The influential California Association of Realtors is launching a signature drive for a November 2018 ballot measure that would greatly expand the ability of Californians who are at least 55 years old and disabled people to maintain their low-tax assessments even if they move to other counties or purchase more expensive new homes.

Prop. 13 requires counties to tax properties at 1 percent of their value (plus bonds and other special assessments), which is established at the time of sale. The owners maintain that assessment even if values increase, as they typically do in California. The proposition limits tax hikes to no more than 2 percent a year. Prop. 13 passed overwhelmingly because many people – especially seniors – were being taxed out of their homes as assessments soared during a real-estate boom.

Under current rules, people 55 and older may keep their low assessments if they move within the same county or within one of 11 counties that accept these transfers. They may do so only once in a lifetime. It enables retired people, for instance, to downsize from a big family house to a condominium without paying a stiff tax penalty.

For example, if one purchased a home in 2008 for $350,000 and that home is now worth $750,000, they may continue paying taxes at the lower assessed value even after they sell the home and purchase a smaller one. The valuation goes with them. But the newly purchased property must have a market value the same or lower than the house that has been sold.

The Realtors’ proposal would, for seniors and the disabled, tie the assessed value of any newly purchased home to the assessed value of the old home. They would be free to take that assessment with them to any of the state’s 58 counties. They could carry it with them as many times as they choose. The reduced assessments would apply even for people who purchase home with market values above the ones that they sold.

As the nonpartisan Legislative Analyst’s Office explains, if the new and prior homes have the same market values (based on sales and purchase prices), the new tax valuation would be the same as the old one. A fairly complex formula would determine the tax rate for purchases that were either higher or lower than the sales price of the prior home.

The initiative addresses a problem faced by many empty-nesters. They are living in large homes where they raised their families and would like to downsize – but to do so would mean a huge tax hit given that their new tax rate would be tied to the purchase price of the new property. In the preponderance of situations, the new purchase price for even a smaller house would be far higher than the price that the seniors paid for the homes where they currently live.

The Orange County Register reports that, if passed, the initiative could spur an additional 40,000 home sales a year. Supporters say that could ease up tight housing markets, but foes argue that the Realtors have an interest in spurring more home sales. County governments – backed by LAO projections – say that it eventually will cost them as much as much as $1 billion a year.

“By further reducing the increase in property taxes that typically accompanies home purchases by older homeowners, the measure would reduce property tax revenues for local governments,” according to that LAO analysis. “Additional property taxes created by an increase in home sales would partially offset those losses, but on net property taxes would decrease.”

The Howard Jarvis Taxpayers Association, which defends the legacy of Prop. 13, disputes the idea of large tax losses, given that younger couples would move in to the homes that older people sell, and they would pay property taxes based on the new market value. In other words, an older couple will sell a house and keep their lower tax rate.

“We believe upward portability makes a lot of sense especially as property values across California continue to rebound,” said HJTA president Jon Coupal in a statement. The statement says he believes the measure would “help California alleviate its current housing crisis by removing a financial barrier that keeps many older homeowners from selling their homes, and many millennials from entering the housing market.”

The Realtors’ association had submitted three different potential measures, including one that would expand portability for people of all ages. But the final measure applies only to seniors and disabled persons. As the saying goes, the best defense is a good offense. Supporters of Prop. 13 have learned that the best way to protect it might be by trying to expand it.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

Could felons soon vote from jail?

Good morning. So close to Friday!

All eyes are on Jerry Brown as he continues to decide the fate of many, many bills. In fact, heightening the stakes in the criminal justice debate roiling the country at large, Brown could soon greenlight a law that would allow some state felons to vote from jail.

California has wound up in the middle of the pack on state laws around criminals and voting rights.

CalWatchdog has more.

In other news:

• “Two women have been arrested on charges of holding four brothers captive at an illegal marijuana farm in Northern California and forcing them to work there for six months, police said Wednesday.” The San Jose Mercury News/AP have more.

• “Tehama County sheriff’s detectives investigated 10 murders in 2014 and 2015 — twice as many as the three previous years combined. ‘Our last four homicides were all in what you would call Prop. 215 (marijuana grows),’ said Sheriff Dave Hencratt, referring to large grows under the state’s medical marijuana law.” The Redding Record Searchlight has more.

• “Air quality regulators are considering seeking an increase in vehicle registration fees for millions of Southern California drivers to help pay for smog reduction programs,” reports the Los Angeles Times.

