It’s time to challenge Prop 13 and stop giving corporations free tax breaks
Enter Prop 13. In 1978, voters passed a constitutional amendment that enacted a variety of limitations on taxation, with a specific focus on property taxes. The law requires that property tax not exceed 1% of the value of a property, with some exceptions and limits the amount property taxes increase each year to inflation or 2%, whichever is lower. This has resulted in many property taxes being paid at lower rates than what would be paid for the market value of the property. In the case of Disney, most of their property has not officially changed hands in decades and is thus taxed based on the 1975 value of the property.
When property taxes are reduced like this, it impacts publicly funded schools (like Summit) because property taxes are a significant source of education funding, accounting for 22% of it according to the Public Policy Institute of California.
Despite this, Prop 13 has historically been popular among California’s voters. Among the most compelling arguments for it is that it allows individuals to not pay higher property tax when the value of their land increases, something that is particularly helpful for elders who might have more limited incomes and want to retain their homes.
However, Prop 13 applies to more than just individuals trying to keep their home. It also allows owners of large industrial or commercial properties (like Disney) to pay far lower tax rates than the true value of their properties. This can mean that large companies pay far less in property taxes than their small business or residential neighbors.
In fact, homeowners now have a comparatively larger share of the tax burden when compared to corporations than they did in 1975, before the passage of Prop 13. While in 1975 commercial and industrial properties paid 46.6% of California’s property tax, by 2017 they paid just 28.8% of the state’s property taxes. Given the connection between school funding and property taxes, this means they are paying far less, proportionally, to support the students of California.
Moreover, some have argued that businesses have exploited the law to pay historical tax rates even when the owner of the business seems to change. Under California law, a change in ownership is defined as transfering 50% of a property to a single entity. This means businesses can transfer less than 50% increments to multiple shell companies to avoid an official change in ownership and tax reassessment.
When considering the fact that California ranks 41st nationally in terms of education funding per student when adjusted for cost of living, it makes sense that there is a movement to change Prop 13 with respect to large businesses and industrial properties. The question becomes: how does one protect homeowners while still ensuring that large scale corporations pay their fair share to important government services like education?
Advocates have a solution: the campaign Schools and Communities First has been founded to push for a well-needed change to the law that would mean that taxes would always be based on the current, rather than the historical, value of the property for commercial and industrial properties. This continues to provide homeowners with the same protections as under Prop 13 but also remedies the significant tax burden inequality present under our current system
The initiative, numbered #19-0008, is currently gathering signatures to get on the ballot and has been endorsed by both of California’s largest teacher unions (the California Teachers Association and the California Federation of Teachers) and the California Democratic Party.
In the interests of our schools and in creating a fair system of taxation, I thus urge you to support the Schools and Communities First campaign in ensuring that large corporations pay their fair share of property tax and that our students get the education they deserve.