Part Six: Why California Proposition 13 and Proposition 58 Important to Californians with Different Incomes, Backgrounds and Property Values

California Proposition 13 and Proposition 58

California Proposition 13 and Proposition 58

Everyone would like life to be forever smooth sailing… Especially in California, where the sun is typically shining most of the time, with most Californians looking to be positive and to have something to smile about every day.  However… life is not always smooth sailing, and even if the sun is shining – and California residents once again have something to worry about… sort of.  The latest political move against Proposition 13, the mega-popular tax shelter that makes avoiding property tax reassessment in CA legal for home owners and businesses,  and prevents taxation over 2% of property value – is called the “split-roll property tax initiative”, and will, if passed, remove this property tax relief from business properties.

Most likely, if the “split-roll tax” succeeds, Proposition 58 and Proposition 193 will also be under fire – i.e., threatening a popular initiative that insures home owners’ ability to keep parents property taxes upon property tax transfer, affecting parent to child transfer of a home and/or land; when inheriting property, and inheriting property taxes. It would also dilute or destroy home owners’ much cherished ability to get access to fast funds through loans to trusts, from a reliable trust lender.

This so-called “Split-Roll Measure” would, if it passes into law, destroy most Proposition 13’s tax shelter protections, such as avoiding property tax reassessment in CA, for commercial properties and industrial facilities across the state… and would raise theses business property taxes by billions annually.

Businesses would be more or less forced, by economic necessity, to pass on these increased costs to California residents. This business and industrial property tax hike would affect all of us in California. It would unfortunately increase prices incrementally on all the items we purchase day to day – i.e., gas, office supplies, groceries, alcohol,  monthly utilities, and healthcare costs.

Regrettably, these anti-Proposition 13 special interest groups are so razor-focused on eliminating Proposition 13, that they will even maintain a very badly written amateurish tax measure on the ballot as backup; in the event they fail to pass their new primary tax initiative. It’s pretty clear that all these tunnel-vision opponents to Prop 13 pushing this so-called split-roll tax measure aren’t one little bit worried about what will help regular Californians! They are apparently fixed on raising property taxes no matter what – beginning with commercial and industrial property taxes increases… flawed measures and all. And from that point, we can only make an educated guess at what their next moves will be… with respect to residential property tax hikes.

And so a new, this time different, anxiety has begun to emerge and grow… affecting large numbers of residential and business property owners, as well as renters, in the great state of California. Home owners, business property owners, industrial facilities, and even renters – are frightened, and not unreasonably so, that once this door has been opened, so to speak… to remove Proposition 13 tax relief protection from commercial and business properties – home owners are very likely next. And it wouldn’t be unreasonable or unrealistic to assume this would happen right away, if this measure passes.

Many movers and shakers in California believe this would be a likely scenario, if split-roll passes… with California property tax payers sliding down the proverbial “slippery slope” back to the bad old days before avoiding property tax reassessment in CA was possible, for a home owner or a business; before Proposition 13 property tax transfer tax relief allowed home owners to keep parents property taxes and actually transfer parents’ property taxes over to themselves, thereby avoiding property tax reassessment associated with inheriting property taxes.

Californians who are frightened of this slipper slope scenario are typically going on the assumption that once you open the door to a counter-effort, to weaken Proposition 13 protections for businesses… how are regular middle class California residents going to stop the new anti-Proposition 13 juggernaut from continuing on in the same direction, until the ability to avoid property tax reassessment has been watered down, and watered down… until you’re right back where you started.

Hence, the vocal and very motivated effort all across California to stop new measures like this, designed to destroy Proposition 13. And it looks like this type of battle will continue to be waged in this state until theses rabid, obsessive opponents to Proposition 13, and Proposition 58 and 193 either “see the light” on this issue – or are stamped out once and for all, with iron clad long-term statutes that lock down these property tax protections, and other protections for Californians as well within the Prop 13 initiative… that stretches 50 years out into the future. With no loopholes these opponents can grab onto, to water anything down.

If this new split-roll measure is defeated, Proposition 13 will need to be re-established as rock solid and rock steady, for the next 50 years, before these rabid critics will simple throw up their hands and “give up the ghost”.