• Almost 40 years after California voters passed Proposition 13 to rein in property tax increases, available data shows that wealthy Californians have benefited the most, according to a new report from the state Legislative Analyst’s Office. 

Legislature:

• Gone ’til December. 

Gov. Brown:

• No public events announced.

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New follower: @CasmirNmekam

But the way the questions were asked must be considered when weighing the results.

The idea of extending Proposition 30 is becoming more practical than theoretical with the submission of two separate ballot measures to achieve that goal. One measure, filed chiefly by the California Teachers Association, would extend Prop. 30 for 12 years. The second measure filed by the California Hospitals Association, a health care union and a children’s advocacy group, would make the Prop. 30 taxes permanent.

Voters Divided

The voters appear divided on extending Prop. 30 with 49 percent in favor of extension and 46 percent opposed. However, those favoring the extension drop to 32 percent if the taxes are made permanent.

One odd result from the poll was the great support for the Prop. 30 extension in the San Francisco Bay Area (63 percent) and much less support in the Central Valley (50 percent); odd, because this tax is centered on the wealthy, those with incomes of $250,000 and more. There are many more high-end taxpayers in the Bay Area than the Central Valley.

However, the way the question was asked may have something to do with this disparity. The question described the Proposition 30 tax that exists today. Poll respondents were asked if the taxes on incomes over $250,000 and the quarter cent sales tax should be extended. But, the quarter cent sales tax portion of the Prop. 30 tax measure is not included in either of the extension plans that were filed.

Could Central Valley voters have focused on the sales tax piece and would their answers be different if they knew the extension only affected high-end income taxpayers?

Split-roll property tax

Once again, PPIC asked about splitting the property tax roll under Proposition 13 treating commercial property differently than residential property by taxing commercial property according to current market value. Likely voters approved of the idea by 55 percent, with 39 percent opposed.

But this basic question doesn’t inform potential voters of consequences related to this issue. There was no effort to deal with either the potential positives or negatives of changing the property tax system. Those issues will certainly be aired during an expensive campaign over a split roll and undoubtedly would lead to different results than the poll currently reflects.

Two other taxes that are being discussed received quite different results. An oil extraction tax found 49 percent support with likely voters; a cigarette tax was supported by 66 percent of likely voters.

There could be a lot of money spent in a campaign opposed to these taxes and a fair amount of change in support. However, looking at all the tax measures at this moment in time, if the old rule were applied that an initiative needs to have at least 60 percent support in early polls to have a fighting chance at passing, then only the cigarette tax looks possible at this time.

Of course, if the ballot is full of tax proposals the old rules may not apply.

“We’re here to talk about SCA 5, new legislation that will finally reform our commercial property tax system and make it fair,” said Sen. Mitchell, during the announcement of the new legislation. “We have large corporations and wealthy commercial property investors that have used loopholes in the law to avoid paying their fair share. We have large, multi-billion dollar corporations that actually have a competitive advantage over smaller start-ups simply based on when a property was purchased. In short, we have a few businesses that are benefitting from far lower taxes than their neighbors and competitors. That’s what this legislation is all about.”

The bill authors stressed that SCA 5 “would finally make California’s property tax code fair by assessing commercial and industrial properties at their market value, after a phase-in period.” They also stated the legislation would “provide significant tax relief for businesses, protect homeowners and renters from any changes to their property tax status, and create strict new accountability measures for new revenues.”

“This legislation will address flaws in Prop. 13 that have allowed a minority group of wealthy corporations and commercial property owners to dramatically lower their tax bills and shift that responsibility onto homeowners and renters,” said Senator Hancock in a prepared statement. “Our homeowners are now being asked to pay the vast majority – 72 percent – of property taxes, while the commercial side pays only 28 percent. In 1978 when Prop. 13 passed, each paid about 50 percent. That’s not fair, and it has strained the community services our residents rely on.”

Opposition to SCA 5

Other legislators are not so impressed.

“I am disappointed, but not surprised, that the majority party would introduce legislation to weaken Prop. 13. This assault on California’s most important taxpayer protection measure not only threatens to raise taxes on struggling small businesses, but the net effect would be higher prices for consumers and fewer jobs for hardworking families,” Assemblywoman Young Kim, R-Fullerton, said in a statement.

Senate Republican Leader Bob Huff, R-San Dimas, echoed the sentiment in a release:

“There will be a ripple effect. Small businesses will be hit hard by this tax increase. They may pass on the cost to California families or take the loss and see if they can survive.

