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Guest Opinion: Dare to clean up part of Prop. 13? Vote 'yes' on Prop. 15

Original post made on Oct 6, 2020

It's time to close a Prop. 13 tax loophole that has allowed commercial property owners to pay less and less in support of our public services. Prop. 15 will add a steady stream of revenue to local communities and schools.

Read the full story here Web Link posted Tuesday, October 6, 2020, 2:41 PM

Comments (26)

Posted by Nancy
a resident of Barron Park
on Oct 6, 2020 at 8:34 pm

Nancy is a registered user.

California has needed to address large corporation's failure to pay commercial property taxes for 40 years. We can no longer afford to give this massive tax break to huge commercial property owners. EVERY other state reassesses commercial property every 1 to 5 years. This is a narrowly tailored fix (just the very largest commercial properties) that does NOT touch homeowners' property taxes. When Prop. 15 passes, the city of Palo Alto will receive $22 million a year. Given we just had to cut $40 million, these are sorely needed funds. That's why our Palo Alto City council voted unanimously to endorse Prop. 15. Our schools desperately need these additional commercial property revenues. PAUSD will get $1.1 million more per year. Statewide, the additional billions annually will start creeping CA schools only back up to national average in per-student funding (cost of living adjusted). Voting "Yes on Prop. 15" means joining the League of Women Voters, CA PTA, firefighters, nurses, teachers, Sierra Club, League of Conservation Voters and many more wonderful organizations.

Posted by Really?
a resident of Esther Clark Park
on Oct 6, 2020 at 9:30 pm

Really? is a registered user.

How can you say that "This is not a tax initiative" simply because the tax rate won't change? Will businesses pay more in taxes? Is the initiative targeting taxes? Yes on both counts. In my book that makes this a tax initiative.

If they next come and try to repeal Prop 13, or change it to match what is being asked for commercial properties, and you see your $500,000 assessment jump to $3M and your $6,000/yr tax bill jump to over $30,000, will you say it's not a tax initiative.

It's always easy to make other people pay more.

What is the annual growth rate of property tax money going to the school district? I believe it is close to 4x the rate of inflation over the past 10+ years.

As for city expenses, maybe the city can focus on the necessities before funding art installations and worrying about a "statement bridge" over 101.

You also say that "Rents are calibrated based on market forces, not property tax valuation" Are you trying to say that landlords do not take into account their own costs when figuring out how much to charge in rent? Market forces might set the ceiling for rents, but at some point the landowner needs to cover their costs and if their taxes go up, that floor goes up as well.

Posted by Jon Klein
a resident of Barron Park
on Oct 6, 2020 at 11:58 pm

Jon Klein is a registered user.

When Prop 13 was passed in 1978 the total property tax burden was shared roughly 50/50 between commercial and residential properties. Because commercial properties change ownership far less frequently then residential property that burden has shifted to where residential property owners now pay almost 80% of the total tax. Prop 15 goes a long way to correcting this inequity. It does absolutely nothing to change the Prop 13 protections for residential property owners.

Posted by Stuart Rosenberg
a resident of another community
on Oct 7, 2020 at 9:14 am

Stuart Rosenberg is a registered user.

Makes sense on one level. Money is needed. I think this is not the right time for this particular bill. I think the bill should be reworked. So many property owners are retirees who depend on the income from properties they bought many years ago. The property taxes are raised 2% a year compounded. These folks may have two properties worth 1.5 million each so with a total of 3 million they are subject to the tax. Sounds like alot but many have loans and make a net of 1-2 % They will be underwater unless the lease allows them to pass through. Why not raise it 3% a year compounded and before you know it those owners will be paying close to full tax. If you want to target big corporations do so but please not the mom and pops. Additionally in most leases the tax increases get passed to the tenant. So many tenants are small businesses who will be taxed out of business. Some principles are good here but I am voting no until there is a bill to address these failings.

Posted by Nancy Shepherd
a resident of Southgate
on Oct 7, 2020 at 9:23 am

Nancy Shepherd is a registered user.

Response to Really?