Part Five: Why is Proposition 13 so Important to so Many Californians with Different Incomes & Property Values?

California Proposition 13

California Proposition 13

It was a decisive majority that voted in California Proposition 13 on June 6, 1978. The joy and relief sweeping through the state, they say, was palpable. You could cut it with a knife. The anxiety over property tax instability and arbitrarily increasing financial demands on property owners had reached a genuine tipping point by that time, and voters knew that a change was needed, and on the horizon. Instability and anxiety was about to be replaced with the ability to avoid property tax reassessment in California… and a host of other tax relief benefits.

With Howard Jarvis and his mega-motivated colleagues leading the charge, this modern day tax revolt was one of the very few in American history that wasn’t a thinly disguised “tax cut” for top conglomerates and the wealthiest Americans, falsely entitled “tax reform”. It was a genuinely revolutionary “tax reform” initiative, passed by nearly 66% of the voting public in California. Beneficiaries and heirs inheriting land and homes, and naturally inheriting property taxes, were now able to keep parents’ property taxes and avoid property tax reassessment in California.  Parent to child transfer of a house and/or land had become legal parent to child exclusion from present day property value assessment, or property tax reassessment. And the numbers added up for home owners all across California.

Both businesses and residents were pleased with the money they would be saving every year. Naturally, the wealthier the property owner the larger the savings by having the ability to avoid property tax reassessment every year, year in, year out. And most likely the stark difference between the savings experienced by families in the six-figure range, for example, and families with homes in the seven-figure range, started the ball rolling on the conspiracy theory that Proposition 13 was all about savings for the rich, and no one else.

Naturally this was, and is, a misrepresentation of the benefits all Californians enjoy from Proposition 13, and Proposition 58, tax relief.  Certainly, the wealthy were saving more, in aggregate numbers, however 2% maximum tax rate forced property taxes become predictable, and manageable, for all Californians who owned their own home. The numbers affected by property tax transfer are simply relative. The rich pay more and save more, while the middle class pays less and therefore saves a little less.

Bringing us all the way up into the present, there in now a new threat to Proposition 13, egged on by the same critics that have been spouting false conspiracy theories and rumor campaigns since Prop 13 passed in 1978, and other special interest groups. It is called a “split-roll” property tax initiative, backed by some of the most powerful public employee unions in California, including Service Employees International Union, the California Teachers Assn. and the California Federation of Teachers. And it is now threatening to limit, and destroy, various tax relief benefits for a variety of business owners.

This 2020 ballot initiative has a misleading name, which supporters and critics of Prop 13 call “The California Schools and Local Communities Funding Act of 2020” Better known as the “split-roll tax initiative”, this plan would reassess and wage a tax hike war on all commercial and industrial properties – including retail stores, manufacturing plants, and popular malls all over the state. This so-called split-roll property tax measure would also remove Proposition 13 benefits protecting farmers, and return to the hated, dreaded yearly present-day tax reassessments measured by present-day market value – targeting all agriculture-related facilities.

Supporters of Proposition 13, Proposition 58, involving parent to child property transfer; and Proposition 193, supporting grandparent to grandchild property transfer… are afraid that this new “split-roll” ballot measure is likely to open the door to unwanted special interest backed tax hikes… and create a rather negative slippery slope affect. In other words, people are frightened that once you open the bottle, you can‘t put the genie back in again!  And that all the folks who want property taxes to return to the bad old days will have a foothold again. This is what nearly ¾ of the state does not want.

Most people are hoping the majority of the state will remember the bad old days before the 1978 ballot initiative to cap property tax increases for both residential and business properties began providing the public with a sense of security and consistency, insuring that property owners would not be literally taxed out of their homes and businesses ever again.  Proposition 13 has consistently provided middle class home owners in California, of all ages, with real tax relief. However, it is true  that before this initiative was passed, many elderly and senior Californians that were living on a fixed income were actually pushed out of their homes due to out of control property tax rate hikes. And most people in California are voicing their opinions telling their representatives that they never want to see this type of tragedy ever occurring again in their state.

