California Property Tax Increase Measure Goes to Voters

California Property Tax Increase Measure Goes to Voters
A property estimated at close to $4 million sits for sale in Arcadia, Calif., on May 17, 2016. (Frederic J. Brown/AFP via Getty Images)
Brad Jones

California voters will decide in November whether a proposed property tax increase will become part of the state Constitution.

ACA 11 (Assembly Constitutional Amendment 11) would generate billions of dollars of revenue for the state, provide needed protections for homeowners, and increase affordable housing, proponents say—but critics of the proposal warn it prevents parents from passing hard-earned wealth on to their children and is yet another unwanted tax increase.

Revenue generated by ACA 11—called the “The Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or National Disasters Act”—would be used to fund local governments and firefighting districts, the bill states.

The bill would remove tax breaks from the heirs of home and business property owners who are now protected from higher tax reassessments under current state law.

The proposed ballot measure sparked debate in the Assembly and Senate as both houses rushed to meet a June 25 deadline for ballot measures to be approved for the Nov. 3 election. On June 26, the Assembly voted to extend that deadline to include ACA 11 on the ballot.

“The new funding generated by ACA 11 will play a role in our state's economic recovery from the COVID-19 pandemic, with long-term revenue estimated to be over $1 billion annually,” Assemblyman Kevin Mullin (D-San Mateo) said.

Assemblyman Ken Cooley (D-Rancho Cordova) argued against the bill.

“This is a major hit upon the ability of any parents in California, who in good times and bad, have struggled to hold on to their home, paid their bills, knowing that it can go to their kids,” Cooley said.

The state Senate and Assembly both passed the constitutional amendment by a two-thirds vote, allowing Californians to decide the fate of the proposed property tax increase on the Nov. 3 ballot.

ACA 11 would close loopholes that allow out-of-state residents to avoid paying their share of taxes on vacation homes, luxury estates, and rental properties, while at the same time protecting disabled and elderly homeowners in the state, proponents say.

The amendment would limit property tax increases on seniors who change residences or downsize, the severely disabled, and victims of wildfires or natural disasters.

“ACA 11 will protect the family transfers when a family member is going to treat the new property as a primary residence. It would close the loophole for vacation homes and other uses that do not include a primary residence,” Mullin said.

“By closing those loopholes, the state will be able to generate hundreds of millions of dollars for fire protection, emergency services, other critical local programs that support the homeless and provide mental health services, or to help fund the development of new affordable housing projects throughout the state.

“ACA 11 will open up tens of thousands of new housing opportunities for renters and first-time homeowners by allowing those that qualify and would like to sell their home but can't due to being unable to afford the property taxes on a new home throughout California.”

Lasting Impact of Proposition 13

ACA 11 would change California’s property tax formula but leave the protections of Proposition 13 (Prop. 13) intact, Mullin said.

Prop. 13—the landmark ballot measure approved by 65 percent of California voters in 1978—limits the amount of property tax homeowners must pay to 1 percent of a home’s purchase price when it’s sold. It also restricts increases of that market value to a maximum 2 percent a year.

Under Prop. 13, the owner of a house or a business that sold years ago at a lower price pays much less in property taxes than the owner of a similar house or business sold at a higher price today.

Though Prop. 13 remains popular among property owners, some California politicians have blamed the measure for education cutbacks, insufficient pay for teachers, racial inequality, and the affordable housing shortage—because it limits the amount of tax revenue the government can collect.

California voters have twice modified Prop. 13, once allowing homeowners over the age of 55 to transfer the assessed value of their present home to a replacement home of equal or lesser value in the same county, and another letting eligible homeowners keep their lower tax assessment if they buy a home of equal or lower value in another county, pending approval.

Two other laws created additional mechanisms allowing parents and grandparents to transfer homes to their children or grandchildren without those homes having their property tax reassessed.

“These exclusions have been routinely exploited by wealthy individuals as a tool for many to inherit a second, third, or fourth home without that property being reassessed—in other words, inheriting those additional non-primary homes while also inheriting the original tax rate,” Mullin said.

Cooley, who opposed ACA 11, applauded current laws that allow parents to pass on wealth to their children without facing heavy tax reassessment burdens. People of his generation are “more at risk in retirement” and have lost pensions, he said, and millennials could be the first generation of Americans to earn less than their parents.

“Amidst all of these circumstances, there is one tool in the parents’ toolkit that is so simple to improve the lives of their children, and that is Prop. 13—this ability to convey your tax bases and your property to your kids at the time of your death,” Cooley said.

Californians who inherit property from their parents should pay higher taxes at reassessed rates—unless the home is the heir’s primary residence, as ACA 11 proposes, Assemblywoman Laura Friedman (D-Glendale) said.

“This is one of the reasons that wealth has consolidated in this state, why the rich are getting richer and why the poor are getting poorer,” Friedman said.

“We have the opportunity today to help flatten that out a little bit. We’re not taking anyone’s property away. We’re not stopping them from inheriting that property, but they should be paying at least their fair share. And right now, they are not paying their fair share.”

People who are already lucky enough to have been born into a family that owns property should not begrudge paying property taxes at the higher reassessed values, Friedman said.

A hardworking person who purchases a property not only must pay their share of taxes, Friedman said, but also the share for “that lucky individual who was born into that privilege and wealth.

“You’re going to pay for that portion to support the community that they don’t have to pay for, and not because they've earned it, but because they were lucky enough to be born into a family that already had it,” she said.

Sen. Jim Nielsen (R-Tehama), who was first elected to the state legislature the year Prop. 13 was passed, said he vividly recalls the tax revolt of the late 1970s, when many Californians lost their homes because they couldn’t afford to pay reassessed property taxes as housing prices skyrocketed.

He called himself a “profound supporter” of the Prop. 13 “property tax rebellion.”

“It was a frustrated response of citizens fed up with government taking their income and their properties, making it more and more of an onerous burden for them to live in California. Now that’s happened yet again today,” Nielsen said at a June 23 Senate committee hearing.

“The Prop. 13 rebellion shook the nation and has made a huge difference in keeping property in the hands of dutiful owners who sacrificed so much to build that heritage and legacy, and also to ensure that their heirs would have that opportunity.”

Just because property owners have taken advantage of Prop. 13, doesn't always mean they are rich, Nielsen said.

“That doesn't in itself mean they are wealthy and worthy of scorn,” he said.

“I would argue it’s fixing something that isn’t broke," Nielsen said, in opposing ACA 11. "It is a tax increase.”