A new initiative to decrease the property tax burden faced by baby boomers in the state of California has received the requisite 585,407 signatures to appear on the general ballot in November, according to the Secretary of State's office. The...read more
A new initiative to decrease the property tax burden faced by baby boomers in the state of California has received the requisite 585,407 signatures to appear on the general ballot in November, according to the Secretary of State’s office.
The proposed legislation would amend Proposition 13, a 40-year old property tax law still valid in California. Under its terms, a property’s assessed value is equal to the price it was purchased by the current homeowner for. Their annual property taxes are 1 percent of whatever that value is.
The new legislation would allow California homeowners over 55 years of age who are moving within the state to incorporate their previous home’s assessed value when calculating their property taxes, often reducing their overall tax burden considering the value of California real estate today.
The structure is complicated, so an example is helpful. If a current homeowner purchases a new property for $1 million while selling another for $500,000 with an assessed value of $250,000, current law would calculate their property taxes solely on the new property’s $1 million purchase price.
Under the proposed legislation, the tax burden would instead be calculated by adding the old property’s assessed value ($250,000 in the example above) to the difference between the sale prices of the new ($1 million) and old ($500,000) properties for a total of $750,000. This figure is considerably lower than it would be under the original Proposition 13.
In addition, homeowners will receive tax relief if they purchase a property for less money than they sell their existing property for. For instance, if the homeowner in the example above purchases a new property for $300,000 instead of $1 million, that figure will be halved for the purpose of calculating property taxes.
Supporters of this initiative claim that the measure will encourage older homeowners to sell their homes, adding inventory to California’s booming housing market. Alexander Creel, Vice President of the California Association of Realtors, noted that many older homeowners no longer like or need their current homes, but hang onto them to avoid higher property taxes when his organization originally proposed the legislation.
However, opponents are concerned by the state’s loss of property tax income. The measure will reduce tax revenues collected by California’s counties by $150 million annually, according to the Legislative Analyst’s Office. Furthermore, the figure projects to increase to up to $1 billion annually in the future. Another analysis concluded that approximately 20 percent of the tax revenues collected by California counties are derived from property taxes. This could compromise the core services provided by cities, schools, county governments, and special districts that rely on property tax income.
This forecast generally makes the proposed legislation unpopular with local governments and districts around California. For example, the California State of Counties‘ (CSAC) Board of Directors voted on Thursday, May 17, 2018 to oppose the initiative. Dorothy Johnson, Legislative Representative of the CSAC, was quoted in a recent interview categorizing the measure as a “direct threat” to the