-by law tax initiatives require a super majority vote, Prop 15 does not change the taxable rate, yet provides large corporately held property to pay their fair share for public service instead of only 28%. The super majority requirement for tax initiatives was enacted as part of the 1978 Prop 13 initiative, which passed by a 64% margin and helps to protect its legacy. A few states have enacted protections for residential properties, but not commercial. California will now be more normalized.
-if residential property valuation assessments are changed, voters will decide at the ballot box. Since this concept is not part of Prop 15, there will be no change.
-commercial rents are indeed based on market forces, not landlord costs. Purchase price for commercial property is valued at local rental rates after applying a CAP rate based on location. For example, my husbands new rent Is now reduced by about 15% from 4 years ago due to Covid. And, this reduced rate (along with vacancy assumptions) will affect a sales price for the building as well.

Posted by jr1
a resident of Greenmeadow
on Oct 7, 2020 at 10:43 am

jr1 is a registered user.

The State of California needs to learn to live within a budget. Most taxpayers know if this passes next on the list will be residential homes. Businesses leave the state of California because of high taxes. If this passes once leases are up, businesses will be moving out of the state again. Building owners will pass the tax along to business and they once again will be put at a disadvantage. This will also have a negative effect on stock prices since stockholders will see another tax for California corporations. The State of California needs to live within a budget. If they want to address something they could address the unfunded mandates that are approaching 90 billion dollars.

Posted by What Will They Do Next
a resident of Old Palo Alto
on Oct 7, 2020 at 10:45 am

What Will They Do Next is a registered user.

Sacramento will never have enough tax payer money to spend. That's why Prop 13 was passed in the first place, to put a lid on wasteful spending. And that's why it should remain untouched.

Posted by commonsense
a resident of Professorville
on Oct 7, 2020 at 10:56 am

commonsense is a registered user.

California will soon have the highest income tax in the nation at over 16% for some. Ultimately, this tax is passed on to tenants which is ultimately passed on to the consumer. Locally, small, independent business will see their rent go up which already cannot afford. Next, big box stores and banks lining University, not restaurants.

On the surface, this looks like a no brainer but dig a little deeper and you'll see that it will push even more businesses and residents out of California. Smaller population, less income to CA, fewer people paying taxes, higher taxes again. CA needs to figure out it's spending problem before increasing taxes.

Posted by Small Business Owner
a resident of Old Palo Alto
on Oct 7, 2020 at 11:24 am

Small Business Owner is a registered user.

I don't get why the NNN lease argument is so overlooked. The author first says "will not impact renters, including NNN lease tenants". She then says her husband's lease payments were escalated due to NNN pass-through. YES, that is how NNN works - property taxes are passed to the tenant, not paid by the landlord. I would say escalated lease payments means he was impacted, wouldn't you? This happened to me in two leases, and each time my rent was raised by thousands of dollars (a 40% jump in one case). Both times it happened because the building was sold and reassessed. Prop 15 will make this happen for *all* the small businesses on NNN leases out there. No, we small businesses don't rent from Chevron, but a huge number of us signed NNN leases. The restaurants, gyms, salons, all the small businesses struggling through COVID will suddenly have to pay thousands more per month? Can we just call Prop 15 the anti-PPP program?

Posted by Concerned
a resident of Crescent Park
on Oct 7, 2020 at 11:47 am

Concerned is a registered user.

According to the Legislative Analyst Office

"August revenue collections from the state’s three largest taxes—the personal income tax, corporation tax, and sales tax—were ahead of budget projections by $1.7 billion (24 percent)"

It is unclear that more money is required by the state even when the private sector is suffering.

The Community Foundation may have concluded that triple net renters won't see the increased property tax in their rent but when I was one, I always did. And, for sure, once the state has come for commercial property it will pivot to residential.

Now is not the time to further squeeze the goose.

Posted by What Will They Do Next
a resident of Old Palo Alto
on Oct 7, 2020 at 12:14 pm

What Will They Do Next is a registered user.

@commonsense .... Sacramento has no common sense :D)

Posted by Me 2
a resident of Old Palo Alto
on Oct 7, 2020 at 12:45 pm

Me 2 is a registered user.

The problem is structural - we lean too heavily on income tax, which is much more volatile than property tax.

So this is a good idea in general. BUT for me to support Prop 15, it would have to reduce the state income tax rate by a commensurate amount.

It doesn't, so I won't support it.

