Local businesses brace for Proposition 15 outcome

File photo
(File photo)

Will Rhett, who owns the Del Mar children’s bookstore Sandcastle Tales with his wife Alex, said he’s worried about the potential “new burden” of a statewide ballot measure in November that would raise commercial property taxes.

The ballot measure, Proposition 15, is projected to raise at least $6.5 billion in additional yearly tax revenue for schools, cities and other local government bodies if it’s approved. But business owners in North County and throughout the state, who continue to weather the financial fallout of the COVID-19 pandemic, are among the most vociferous opponents.

The Rhetts, who have two children in Del Mar Heights School and one in preschool, said they support increased funding for schools. But they think there could be “a better solution” than a tax increase that tenants of commercial property owners would likely absorb, based on the way leases are typically structured.

“There needs to be a better way of supporting education than taking money away from hard-working parents through an increase in commercial property taxes,” Rhett said.

Proposition 15 would partially undo a previous ballot measure approved by California voters in 1978, Proposition 13. Proposition 13 limited property taxes to 1% of a property’s assessed value, with yearly increases limited to 2%. As a result, property owners who bought their properties years (or decades) ago pay taxes based on assessed values that are sometimes far below today’s market rate.

When a property is sold, the new owner pays taxes based on a reassessed, market-rate value.

If Proposition 15 is approved, residential property owners would retain that tax benefit. But commercial and industrial property owners would be taxed based on the current market values of their properties, with an exemption for properties valued at $3 million or less. The taxable value of business equipment would be reduced by $500,000 for each business starting in 2024, and property taxes on business equipment would be eliminated for small businesses that meet certain criteria.

Supporters say Proposition 15 would mostly impact a relatively small group of California’s wealthiest commercial property owners.

The proposition would generate approximately $8 billion to $12.5 billion per year in added tax revenue starting in 2025, when the new tax system would fully take effect, according to the state’s legislative analyst. Approximately $6.5 billion to $11.5 billion of that new tax revenue would go to local governments, including schools. Hundreds of millions per year would be allocated to the costs of carrying out the measure. Property taxes currently raise about $65 billion every year for cities, counties, schools and special districts throughout the state.

About 51% of California voters support Proposition 15, according to a Sept. 16 poll released by the Public Policy Institute of California.

The ballot measure is unlikely to receive many votes from North County, but local League of Women Voters members are among the supporters. They’ve been promoting the measure on the chapter’s website, in its newsletter and by encouraging members to reach out to everyone they know.

“I’m assuming that as we get closer to the election and people start to study things before they vote, there will be an increased appreciation for what it would do for our government and our school districts,” said Anne Omsted, president of the league’s North County chapter.

She mentioned that schools would be able to improve their per-pupil spending, a metric in which California often ranks among the worst in the nation.

The president of the league’s California chapter, Carol Moon Goldberg, is one of the proponents who put Proposition 15 on the ballot.

As of mid-September, political committees in support of Proposition 15 have raised more than $18 million, compared to about $4 million raised by committees that oppose it.

The biggest supporters include the California Teachers Association, which has contributed more than $6 million through its political action committee. The Service Employees International Union has added about $3.5 million. Pediatrician Priscilla Chan and her husband, Facebook founder Mark Zuckerberg, have donated almost $5 million through the Chan Zuckerberg Initiative and another advocacy group they started.

Opponents include the agricultural industry and a long list of businesses throughout the state, many of which are experiencing financial hardships because of the COVID-19 pandemic.

In the opposition campaign, San Diego Mayor Kevin Faulconer has been warning voters about imposing a tax hike on businesses that are already struggling to stay afloat due to the public health restrictions on their operations.

“I think in the short term, that’s a good argument,” Omsted said. “But in the long term, I think it’s short-sighted for the overall well-being of our entire community.”

Veronica Seay, the advocacy director for the League of Women Voters North County chapter, said that Proposition 15 would make California’s property tax formula more similar to other states. She added that schools and local governments will need the boost in funding to recover from the pandemic.

“Whether it’s public libraries or potholes or water districts, we’re going to get less money from business income and personal income for a lot of people (because of the pandemic),” she said.

Daniel Powell, who owns commercial property in Solana Beach, said Proposition 15 would be “the worst thing to happen to California since World War II.”

Powell, a former Solana Beach resident who lives in Wyoming, said he has 40 tenants at five commercial properties he owns in California, and they would absorb the tax increase imposed by Proposition 15. Some of his tenants are bars and restaurants that haven’t been able to pay rent since last spring, when the COVID-induced public health orders took effect. Powell canceled rent for his tenants in April to help them acclimate to the new normal.

“No tax increase is at a good time, but the worst time you could do a tax increase is when you’ve been told you cannot open,” he said.

If Proposition 15 passes, Powell added, it could lead to another ballot measure asking voters to enact a similar increase on residential property taxes.

“If you think they’re going to stop at increasing property taxes solely on commercial property, I got a bridge to sell you,” he said. “It’s the Coronado Bay Bridge and I’ll sell it to you for 10 cents, because they’re coming for residential property next.”