Part Five: California Proposition 58, How to avoid property tax reassessment on an inherited home.

Bringing us up into the present, critics such as Assemblyman  David Chiu, of the San Francisco Assembly’s housing committee, continue to ignore how wildly popular avoiding property tax reassessment is in California… and  they are still repeating the same litany that is echoed by a thin minority throughout the state, insisting that, “The inheritance tax break has exacerbated [wealth] inequality and is symbolic of that inequality. The idea of the American Dream of everyday people being able to make it is completely impacted when the haves get more, and the have-nots have no chance of benefiting from property investment windfalls.”

We hear this litany all the time… indicating that wealthy Californians are the only people in the state that benefit from the Prop 13 tax break, avoiding property tax reassessment.

This misinformation is, of course, nonsense…. twisting the truth to fit a certain point of view; which in itself is, essentially, untrue on the face of it. All those people Mr. Chiu is actually referring to are renters not owners… and yet – without knowing it he is actually making the point that needs to be made – that, bottom line, most landlords are able to save on property taxes, thanks to Prop 13, and in turn this allows them to keep rents low for renters. However, that’s the part of the equation that folks like Mr. Chiu forget!

And if indeed property owners, i.e., landlords, throughout California, did not have the Proposition 13 tax break, obviously they would be motivated to raise their rents. So, in fact, without knowing it, Mr. Chiu and others voicing the same opinions are surfacing the critical point that proponents of these tax shelters have been trying to make – since you could avoid property tax reassessment with Proposition 13, after it was passed overwhelmingly by nearly 66% by voters in 1978, and subsequently, in 1986, when the popular Proposition 58 parent to child transfer of property taxes passed, providing parent to child exclusion from property tax reassessment; plus Proposition 193, a constitutional amendment approved by voters on March 27, 1996, which allows grandparents to transfer property to grandchildren – with the ability to avoid property tax reassessment all on their own as grandparents and grandchildren.

The main point being, it’s not only property owners that are benefiting financially from Proposition 13 tax relief – we have also found Prop 13 and Proposition 58 benefits strengthening family bonding and overall net worth, providing an enormous blanket of peace of mind for home owners of all stripes, cultures, ages and incomes…. as well as those expecting to inherit CA property, or looking to become happy home owners. Moreover, renters are paying far less in rent, thanks to the property owners they pay rent to being able to continue avoiding property tax reassessment, and therefore spending less every year on property taxes that they would otherwise be passing on to their renters. Clearly, this savings trickles down from owner to renter for thousands of renters in California. Whether the David Chiu’s of this world care to admit it, or not.

Part Three: Why is Proposition 13 & Prop 58, Avoiding Property Tax Reassessment & Property Tax Transfer Relief, Attractive to so Many Californians?

There was so much instability within the real estate tax system in California before Proposition 13 and Proposition 58, that it had become downright dangerous and unhealthy – with severe anxiety spreading throughout the state, with home owners worrying constantly about losing their home, and with some people actually losing their beloved home. This was pre-1978, before Proposition 13 and Proposition 58 revised tax law so that Californians can keep parents property taxes.

Consider if this was you.  What do you do if state tax collectors put a lien on your home, or actually take your home? Your life spirals downward, you go and live with relatives, which is typically not an attractive direction to go in – or, worse, you become homeless… or reside in some other circumstances that are not to your liking.

This property tax relief called Proposition 13 finally brought a close to the chronic instability, fear and terrible yearly financial pressure on residential and commercial property owners throughout the state that was causing California property owners to literally buckle under. It was affecting peoples’ health… especially older folks – as severe stress tends to be more difficult to handle  as people grow older. The most obvious financial benefit Californians could see, and experience right away, was “property tax transfer” – that is, consistently eliminating property tax increases from present-value property tax reassessment.

All of a sudden, Californians had (and still have) a reliable and predictable system in place, serving them not the tax collectors. Californians finally had the ability to avoid present-day property   tax reassessment, directly after Proposition 13 was in effect. And   a decade later after Proposition 58 and Proposition 193 came on board, property owners had a tax shelter with Proposition 58 – protecting property transfers, for parent to child transfer, with parent to child exclusion of tax reassessment… as well as grandparent to grandchild exclusion  of tax reassessment from Proposition 193.  All of these tax benefits were suddenly in effect for all Californians – regardless of income, age or total property value.

