On May 29, the Secretary of State (SOS) announced that a second split-roll initiative has qualified for the ballot. The initiative, called “Schools and Communities First,” is a constitutional amendment that changes how California taxes commercial and industrial properties.
The proposal is similar to another initiative that already qualified for the ballot.
The California Federation of Teachers is the sponsor for both initiatives. The initiatives will give funds to schools and local governments while maintaining the Proposition 13 property tax funding for residential properties. Proposition 13 is a strict limit on property tax that allows reassessments only when a property changes hands or undergoes redevelopment and restricts annual tax increases. The initiatives call for new assessments for tax purposes on most retail and industrial properties, meaning higher taxes, including energy properties.
The first initiative calls on properties whose business owners have more than $2 million in holdings in California and operate on a majority of the property to be reassessed. The taxes would be phased-in immediately, with the legislature establishing the phase-in procedures. Businesses with less than 50 full-time employees would continue to have their properties taxed based on the purchase price. The State fiscal analyst estimated that, upon full implementation, the ballot initiative would generate between $7 billion and $11 billion in revenue.
The second initiative calls for properties whose owners have more than $3 million in California holdings to be reassessed. The taxes would be phased-in starting in 2022 with retail centers containing 50% or more small businesses, with the assessment based on market value beginning in 2025. The legislature will determine the phase-in process with input from a newly created Task Force on Property Tax Administration. Businesses with less than 50 full-time employees that are independently owned and operated, and that own real estate in California, would continue to have their properties taxed based on the purchase price. The State fiscal analyst estimated that, upon full implementation, the ballot initiative would generate between $8 billion and $12.5 billion in revenue.
The authors have indicated that they are leaning towards keeping the second initiative on the ballot, though they have until June 25 to pull one or both initiatives. The legislature may also place a measure on the ballot, though it is unlikely due to the lack of current legislation. The bill would have to be approved by both houses by June 25, and legislators would have to vote for a tax increase in an election year – not likely.
If one, two, or three split-roll measures end up on the ballot, there is no guarantee the measures would pass. Business groups are actively opposing the split-roll measures and are “prepared for that fight,” according to California Business Roundtable President Kirk Clark. “We are going to have the largest tax increase in California history at exactly the wrong time in our economy to be able to afford it.”
The last poll by the Public Policy Institute found slight support at 53% to 47% opposition.
For energy companies, there is not much to do right now. However, there may be opportunities to influence the election by working with business associations to fight the measure. Should one of the measures pass, energy companies could lobby next year’s legislature to delay assessments. Unfortunately, with retail and small businesses taking the brunt of this pandemic, it is unlikely that energy companies will receive a delay in the new taxes.