 

“What California families need are good paying jobs, not new taxes on small businesses. Increasing taxes on employers by $9 billion dollars annually will mean less money to hire and retain workers. Taxing small businesses will not raise anyone’s wages, will increase consumer costs, and is likely to drive businesses out of the state.”

Teresa Casazza, president of the California Taxpayers Association and co-chair of Californians to Stop Higher Property Taxes, said in a statement, “SCA 5 is an attack on property owners, and just by being introduced it sends a damaging signal to anyone thinking of starting a business in or moving a business to California. Lawmakers introduced more than $132 billion in new taxes and fees in the current legislative session and SCA 5 would only add to that unfathomable number.”

Poll results on a split-roll tax initiative

In May, the Public Policy Institute of California released survey results regarding the issue of changing Prop. 13 and moving towards a “split-roll” tax on property, defined as “taxing commercial properties according to their market value while leaving limits on residential property taxes intact.” As Joel Fox noted in a previous CalWatchdog story, “50 percent of likely voters favored the proposal while 44 percent opposed.”

A different poll from the California Business Roundtable released in June revealed that over 72 percent of all Californians would approve Prop. 13 in its totality if it were to be voted on again. Only 21 percent of the respondents were interested in changing to a split-roll tax on property.

SCA 5 requires a two-thirds majority vote in both legislative houses before it can be placed on the 2016 ballot. Two split-roll ballot initiatives have been voted on in the state of California — Prop. 8 in 1978 and Prop. 167 in 1992 — but both propositions failed.

The legislation has since been referred to the Senate Governance and Finance Committee.

Photo credit: 401kcalculator.org

Two polls were issued last week, and while quite different in the territory they covered, both contained one question that examined the same issue – a split-roll property tax. In one way the results on that one question were quite different. In another way they reflected a probable similar outcome — altering the property tax system will be a difficult task.

In the Public Policy Institute of California poll, which was quite extensive and touched on many issues, the split-roll question (taxing commercial property differently than residential property) came within a series of questions dealing with state revenue and other potential tax increase proposals.

PPIC asked the question this way:

Under Proposition 13, residential and commercial property taxes are both strictly limited. What do you think about having commercial properties taxed according to their current market value? Do you favor or oppose this proposal?

The response: 50 percent of likely voters favored the proposal while 44 percent opposed.

The California Business Roundtable revealed results of a poll conducted for the organization by M4 Strategies. The M4 Strategies survey using mobile phones and online polling was much shorter and asked respondents to read the following pro/con arguments and register their support:

We should change our property tax policy and tax commercial property based on the current market value of the land because it will ensure businesses pay their fair share and generate $6 to $10 billion in new revenue for state and local government, including schools.

We first should focus on closing loopholes in out property tax law before raising property taxes on every small business in California. Closing just the loopholes will generate $70 million in new revenue for the state and California schools, but won’t drag down the state’s rebounding economy and won’t hurt small businesses and the thousands of jobs they create.

The response: 21.4 percent favored the first answer in supporting a split roll; 63 percent agreed with the second answer opposing a split roll.

The PPIC poll question suggested a close contest on the measure; the M4 explanations produced a one-sided result.

There is not much context to the PPIC question. It doesn’t suggest how much money a change in the property tax system would bring in; nor did it raise any issues about effects on the economy and jobs.

The M4 statement focuses on small businesses exclusively in the con argument, no mention of big business or even using the term “commercial property” in painting a negative picture.

While a campaign for and against a split roll would flesh out arguments for the voters, there is something to be taken from these two polls that seem to show different results. While the Roundtable/M4 poll indicates that a split-roll initiative will face daunting odds, the PPIC poll also indicates it would be difficult to pass a split roll measure.

Most experts agree that an initiative that doesn’t have 60 percent support well before a campaign gets started would face long odds. Put into the equation the massive campaign that would be unleashed against a split roll initiative and that would only increase those long odds.

PPIC notes that the 50 percent mark on the side of reassessing commercial property is the lowest a PPIC poll has seen on this issue. In fact, the number dropped from 54 percent support just last January.

In summing up the results on all the tax issues tested in his poll, Mark Baldassare, pollster and PPIC president said, “Most efforts to make changes to our state’s tax system face difficult hurdles even in the favorable climate of an improving economy.”

While the numbers in both polls are many percentage points apart they both indicate the same thing – a hard road for a split roll.