As we all know,  with these remarkable changes in effect, Californians can keep parents property taxes, and can transfer parents property taxes when inheriting property of any type  (commercial or residential) or value – legally avoiding property tax reassessment… which is where all the trouble stemmed from in the first place.

As residents recall, you could actually see the relief in peoples’ faces, all over California, from Los Angeles up to San Francisco. Even renters, who don’t own property, noticed that their rents remained low – and can see the same difference now, 24 years later – due to Proposition 13 relieving landlords of tax increases that would otherwise motivate them to raise rents on their tenants.

Part Two: Why are Proposition 13 & Prop 58 Critical to Californians?

Before Proposition 13 was passed by voters on June 6, 1978, average tax rates in California were close to 3% of market value, without any guardrails as far as property tax or property value assessments were concerned.  This is why Prop 13 & Prop 58 are critical to Californians.

In fact, right before Proposition 13 was passed, things has gotten so bad that there were homes being reassessed by fifty percent… to a hundred percent from one year to the next, literally within a 12-month time-frame. Home owners’ tax liabilities were going through the roof! So much so, that many middle and even upper middle class property owners were actually unable to pay the tax hit on their home consistently every year.

Folks who resided in California at that time, and still live in California to this day, tell us that you could see the anxiety and fear etched into the faces of property owners all across the state. There was no predictability, regarding property taxes, from year to year. People never knew what increases would be eating into them from year to year.

There was a point, before 1978, when these tax-increase issues were so severe and problematic, that over 400,000 home owners in LA County were actually not able to pay their property taxes due to particularly egregious tax increases. With many people coming very close to losing their homes, and some literally losing their primary residence where they have lived for years; many for decades, such as elderly Californians, who were particularly badly affected.

Many seniors were free of mortgage debt, and yet were forced out of their home because they couldn’t afford to pay their property tax… and many became literally sick with anxiety and worry over the fear of losing their home.

Millions of Californians were on the edge of that cliff, facing the catastrophic loss of their home to the taxman. It was around that time, in the late 1970s, when things had gotten so bad that home owners were urgently looking around for some sort of solution to all this instability and fear that was basically ruining their lives… when a knight in shining armor appeared… and all he needed to fit the mold of hero was the white horse. This man breezed past the taxman, refusing to be intimidated, as he gathered support for a solution to this disastrous situation – and assembled over one and a half million signatures on a petition.

That knight in shining armor was Howard Jarvis who, with his Taxpayer’s Association, helped generate literally hundreds of thousands of signatures, and qualified for a statewide initiative that would finally end “excessive taxation” and would finally provide an initiative to create security and predictability for California home owners. And that initiative was called California Proposition 13, which remains vastly popular across the state, to this day.

Interestingly enough, Prop 13 has also spawned the wildly popular home & land transfer initiative Proposition 58, making parent to child transfer of property more affordable by avoiding  property tax reassessment; i.e., parent to child exclusion; with respect to  property tax transfer – allowing adult children/beneficiaries to transfer parents property taxes.  In other words, to keep parents property taxes when inheriting property taxes associated with home or land transfer, often as an inheritance.

All which has, in turn, spawned an extremely successful yet small niche trust loan services industry in California, furnishing loans to trusts, specifically loans to irrevocable trusts… spearheaded by trust loan industry leader Commercial Loan Corporation, a trust lender of wide renowned in both southern and northern California. The point being, that the Proposition 59 & Prop 13 initiatives, as well as trust loan services, have all revolutionized residential and commercial real estate in California, and residents will fight hard to maintain that status quo. Because  Prop 13 & Prop 58 are critical to Californians.  Now that they have it, they won’t want to live without it.

It is just unfortunate that the rest of America can’t also enjoy the tax relief benefits stemming from these property tax initiatives  and, ultimately, from California Proposition 13 itself.