describe the last six months as “challenging” for Southern California. Within this context, it’s especially important that, as a community, we not take for granted the region’s economic dynamism that has supported jobs and middle-class lifestyles for scores of Angelenos, a dynamism that Prop 15 seriously threatens to undermine.
Regardless of how you feel about this issue, please be sure to get out and vote on November 3rd.