The PPIC poll can be found here. http://www.ppic.org/content/pubs/survey/S_515MBS.pdf

The Business Roundtable/M4 Strategies poll is here. http://www.cbrt.org/wp-content/uploads/2015/06/CaliforniaStatewideProp13.Topline.pdf

By Katy Grimes

SACRAMENTO — The Senate Governance and Finance Committee on Wednesday passed six constitutional amendments to make it easier for local voters to pass various tax increases on property owners.

“California didn’t knowingly vote for centralized power,” said Sen. Lois Wolk, D-Davis, speaking about the passage of Proposition 13 in 1978, as she opened the committee hearing on the bills. Wolk, the committee chairwoman, echoed longtime critics of Prop. 13 that it reduced the ability of local governments to increase taxes, requiring the state government to step in and fund programs.

She said Prop. 13 has been around for more than 30 years, but it was time to change the law which has held property taxes in check since 1978. “Voters today ought to have a say,” she said.

Prop. 13 limited property taxes to 1 percent of the property’s assessed value, plus annual increases of up to 2 percent. When a property changes ownership, the new owner pays 1 percent of the newly assessed value.

Despite that, California by no means is a low-property tax state; it’s ranked 14th highest nationally, according to Jon Coupal, President of the Howard Jarvis Taxpayers Association.

Parcel taxes

Senate Constitutional Amendment 3 by Sen. Mark Leno, D-San Francisco, would lower the threshold for school district per-parcel property taxes from two-thirds to 55 percent. “SCA 3 provides parents, teachers and school districts with more local control and much needed flexibility in raising local education funding,” Leno said at the hearing. “The current two-thirds vote requirements for passage of local parcel tax allows a relatively small minority of voters to block a local education funding proposal that may have support of more than a majority of voters.”

All of the support for Leno’s bill came from other government agencies, associations, schools or public employee unions.

However, Leno did not address the influx of $7 billion in new tax revenue from Proposition 30, passed by voters in November, and sold as the fix-all to dwindling state education funds. Prop. 30 increased the income tax on individuals with income of $250,000 or more, and upped the sales tax on everybody in the state.

“We live in a state with the highest marginal tax rate, the highest sales tax, and we are not a low property tax state,” HJTA’s President Jon Coupal told the committee. 

Coupal said SCA 3 is a direct assault on Prop. 13 because it makes it easier to increase property taxes above Prop. 13’s cap of 1 percent.

In a recent poll by the HJTA, more than 53 percent of voters oppose the parcel property tax vote change, and only 35 percent support it. Approximately 11 percent were undecided.

“Moreover, a majority of those against don’t just oppose the change — they oppose it strongly. The intensity of opposition to lowering the voting threshold was nearly double what it was for those in support,” the HJTA reported. “Forty percent of voters ‘definitely’ oppose the idea of lowering the vote requirement, while just 21 percent say they would definitely support the change.”

The HJTA also found that opposition to changing the voting threshold was broad-based: 68 percent of Republicans oppose it, along with nearly 53 percent of Decline-to-State voters, while 44 percent of Democrats also oppose it. Fifty percent of Democrat women also oppose the change.

“This poll mirrors what we’ve been hearing from our members who are Democrats, Republicans and Independents. They oppose any further money grab from politicians — whether from Sacramento or the local level — and they oppose it strongly,” said Coupal. “Prop. 13 was established to protect homeowners from outrageous property tax increases, and that includes parcel taxes, which local politicians now want to expand to pay for their local spending.”

“The tax-and-spend lobby has been emboldened by the passage of Prop. 30 and it’s clear that the $50 billion tax hike didn’t sate their thirst for more money,” said Coupal.

In the survey, the question was posed to voters: “Proposition 13 limits California property taxes to one percent of the taxable value of property. Parcel taxes are property taxes above the regular one percent tax and, under Proposition 13, these parcel taxes require a two-thirds vote of local voters to be passed into law. Do you support or oppose lowering the vote requirement for local parcel taxes from two-thirds to 55 percent?”

Taxes, taxes, taxes

In addition to Leno’s SCA 3, HJTA lists the following bills as major threats to property owners. As with SCA 3, the bills were passed by the Senate Governance and Finance Committee Wednesday:

* SCA 4, Sen. Carol Liu, D-La Canada, and SCA 8, Sen. Ellen Corbett, D-San Leandro: “Lowers the threshold for the imposition, extension or increase of local transportation special taxes from the Proposition 13-mandated two-thirds vote to 55%. Most transportation special tax increases consist of very regressive sales tax hikes. These add to the burden of California taxpayers who already pay the highest state sales tax in the nation.”

