Efforts to Undo Prop 13 Aren’t New
There have been long been efforts to try and undo Prop 13. Prop 15 takes a ‘Frankenstein’ approach, according to one speaker at a CREW San Diego event.
“Efforts to undo Prop 13 have been tried since it passed,” said Craig Benedetto of California Strategies at a recent CREW San Diego event. The event discussed the upcoming ballot measures that would impact the commercial real estate market, and of course, Prop 15 was front-and-center. The conversation included moderator Marci Mauro of Wells Fargo Bank; Erik Bruvold with the San Diego North Economic Development Council; and Kelly Moden of Community Housing Works, in addition to Benedetto.
“This one tries to “Frankenstein” it—a measure to cobble enough votes to pass,” added Benedetto about Prop 15. It is the single largest property tax increase in history of California. Small businesses—which are most of San Diego’s businesses—will be affected, and flow down to consumer prices. It doesn’t stop at corporation’s desk. Prices will increase.” He added that the proposition requires 50% plus 1 to pass.
Most experts are concerned that this is the beginning of overturning Prop 13 completely. Prop 15, for example, originally included multifamily, but it was ultimately taken out of the proposition. “No one will be immune from this over $12B tax. It will increase prices,” added Benedetto.
Moden noted that Prop 15 will also make it even harder to get deals to pencil if property taxes increase. It is difficult to get deals to pencil out now with rising land and construction costs. This will add an additional cost, which will make deals unfeasible,” she said at the event, adding that the County Board of Supervisors is opposing the prop, and it stands to reap the additional revenue if it passes.
The current prop increases property taxes for commercial and industrial properties, but class-B and class-C retail and industrial assets are likely to see the biggest impact. “Class-B and C retail and some industrial are held by the same owner for 20 to25 years plus,” said Bruvold. Taxes on these properties are currently low but when reassessed, they will go way up. This will make rents go up for business owners.”
In addition to impacting small businesses and older assets owned by smaller mom-and-pop owners, Prop 14 also funds an expansion of the assessor’s office. “One of the biggest things it does is build capacity of the assessors’ offices. Now there will be yearly reassessments. You are building bureaucracies,” said Bruvold. Benedetto agreed, adding that the county assessor is opposed to the prop, and cited a recent study of the potential annual tax increase for DeMilles Restaurant. It would be a $43,000 annual increase per year. “That is just one example,” he said.