Today is Election Day, so CDAR wanted to make you aware of information regarding some of the Propositions on the ballot that relate to real estate, as well as the candidates on the ballot that CDAR is supporting. The following information, provided by our Government Affairs department, is intended to educate on items that may affect the industry and real estate market, as well as which candidates that CDAR is supporting this election.
PROPOSITION 15 – Increases Funding for Public Schools, Community Colleges, and Local Government Services by Changing Tax Assessment of Commercial and Industrial Property (FULL TEXT HERE)
- Prop 15 benefits from the most “generous” ballot description available for the 2020 election. The initiative would rewrite the historic Prop 13 to remove most commercial property from its protections and enact the largest single tax increase in California’s history.
- Under the voter enacted Prop 13 from 1978, property taxes are based on the acquisition price and increases are indexed to that figure until the property is sold and a new purchase price is recorded. Prop 15 would eliminate that protection on most non-residential property, requiring long-held business property to reassess every few years regardless of whether it is sold or otherwise would trigger a reassessment (such as following construction or renovation).
- The resulting tax increase would be spread across layers of California government, with an estimated $1 billion being used to cover the administrative overhead of passing and implementing Prop 15 itself.
- Prop 15 is on a “split roll” proposal that would target the largest tax increase in California’s history on business property. While the initiative offers some limited protection for small business, those protections generally act only to delay the tax increase for a few years or provide very limited protections for a relatively small number of California business that fit tight definitions. Specifically, Prop 15 offers an exemption for business property worth less than $3 million.
- Most small businesses don’t own their real estate and exist as a tenant in a larger commercial project. This exemption would not provide protections, for instance, for the dry cleaner or restaurant or real estate office located in a commercial center anchored by a grocery store or other major tenant. In many places, the $3 million limit won’t protect a modest strip mall at the corner of an significant intersection. Given the nature of most commercial leases, these increased taxes will likely be passed directly to the business tenant.
- Does California need the money? That depends on the definition of “need.” The initiative was qualified for the ballot prior to the arrival of COVID-19, at a time when California had a more than $20 billion budget surplus and an overall state budget two and a half times from a decade ago. However, California’s expenses, and appetite for more state spending, was growing faster than even the strong economy.
PROPOSITION 19 – The Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act (FULL TEXT HERE)
- The California Association of REALTORS® and California firefighters co-sponsored Prop 19 to eliminate the tax penalty inherent in moving for many Californians while shoring up funding for state firefighting. For homeowners, the initiative vastly expands Prop 13 benefits for homeowners by making them far more portable.
- Prop 19 would allow seniors 55 and older, victims of natural disasters and disabled homeowners to carry their Prop 13-protected property tax basis anywhere in California up to 3 times in their lives. It would also cap the tax break available for inherited properties at $1 million (currently unlimited) and reset inherited non-owner occupied properties to market value.
- Finally, it would protect the tax basis for children and grandchildren who inherit homes that become their primary residence.
- The end result of those property tax trade-ins would be a relatively small (by $200 billion state budget dimensions) but important increase in state tax collections worth a couple hundred million dollars. Excess funding, such as the situation that existed prior to COVID-19, would allow that additional revenue to a new, protected state firefighting fund that would help back up local fire districts across the state.
- Three years ago, REALTORS® conducted detailed market research to determine whether an initiative like Prop 19 would be worth pursuing. The resulting data showed the tax reassessment was a major deterrent for seniors who would otherwise move. Nearly one-in-three Californians cited the tax reassessment as a top factor in why they would not consider moving.
- How does Prop 19 create new funding for firefighting? Prop 19 also amends California law passed in 1986 under Prop 58 that allowed children and grandchildren to inherit property from their parents and grandparents and maintain the same tax basis. Prop 19 continues to protect the inheritance tax limits for children and grandchildren who choose to occupy the home. However, if the home is not owner-occupied, it would be reassessed to current market value.
- Also, the tax break would be capped at $1 million in assessed value. That means if you inherit and inhabit a $1.5 million home that was assessed at $500,000 you’re able to keep the entire benefit of the intergenerational tax break. However, if you inherit a $25 million estate that has a basis of $10 million, the new assessment will be $24 million (or $25 million if it’s not your residence).
PROPOSITION 21 – Expands Local Governments’ Authority to Enact Rent Control on Residential Property (FULL TEXT HERE)
- Under California law, cities and counties may enact local rent control laws, but may only go so far. Specifically, rent control may not be applied to new construction or anything built within the last 15 years (more on this later). State law also does not allow rent control to apply to single family homes, individually titled units (individually owned condos) or up to four-unit structures. Finally, state law does not allow local governments to restrict rents when a unit is vacated and put back on the market for a new tenant.
- Prop 21 would affect all these restrictions, with complicated caveats. The end result is that rent control could be applied to all regular types of market rentals (single family, individual condos, 1-4 units, etc.), vacated units would remain rent-restricted and all but the smallest of landlords would be subject to the decisions of local governments.
- Prop 21 is an edited re-do of 2018’s Prop 10, which California voters rejected by nearly 20 points. It attempts to allow local governments to expand rent control to situations and properties that have been off limits for a quarter century.
- The impact of Prop 21 is definitely less pronounced than it would have been two years ago. At that time, state law prohibited rent control from attaching to anything built after 1996. However, legislation went into effect this year moved that line to the past 15 years and made it statewide. So, in effect, that part of Prop 21 has virtually no impact. It would allow cities to expand rent control to situations that are already rent-controlled.
- The real impact is that it would authorize local governments to no longer allow market-driven pricing for units that become vacant. It would also significantly expand authority for rent control on small landlords with single family homes or individual condos (or duplexes, or triplexes or quadplexes).
- Prop 21 offers a not-very-useful fig leaf by saying that owners of 2 or fewer units would be exempt. However, as written, if the owner owns their own home, they would be limited to one rental unit before they’re treated under the same local rent control laws as Wall Street firms with tens of thousands of multifamily units.
CDAR ENDORSEMENTS FOR THE 2020 ELECTION
Below are the candidates, listed by city, that the California Desert Association of REALTORS® is endorsing for the 2020 Election. The listed office is the seat for which they are running, and may or may not reflect the position they currently hold.
City of Coachella
- Steve Hernandez for Mayor
City of Indian Wells
- Kimberly Muzik, City Council Member
- Kathryn Strong, City Council Member
- Donna Griffith, City Council Member
City of Indio
- Glenn Miller, District 1 Council Member
- Lupe Ramos Amith, District 5 Council Member
City of La Quinta
- Linda Evans for Mayor
- Steve Sanchez
- Kathleen Fitzpatrick
City of Palm Desert
- Susan Marie Weber, District 1 City Council Member
- Gina Nestande, District 2 City Council Member
- Kathleen Kelly, District 2 City Council Member