May 2019

APARTMENT AGE • MAY 2019 43 Proposition 13 with a split-roll property tax. A narrow problem that could have been fixed with legislation was instead left in place to serve as an argument for raising taxes on all commercial property. In fact, a split-roll measure was introduced in the Senate in 2015. Senate Constitutional Amendment 5 (Hancock and Mitchell), would have required annual reassessment of commercial and industrial properties. Lawmakers did not consider the proposal for very long, and the bill died in its first committee. One reason for Senate Constitutional Amendment 5’s speedy demise may have been a study of the economic impact of “split roll” by the Davenport Institute at Pepperdine University’s School of Public Policy. Released in 2012 as the state grappled with a budget deficit estimated at between $10 and $20 billion, the study warned that a split roll would have a “significant and detrimental impact on the state’s economy.” The Davenport Institute study concluded that raising property taxes on businesses by an estimated $6 billion would cost the California economy $71.8 billion of lost output and more than 396,000 lost jobs over the first five years of the split-roll property tax regime. Even before that devastating study, split-roll proposals had failed time and again. In 2000, Assembly Bill 2288 (Dutra) would have required the reassessment of property owned by legal entities every three years on the presumption that a change in ownership had occurred. A similar proposal, Senate Bill 17 (Escutia), was considered by the Legislature in 2005, and again in 2010 as Assembly Bill 2492 (Ammiano). In 2003, Assembly Constitutional Amendment 16 (Hancock) would have required the annual reassessment of nonresidential, non-agricultural property. In 2004, the California Teachers Association and actor/director Rob Reiner proposed an initiative that would have created a split roll and increased the tax rate to 1.5% on nonresidential, non-agricultural commercial property. Signatures were collected, but the initiative was dropped. Between 2005 and 2009, seven more split-roll initiatives were proposed by various individuals. Three of the measures would have increased the tax rate on commercial property, and four would have required annual or periodic reassessments. All were dropped before signatures were collected. Unfortunately, the threat has returned. In 2018, a split- roll initiative garnered enough signatures to be eligible for the 2020 ballot. Proponents have given their proposal the friendly title, “California Schools and Local Communities Funding Act,” but what it would do to California’s economy isn’t friendly at all. The initiative would revoke Proposition 13’s protection fromnonresidential business and commercial property and require the reassessment of those properties to fair market value. This would be a massive tax increase on office buildings, retail stores, shopping malls, movie theaters, gas stations, supermarkets, factories, warehouses, self-storage facilities, auto dealerships, car washes, restaurants, hotels and every other job-creating business in the state. Even very small businesses that lease space in a strip mall would see their operating costs jump sharply as a result of tax increases passed through from landlord to tenant. The cost of living, already high in California, would be pushed even higher as the new tax bills hit every business in the state at the same time. And it would be only the first of many tax increases – without Proposition 13’s limitation on increases in assessed value, property taxes would rise along with real estate values in California, regardless of whether businesses had the cash flow to make those tax payments. Inevitably, businesses would be forced to cut their workforce and raise their prices, and business flight out of California would accelerate. Although this split-roll initiative would spare apartment buildings, leaving all residential property under Proposition 13’s protection, a different threat to apartment owners could be on the horizon. Governor Gavin Newsom has expressed a desire to enact wide-ranging changes to state tax law. During the campaign, he stated that Proposition 13 is “on the table,” and when he presented his budget proposal earlier this year, he suggested that the split-roll initiative on the 2020 ballot could be part of a broader negotiation for changes to the state’s tax laws, possibly including a new sales tax on services.