California ready for Prop 13 overhaul?

A new ballot initiative that takes aim at how commercial properties are taxed under California’s Proposition 13 could raise $6 to $10 billion more each year for schools and other programs and services, according to a new analysis by the Legislative Analyst’s Office.

At the heart of the initiative, which is still being reviewed by the state attorney general’s office, is a property tax law enshrined in the state constitution since 1978. Proposition 13 caps taxes for all kinds of properties — residential and commercial — at 1 percent of a property’s purchase price, allowing for increases of no more than 2 percent per year, even if the value of the property triples or quadruples over time.

The initiative would change the constitution so that commercial and industrial properties — and land not intended for housing development — are instead taxed based on their current market value. The idea, long favored by critics of Proposition 13, is often called a “split roll” since it would not affect protections for residential properties. Commercial properties valued below $2 million would be exempt.

Another Proposition 13-related ballot initiative, backed by the California Association of Realtors, would expand protections for homeowners over 55, allowing them to take their tax base with them anywhere in the state as often as they move.

The LAO notes that roughly 40 percent of the new revenue would flow to public schools and community colleges because of the state’s Proposition 98 minimum funding guarantee. Its analysis took into account losses in income tax revenue from additional property tax deductions as well as the considerably higher administrative costs for counties, who assess the properties and collect the revenue.