This is simply a tax increase to generate more revenue for the state. If it walks look likes a duck, walks like a duck... it's a duck. No finessing of legal language will change what is basically a tax increase.

Posted by Neil
a resident of Gunn High School
on Oct 7, 2020 at 1:52 pm

Neil is a registered user.

How about instead of trying to find new ways of taxing the populace to death, we start to live within our means. California has some of the highest taxes in the Nation and what does the average citizen get for all those taxes? Forests that are not maintained properly, which has lead to millions of burned acres of land. The incredible amounts of pollution that comes from allowing homelessness to go unchecked. An education system that bends over backwards to fill their halls with international and out of state students just to increase their revenue. Nevermind the fact that these institutions were put in place to educate the children of California residents. What does Newsom do. He bans gas cars in the State and starts a committee to look into reparations for slavery. Did California even have a major slave trade?
I totally reject this push to continue to tax the population to death. Dont be fooled, just because you do not own a commercial property. They will come for you next. They always do.

Posted by Small Business Owner
a resident of Old Palo Alto
on Oct 7, 2020 at 2:03 pm

Small Business Owner is a registered user.

Found the Community Foundation report that "invalidates" the small business argument at Web Link. I must say, something smells fishy. It says " if an assessed value is lower than market value, this does not influence RENT." (my emphasis on rent). Then it goes on "in a triple net lease, the tenant... is responsible for... real estate taxes". The conclusion they drew, that NNN therefore doesn't raise "rent", can't be mathematically true. If the tenant pays real estate taxes and the assessment goes up to market value, then tenant must pay more. Simple math.

UNLESS they're playing word games. As anyone who has a NNN lease knows, there is "base rent", and there is "NNN expenses". Add up both, and that's what's paid to the landlord. It seems the analysis says "rent" doesn't go up, which is very true - tenants have signed lease contracts with stated rents after all! LL's can't randomly raise rents. However the study doesn't explicitly address NNN expenses! Either way, it's money out the door that we can't afford. NNN expenses isn't rent, it's just another expense for the poor small business.

Posted by Bri_jms
a resident of another community
on Oct 7, 2020 at 4:34 pm

Bri_jms is a registered user.

Vote no on this, just read a interview about this with willy brown, by the way he is also voting no on this. I don't normally agree with him, but he Said the loophole is from the then legislature setting prop 13 up to be implemented. They messed up on the commercial side of it and it needs to be fixed via the legislature, it's just a small tweek to the commercial tax. The loophole is not From the Jarvis /Gann prop 13 that most of us voted for. This prop 15 is a money grab and one of the worst parts is it will raise property taxes on large apartment complexes valued over 3 million, and not many are valued at less than that. That will cause rent's on families and individuals living in apartment's, some of which cannot afford it.
Vote No on prop 15

Posted by Oh well.....
a resident of Old Palo Alto
on Oct 8, 2020 at 12:18 pm

Oh well..... is a registered user.


Posted by Alice Schaffer Smith
a resident of Downtown North
on Oct 8, 2020 at 4:30 pm

Alice Schaffer Smith is a registered user.

Some of the anomalies this will correct: the gas stations at a crossroads. Same lot size, same services. One property changed hands and pays say $10k annual property tax at the new assessed value after the sale; the other protected by Prop. 13 pays $2k annual property tax giving that gas station a huge unfair tax advantage. Another example: Disneyland is assessed at a completely unfair rate on land valued at billions in today's market. I support Proposition 15 and ask all of you to do so, too. Fair taxation ...

Posted by Name hidden
a resident of Downtown North

on Oct 8, 2020 at 9:32 pm

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?

Posted by Jeff Sanders
a resident of another community
on Oct 10, 2020 at 10:46 am

Jeff Sanders is a registered user.

The premise that Prop 13 shifted the property tax burden to residential from commercial isn't shared in this LAO analysis.

Did Proposition 13 Cause Residential Properties to Pay a Larger Share of Property Taxes?

Web Link

Posted by DJT: let's all pay $750 in income tax
a resident of Green Acres

on Oct 10, 2020 at 10:54 am

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Posted by Jeff Sanders
a resident of another community
on Oct 10, 2020 at 11:02 am

Jeff Sanders is a registered user.

"This is not a tax initiative."

