Split-Roll Initiative

California Assessors’ Association Opposes Proposition 15, Says Some Counties Would Lose Revenue

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The California Assessors’ Association (CAA) announced June 3 that it opposes the split-roll property tax increase that recently qualified for the November ballot because the measure would be nearly impossible to implement.

“The implementation costs and administrative issues raised by our analysis have only become more problematic due to pending budget cuts and hiring freezes which are being implemented by counties across the State,” CAA President Don Gaekle, assessor for Stanislaus County, wrote in a letter to lawmakers. “Current local budgetary realities will make implementation of the initiative extremely difficult.”

Santa Clara County Assessor Larry Stone went further during June 4 testimony to a joint hearing of the Assembly Local Government Committee and the Assembly Revenue and Taxation Committee, saying: “This is a seriously flawed ballot measure, and it should be defeated.”

Stone, who said he was speaking on behalf of the CAA “representing all 58 assessors,” added:

“The California Assessors’ Association has completed a comprehensive analysis of the split-roll ballot measure with only one question in mind: Can assessors implement the initiative? Our conclusion is we cannot. It would be impossible – not difficult, but impossible – to administer all of the provisions of the measure as it is written.”

The “Schools and Communities First” measure (Initiative 19-0008) seeks to repeal Proposition 13 protections for commercial and industrial property owners, and require market-value reassessment of commercial and industrial properties every three years. Proponents – including the California Teachers Association, the Service Employees International Union and other public employee unions – estimate that the changes would amount to a property tax increase of $12 billion per year on the owners of these properties.

CalTax is on the steering committee of Californians to Save Prop 13 and Stop Higher Property Taxes, the campaign opposing the split-roll measure. Opponents note that if the initiative somehow could be implemented, it would result in increased consumer costs for Californians (including higher food prices thanks to the measure’s tax increase on agricultural improvements like barns, dairies and vines) and job losses as employers moved to lower-cost states.

Key concerns cited in the CAA’s letter:

  • The projected implementation cost would be $1.01 billion during the three-year phase-in period.
  • “Implementation would require a trained workforce that is not available today and would not be available for many years.”
  • The measure includes “exclusions with complicated rules” that would require creation of a system for all counties to coordinate and share information.
  • Disparate impacts on counties “and likelihood that the initiative would trigger negative roll growth in small and rural counties due to exemptions and exclusions.”

Gaekle noted that a review of the first version of the split-roll initiative identified similar problems.

During the legislative hearing – mandated for every initiative that qualifies for the ballot – proponents touted a provision exempting property from the new market-value reassessment requirements if the aggregate current market value of all the owner’s California commercial and industrial property is less than $3 million – a threshold that would be adjusted for inflation in future years.

Those provisions are flawed, Stone said.

“Assessors cannot determine the aggregate fair market value of multiple properties in multiple counties,” the assessor said. “There’s also a related problem. The $3 million cap is adjusted biannually by county, based upon a local inflation factor determined by the State Board of Equalization. The result is, over time, different inflation factors in different counties. So you can have identical properties … in adjacent counties … three or four miles apart, with different inflation factors.”

Implementation Costs Likely Much Higher Than $1 Billion

Stone said the CAA’s $1 billion implementation cost estimate is likely very low, because it covers costs for assessors only – not county lawyers, controllers, tax collectors and assessment appeals boards that also would incur new costs. There would be a “monumental increase” in county costs for resolving appeals, he said, because the initiative “would be an invitation to adjudicate appeals in court rather than before the local assessment appeals board.”

Stone, a Democrat who was first elected in 1994, explained another situation that would cause major upheaval: “The ballot measure requires … the reassessment of all commercial properties to market value every three years. What happens if the Great Recession or a pandemic occurs in year number two and the property values drop by 50 percent – as they did during the Great Recession – requiring annual review of each individual property, eliminating the benefit of spreading the assessments over three years? Assessment appeals would skyrocket. At the very least, every commercial property owned prior to say 2008 – pick your date – would appeal. Why not? Much to be gained, with little risk. … We would be overwhelmed. Assessors would transfer appraisal resources from enrolling new construction and changes of ownership, where the real revenue is, to defending appeals, jeopardizing current property taxes.”

One of the biggest concerns, the CAA said, is that there aren’t enough qualified appraisers available to fill the 900 new positions that would be needed statewide to conduct the complex reassessments.

If the assessors could implement the initiative, it would result in a net revenue loss for many counties, the CAA added. Many smaller counties do not have large commercial or industrial properties that would generate additional tax revenue, but would lose revenue due to the business personal property exemption for small businesses. “The Split Roll Initiative did not consider that the funding of additional property tax administrators would actually result in a net loss for many small counties,” the CAA wrote.

Assessors additionally warned that the measure would have a negative impact on their ability to provide services to homeowners. “Without an unprecedented increase in resources, including new technology, valuation accuracy and customer service levels for all taxpayers, principally homeowners, will decline dramatically,” according to the analysis prepared for the CAA.

Legislative Analyst’s Review

During the two-hour committee hearing, the Legislative Analyst’s Office (LAO) provided lawmakers with a three-page review of the initiative that provides a broad overview. Deputy Legislative Analyst Brian Uhler testified at the hearing, and noted that the office does not express opinions on ballot measures, but is legally required to provide a review to the Legislature. When Assembly Member Kevin Kiley asked if the LAO believes the title and summary prepared by Attorney General Xavier Becerra are fair and unbiased, Uhler declined to offer an opinion.

Proponent Says Initiative Would Prompt More Tax Increases on Business Property

Proponents were represented at the hearing by former Department of Finance Director Tim Gage, now a principal with Blue Sky Consulting, and two supporters with no background in property tax issues: Tara Lynn Gray, president of the Fresno Metro Black Chamber of Commerce; and Sasha Cuttler, a nurse in the San Francisco Department of Health.

Gage said the initiative likely would trigger additional property tax increases on business properties. When the properties’ assessed values increased, he noted, so would their value-based property taxes imposed to repay local voter-approved bonds, including school bonds.

Gage’s firm recently unveiled a report that purports to detail exactly how much school districts and local governments would receive from the split-roll tax, but includes only 15 of the state’s 58 counties, all of which were projected to gain revenue. The report has been used by local governments and school districts as a campaign document to persuade local voters that their schools and government agencies would gain revenue from the measure.

In addition to being limited to a fraction of the state’s counties, the report’s analysis of the initiative’s impact on local government is flawed. While the report does provide analysis of how much revenue each jurisdiction would receive, it does not account for the business personal property tax exemption, which would result in a net property tax reduction for many rural counties.

Proponents said tax increases on commercial property will not lead to rent increases on small businesses – even those that have triple-net leases requiring them to pay property tax increases – because rents are determined by the market. If an owner faces a large property tax increase and chooses to pass it along to tenants, Gage said, “Businesses that rent from that owner will be in a position to shop around in the market.” He did not discuss the costs the business would incur to search for a new location; move equipment; update websites, letterhead, etc.; and assume new risks, including potentially losing a prime location or losing their customer base. Any new construction needed to prepare the new location for business would result in a property tax reassessment.

Long-Time Proposition 13 Critic Opposes Initiative

Perhaps the most surprising moment in the hearing came when former technology company executive Jennifer Bestor, a Menlo Park resident who has spent the last 10 years criticizing Proposition 13’s protections for residential and business properties, testified in opposition to the measure. She said her opposition is based on the fact that the initiative would remove property tax revenue from the county in which it was generated.