Consequences of dismantling prop 13

Despite surging state revenues and a multi-billion dollar budget surplus, politicians and special interests are still pushing proposals to dismantle Proposition 13 and raise property taxes.

Most recently, special interests tried pushing a ballot initiative that would create a new property tax “surcharge” to raise another $7 billion in taxes but ultimately pulled the initiative before it qualified for the November 2016 ballot. In addition, special interests have repeatedly attempted to enact a so-called “split-roll” property tax scheme in the Legislature and on the ballot that would have added another $6 billion in costs to working Californians.

These proposals would devastate California’s economy and local public services.

Significant Economic Harm

Numerous studies have found raising property taxes would hurt California’s economy by eliminating jobs and increasing the cost of living. A Pepperdine University study that examined the effects of a $6 billion split-roll property tax found the split-roll scheme would cost the California economy a total of $71.8 billion in lost output and 396,345 lost jobs over the first five years. The losses to California’s economy would be even greater in succeeding years.

Also, any measure to weaken Proposition 13 opens the door to further dismantling a constitutional protection that, since 1978, has protected homeowners, small businesses, and jobs, and provided a stable revenue source of local government.

Damaging to Small, Women, and Minority Owned Businesses

Increasing property taxes would further damage California’s already difficult business climate, especially for small businesses, whether they own property or rent. Because small businesses typically lease properties where the cost of property taxes is passed through to the tenant, employment losses would be disproportionately concentrated in small businesses.

A recent Pepperdine University study found that the impacts of a split-roll property tax would hit small businesses owned by women and minorities especially hard, as many rent their properties and the higher property taxes would fall on the backs of these small business owners.

Detrimental to Local Government Services

Increasing taxes on property would further disrupt local government finances by potentially lowering property values. A recent attack on Proposition 13 would have even funneled the new tax money to state programs, instead of local services.

Further, a split-roll property tax, which would tie commercial property taxes to the current property value – not the purchase price – would result in increased instability for local government finances, as they would become more directly susceptible to the historic bubbles in the California real estate market. As a result, local governments would have difficulty predicting future property tax income, making it more difficult to budget for the future.