I find that completely disingenuous. It's a tax increase initiative because that is precisely what it does; takes more money from taxpayers than under existing law. The idea that only rate changes are tax increases doesn't hold water. Changing the basis for what's taxed changes the the effective tax being imposed. If people were suddenly forced to pay income tax on the first and every dollar of income, including the value of benefits like health care, with no way to exempt any income, but without changing the existing tax rates, I doubt any of those taxpayers would question whether that was a tax increase.

Posted by Stuart Rosenberg
a resident of another community
on Oct 10, 2020 at 11:41 am

Stuart Rosenberg is a registered user.

Unfortunately prop 15 is a small business killer.The vast majority of small business leases are NN where the property tax increases get passed through to business. Imagine opening a business and signing a lease based on current property tax . Now your tax is increased exponentially and you are forced to close your business. Fair?The NAACP has come out strongly against prop 15. Property tax on commercial and residential are raised 2% a year compounded. Why not just increase the yearly tax increase to 3% on everyone- residential and commercial.? With the value of compounding you will raise great quantities of income in little time. The argument that the individual made about not fair because the business next door pays less. The same argument can and will be made for residential! Why am I paying 25000 a year in property tax but the person who live next door pays 5000 a year. Fair? This bill does have some merit but go after the big boys. Vote it down and rewrite it so small business can survive especially during covid.

Posted by Concerned
a resident of Crescent Park
on Oct 11, 2020 at 8:45 pm

Concerned is a registered user.

We went with our daughter, son-in law and two grand kids to half moon bay for pumpkins this weekend.... while my daughter thought there was a bit of over charging...I pointed out that they only have about three weeks to make some money...then of course Christmas...but...I couldn't help but think what prop 15 would do to these mostly family nursery companies.

Raise their taxes to the local value of converting them all to condos and they would be forced to sell.

This seems wrong.

Posted by Nancy Shepherd
a resident of Southgate
on Oct 12, 2020 at 4:37 pm

Nancy Shepherd is a registered user.

Response to “concerned”:

Agricultural property is not included in the initiative. It will be considered like residential, with no change. Only commercial and industrial property assessed over $3M will be affected.

Posted by Really?
a resident of Esther Clark Park
on Oct 12, 2020 at 5:14 pm

Really? is a registered user.

@Nancy Sheperd - you wrote,"Agricultural property is not included in the initiative. It will be considered like residential, with no change. Only commercial and industrial property assessed over $3M will be affected."

That's simply not true. While the land itself might not be reassessed, Prop 15 does reassess "Fixtures and Improvements". This, from the Agricultrial Council of California, "Though proponents say Prop. 15 makes no changes to the taxation of agricultural land, our farming community is impacted because “fixtures and improvements” are subject to the tax hikes under the initiative.

What falls within the definition of “fixtures and improvements?” Dairies, barns, packinghouses, food processing facilities, buildings, structures and wineries would be all reassessed at current market value. Agricultural improvements such as fruit and nut bearing trees and producing vineyards are included, as well."

Trees, vineyards, barns, etc... would all be reassessed.

The California Farm Bureau Federation President said,"Proposition 15 will raise taxes on California farmers and ranchers, at a time when they are already suffering from the effects of the pandemic. The measure would increase taxes on barns, dairies, wineries, processing plants, vineyards, orchards and other agricultural improvements,”

When farmers costs go up, so do food costs. And, who is most hurt when the cost of food increases? The hardest hit are usually those with lower incomes.

[Portion removed.] For those with questions about Prop 15, I suggest you do you own research [portion removed.]

Posted by Jon
a resident of Barron Park
on Oct 13, 2020 at 5:41 pm

Jon is a registered user.


You got it wrong.
Read the proposition text. It plainly states :
"shall also not apply to real property used for commercial agricultural production as defned in this section. Real property used for commercial agricultural production as defned in this section shall be assessed as required by Section 2 of this article."

Also, according to the Analysis by the Legislative Analyst: "Housing and agricultural land continues to be taxed based on its original purchase price."

Regarding buildings and equipment used in agricultural production, there does seem to be some confusion, but the proposition itself appears to except these as well.
The California Farm Bureau's opposition is likely a result of some ambiguity in the wording of the proposition.
For a pretty good treatment of the controversy see:
Web Link

[Portion removed.]

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