* SCA 7, Sen. Lois Wolk, D-Davis: “Lowers the threshold from two-thirds to 55% in order to approve a bond to fund public library facilities. Lowering the threshold for school facilities to 55% has already resulted in billions of dollars of additional property tax payments that otherwise would not have been approved by voters.”

* Senate Constitutional Amendment 9, Sen. Ellen Corbett, D—San Leandro: Lowers the threshold from two-thirds to 55% to increase special taxes to fund community and economic development projects.

* SCA 11, Sen. Loni Hancock, D-Berkeley: “Lowers the threshold to 55% to allow for voters representing ANY local government entity to approve a special tax for ANY purpose. This is far and away the broadest application, and thus the most egregious, of these constitutional amendments.”

By Wayne Lusvardi

Since the election, several acquaintances of mine have gone out of their way to taunt me about the emergence of the Democratic supermajority in the California Legislature. I have listened respectfully but sadly.  Achieving a supermajority seems like a collective psychological defense mechanism that denies the obvious reality at hand. The following is my considered response.

Reality is something you can’t wish away or vote out of power.  California’s new Democratic Party supermajority in the Legislature may delude itself into believing it can now legislate away municipal insolvencies or unmet pension liabilities.

The Democrats may have vanquished Republicans in California.  But they have not vanquished reality. The unelected California “Reality” Party has a way of eventually getting its revenge.

Reality of Slow Growth

California boasts it has the best weather in the country, a diverse economy and the ninth largest Gross Domestic Product in the world.  But this covers up the economic reality lurking below its high total GDP ranking.  Since 2002, California’s recent population growth of 1 percent per year has lagged behind U.S. population growth.

California may have 12 percent of the U.S. population, but it still has only 13.3 percent of national GDP.  As of 2010, California ranked 12th among the states in GDP per capita, at $51,914.  That’s not great shakes to gloat about, despite all the hype about having the top total GDP due to large population. And California’s high cost of living makes the comparison even worse.

Let’s take out federal, state and local government spending from the state GDP to isolate private GDP growth.  This way, the infusion of federal stimulus funds from 2009 to 2011 will not distort the results.  According to the U.S. Bureau of Economic Analysis, California has had a 1.94 percent per year Real GDP growth rate from 2002 to 2011.

This is growth. But it is slow growth. Most economists say economic recoveries need annual growth rates of 4 to 5 percent per year.

The needed annual return on CalPERS pension investments is 7.5 percent per year.  But CalPERS’ actual return for the 2011-12 fiscal year was 1 percent.  Money inflation has run 2.58 percent per year from 2002 to 2012.

Conversely, state and local government debt has increased from 15.1 percent of state GDP in 2002 to 20.02 percent in 2012.  Overall state and local government spending — not to be confused with the state general fund budget — has remained mostly flat from 2002 to 2012. California has been living on a credit card of bubbles, bonds and bailouts.

But the problem is not only “structural” budget deficits or debt as much as it is “structural” slow growth. This anemic growth is insufficient to address the rapidly approaching $884 billion unfunded pension liability wave of debt.

Reality and Unreality of a Split Property Tax Roll

The only political response to slow growth has been for the Party of Government to protect state and local governments, not businesses.  Now the Democratic supermajority in the Legislature is rumored to have its eyes on eliminating Proposition 13 for commercial property taxation, which would create a “split roll” property tax.

A split residential-commercial property tax is based on a misperception that tax reassessments are not current.  The belief is that significant tax revenues are being lost.

But what Prop. 13 really does is serve as a circuit breaker so that taxes don’t go up or down too far and too fast. If it had not been for Prop. 13, local government property tax revenues would have been in free fall after the Mortgage Market Meltdown in late 2008.

Once commercial property reassessments go back to being done annually, instead of upon re-sale of a property, the dependability of the state’s property tax revenues will be much more unpredictable for local governments.

Removing Prop. 13 for commercial properties would backfire because small businesses comprise 97 percent of total firms in California (857,167 small firms out of 878,120 total firms). A split commercial-residential property tax roll would likely worsen the slow growth problem. A reputable 2008 study indicated that the effects of a split-roll property tax would be:

* Higher rents paid by families and small businesses;

* Reduced investment and 152,400 fewer jobs;

* Reduced wages (-0.4 percent);

* Increased consumer prices;

* Out-migration of 48,700 families (-$7.3 billion GDP);

* Lower return on capital investment of 0.7 percent;

* Lower net private investment of $2 billion annually.

