PART ONE: Coronavirus Crisis in California Motivating State Politicians to Push Harder for “Split-Roll” Property Tax

California Property Taxes

California Property Taxes

The Coronavirus crisis is having a profound effect on various social-economic facets in California, however we will be focusing to a large degree on the real estate market, residential and commercial property issues, and property tax relief.

Moreover, the Coronavirus Pandemic has also apparently infused new support for the Split-Roll property tax in California, to pursue what would without question (if passed) be a “Pyrrhic victory”.  For those of you who might not know what that means, it’s a victory that results in such devastation to the so-called “victor” that the outcome may as well be an actual defeat! Named after King Pyrrhus of Epirus, his army suffered irreplaceable casualties in defeating the Romans at the Battle of Heraclea, in 280 BC.

At any rate, if this misguided property tax measure wins by vote in November at the ballot, many politicians and newspaper editors falsely believe that this revision to the commercial property tax code will “raise billions of dollars for cash-strapped schools and California counties”… with no negative downside. 

Now there is where they are taking the wrong turn in the road.  They even have California Secretary of State Alex Padilla drinking the Cool-Aid, and  taking a stand as primary cheerleader for this tax on middle class small business property owners, modest landlords, and so on. 

Yes, some large cash-rich corporations and wealthy business property owners and landlords will be impacted, of course.  But the critics of Proposition 13 and Proposition 58 tax relief still are continuously attempting to convince  all of us that everyone affected by a business or commercial property tax will be super rich, and therefore it won’t really matter.  

Not so. Not even close to being so.  Sure, a Split-Roll property tax will affect some wealthy commercial property owners… but many  commercial properties are owned by middle class landlords, or even upper middle class commercial property owners basically leveraged to the hilt.  But wealthy?  No.  

In fact, many of these property owners and landlords are just “getting by” – and a property tax like the one these anti property tax relief politicos and newspaper editors want to impose on commercial property owners with the falsely named “Proposition 13” property tax (“coincidentally” with the same title as the 1978  genuine Proposition 13 tax relief measure… simply to confuse voters) would surely serve to destroy hundreds if not thousands of these modest or small business property owners.  With the end result being widespread foreclosure and bankruptcy, obviously.

Not to mention business tenants having to deal with increased rents they will no longer be able to afford… and so all of these goods and services from one end of California to the other will increase virtually overnight!  And we’ll discuss these disastrous side effects later on in this six-part article.

Interestingly enough, none of these critics of the authentic 1978 Proposition 13 tax relief measure acknowledge that any of these negative and dangerous outcomes are a realistic possibility.  They dance around the fact that small businesses and most landlords  in California will not be able to absorb immediate rent increases due to property tax reassessment. 

On the other hand, if small businesses in California aren’t able to raise prices – they will most likely be forced to cut internal costs, which will include cutting employee compensation and benefits, and/or laying off employees.  So we’ll have even more people out of work.  And some of these small businesses, and perhaps larger businesses as well, will have to relocate, or worse case scenario will go completely out of business – creating an oversupply of commercial space AND higher vacancy rates, which would cause commercial property rents and values to actually decline.  Yet another hidden problem. 

This will end up decreasing  job opportunities in California, due to decreased economic activity overall throughout the state. 

This is the guaranteed downside of the Split-Roll tax that, believe it or not, Secretary of State Padilla and other political critics of property tax relief in California are not looking at.  They would do well to start looking… or they are going to step into a disastrous quagmire of their own making, if this property tax actually passes in November. 

Another key point to consider, while we’re on the subject.  Even though politicians on the state and local level claim that a “revised  Prop 13 with Split-Roll tax” includes “a small-business exemption” – it would be advisable to not buy into these vague promises from local politicians whose word is highly suspect at best!  A suspect Split-Roll tax with a reassessment exemption that is highly questionable is only for the most naive of us to believe. 

A Split-Roll tax, supposedly only imposed on commercial property owners in California will be deeply crippling for many if  not all businesses and commercial entities that own business property in California.  The revised property tax measure supposedly expands the “reassessment exemption” to small business owners with property valued at $3 million or less, up from the initial $2 million threshold.  Frankly, this sounds like double-talk to most of us.

One of “us” being Rob Gutierrez,  President of California Taxpayers Association. Mr. Gutierrez says these supposed “protections” for small businesses, a Split-Roll tax with a reassessment exemption that isn’t even close to being strong enough to allow these business owners to survive… with thousands of jobs that would have been for Californians, down the drain!  More people on the Unemployment  Line.  A Split-Roll tax with a reassessment exemption, that is basically worthless. Next, when we’re not looking, they’ll target consumer property tax relief, as well as Proposition 58 property transfer tax breaks and trust loan tax benefits from trust lenders… That’s their playbook.

“Because so many small businesses rent as opposed to own their commercial space… higher property taxes on the buildings they rent space in will of course result in more expensive rent for them”, Mr. Gutierrez says… “What that translates into is higher prices for consumers and brick-and-mortar stores.  Dry cleaners, grocers, companies that cannot move, will have to find a way to pass these costs on, plus lay workers off…” 

And as usual, who does this get passed on to?  You and I.  The consumers.

>> Click Here: to Continue to Part Two…