Election Reality Lasted Only Two Days

Desperate groups do desperate and sometimes even suicidal things. And California’s Government Class is in a full panic mode that its promised pensions and entitlements are not based in reality.

There are few ways to reason with desperate people. They want to impose more taxes on everything to save their pensions. They believe that their new supermajority lets them wish reality away and that tax increases will cure everything.  Eliminating commercial Prop.13 is just a beach head for ridding the state of residential Prop. 13 altogether.

In his essay “How to Build a Universe That Doesn’t Fall Apart Two Days Later,” Orange County writer Philip K. Dick wrote: “Reality is that which, when you stop believing in it, doesn’t go away.”

California’s election pseudo-reality didn’t last much past two days. California’s private sector middle class may flee, but reality isn’t going anywhere.

By Wayne Lusvardi

There is a big elephant in the room when it comes to a conversation about getting rid of Proposition 13, the 1978 tax limitation measure, by instituting a “split roll.” Under such a change, business property would be taxed at higher rates than residences.

The elephant in the room is that it is not big business that mainly would get socked with higher taxes, but the 857,167 small businesses, which represent 97 percent of the total of 878,129 businesses in California.

Those advocates for ending Prop. 13 for commercial properties say it is big business that is not paying its fair share of taxes.  But the owners of large commercial properties — shopping centers, recreational theme parks like Disneyland, and large Class A apartment complexes — would just pass higher rents through to tenants, who in turn would raise prices on goods and services.

Property owners would also pass through higher property taxes to tenants when leases are renegotiated. This is perhaps why the Dataquick real estate information service reports that in the First Quarter of 2012 “the only real positive seen in the retail sector is that the triple net or absolute net, single tenant, long corporate-backed leased property, with investment grade tenants continues to sell briskly.”

Owners of small businesses would have to suck up the higher taxes.  And it is those small commercial properties that have been most affected by the economic recession.

Proposition

The proponents of Ballot Initiative No. 1560 to end Prop. 13 for commercial properties claim it would generate $4 billion in new tax revenues. That would be $4,555 per year added tax burden on average for the 857,167 small businesses in California. That would equate to an average increase of $455,000 in assessed value for each small commercial property.

According to data from a U.S. Small Business Administration study, 74 percent of all small business loans in California in 2010 — or 587,225 loans — were for $100,000 or less.

Eighty-three percent,

Of 659,617 loans made by Wells Fargo Bank as of June 2010, 547,727 were “micro loans” of less than $100,000. And the average micro loan averaged just $17,335.  Most of these “micro” loans were not loans backed by the Small Business Administration.  This indicates that a preponderance of small businesses with bank loans could not easily absorb an increase of property taxes of $4,555 per year.

Wells Fargo Bank Small Business Loan Data 2010

And the actual added tax burden on small businesses is bound to be much higher than $4,555 per year. That is because about only about 20 percent of all commercial properties would actually have their taxes raised if Prop. 13 were ended.

Change of ownership

Most commercial properties have changed ownership since 1993 and have been reassessed at close to full market price.  The median sales year for most commercial properties is 1993.  It is those properties with old assessments frozen at pre-1993 base values that are going to end up paying the bulk of the $4 billion in added taxes per year.  And by and large, those properties with old assessments are small commercial properties with gross leases or owned by mom and pop business proprietors.

In a “gross lease,” the landowner pays the property taxes.  In a “net lease.” the tenant typically pays the property taxes.

Let’s assume 50 percent of all commercial properties are going to roughly end up paying 80 percent of the added taxes. Consequently, small business properties with old assessments roughly would have their taxes increased by $7,466 per year. Once again, small businesses with low profit margins easily eroded by economic adversity are not going to be able to easily absorb that magnitude of a tax increase.

Larger commercial properties with net leases typically have caps on the amount taxes and other expenses that can be passed through to the tenant. So the landowner, not the tenants, will be socked with more taxes on commercial properties.  Higher property taxes won’t be able to be passed through to commercial tenants until their lease is renewed for larger commercial properties.

The reason the public can’t seem to see the proverbial “elephant in the room” when it comes to ending Prop. 13 for commercial properties is that it is a midget elephant symbolic of a small businessperson. And for the little man, who speaks truth to those in power?