Business donors have met their match in battle over Proposition 15’s split-roll tax

Photo by Rahul Bhogal on Unsplash

Photo by Rahul Bhogal on Unsplash

Covid-19 has upended campaign strategies in 2020, but this year, as it always does, money still matters. And for Proposition 15, the initiative for a “split-roll tax” to raise property taxes on commercial property in California, who’s got the most money heading into the last month of the campaign is a surprise.

Boosted by multi-million-dollar contributions from Facebook founder Mark Zuckerberg and his wife, Priscilla Chan, and big money from two public employee unions, campaign committees behind Yes on Prop. 15 have raised $48.5 million; that’s $9 million more than No on Prop. 15 campaign committees have raised, as of Oct. 8. Going into the campaign last spring, the state’s business and anti-tax leaders had vowed to take down the ballot measure with $80 million-plus in spending.

Michael Bustamante, the spokesman for No on 15, insists that opponents of the initiative will catch up and exceed Yes on Prop 15 spending by Election Day, and the backers of Prop. 15 acknowledge that could happen. But, for now, seeming parity over the airwaves, combined with the latest poll results, point to a close vote.

“It will come down to what makes Californians more nervous: higher taxes or underfunded schools,” said Dan Schnur, press secretary for former Gov. Pete Wilson who teaches political communications at UC Berkeley and USC.

Prop. 15 would raise an estimated $6.5 billion to $11.5 billion in additional property tax revenue from business property owners by 2025-26. Opponents stress it would be the biggest property tax increase in state history coming at the worst time, during a pandemic and recession. Proponents stress it would bring in vitally needed revenue for local governments and schools facing higher expenses from the pandemic and likely massive state and local budget cuts. That’s the Hobson’s choice awaiting voters, Schnur said.

Prop. 15 was placed on the ballot by a coalition of civil rights and community groups, the California Teachers Association and other public employee unions. If it passes, it would be the first change by ballot to the anti-tax initiative, Proposition13, since voters overwhelmingly passed it in 1978.

There’d be no change for residential property owners, including apartment buildings. Residential and commercial properties would continue to pay 1% of their properties’ value in taxes with a maximum 2% annual increase.

But commercial properties with assessed value over $3 million would be reassessed every three years, as opposed to only when they’re sold, which is the case under Prop. 13. The new tax bill would be stiff for properties in hot real estate markets that haven’t been assessed in decades, or at all since Prop. 13 was passed, like Disneyland. It would end a “loophole” that has enabled some sales of commercial properties to structure the deals to avoid reassessment.

Total contributions to both sides ($88 million so far) have paid for a combined 100 to 200 TV ads daily, said Alex Stack, chief spokesman for the Yes on Prop. 15 campaign. But it is not the most expensive campaign on the ballot. Uber, Lyft and Doordash have amassed a $185 million war chest in their battle to exempt their drivers from a state law last year that redefined them as full-time employees, rather than independent contractors (yes on Proposition 22). And it’s less than the $93 million that kidney dialysis companies alone have donated to ward off more state regulation (no on Proposition 23).

The largest by far of the committees campaigning to pass Prop. 15 is the “Yes on 15 — Schools and Communities First Coalition.” As of Oct. 8, its four largest contributors are:

• California Teachers Association, $12 million
• Chan Zuckerberg Initiative’s advocacy fund, $10.6 million
• Service Employees International Union and 2 local unions, $10.2 million
• The San Francisco Foundation, $600,000

The four largest contributors to the “No on Prop 15 — Stop higher property taxes and save Prop 13,” the largest campaign committee against the initiative, are:

• California Business Roundtable, $15.7 million
• California Business Properties Assn., $1.6 million
• California Taxpayers Assn., $1 million
• Nextera Energy, $895,000

The Business Roundtable, which also has spent $5.6 million to fight rent control proposed in Proposition 21, is organizing the fight against Prop. 15. Its biggest donors are New York-based Blackstone Property Partners, which gave $7 million, and Michael Hayde, CEO of the Western National Group, a real estate investment firm based in Irvine, who gave $4.5 million.

The Chan Zuckerberg Initiative administers Zuckerberg’s and Chan’s philanthropic and advocacy interests. It has donated $1.25 million against Proposition 20, which would roll back some light criminal sentencing reforms of two previous initiatives, and is contributing to a drug decriminalization initiative in Oregon. Yes on Prop. 15 is getting the most money from the Chan Zuckerberg Initiative, including the $10.6 million directly to the Schools and Communities First campaign committee and several hundred thousand dollars in Prop. 15 donations to other non-profit organizations working to pass the initiative.

In a statement announcing its latest multi-million-dollar donation, the initiative said revenue from Prop. 15 would “sustain local health systems, protect essential workers and support the local education systems and housing for the most vulnerable.” Chan said Prop. 15 “will generate much needed resources for communities that have seen systemic disinvestment over decades — especially Black and Latinx communities.”

Of Prop. 15’s tax revenue, 60% would go to cities, counties and special districts that provide fire protection and other services, but the initiative doesn’t specify how the new money would be spent. The remaining 40% would go to K-12 districts based on the Local Control Funding Formula, which provides extra funding based on the enrollment of English learners, low-income, homeless and foster children. The revenue for community colleges would be distributed through the Student Centered Funding Formula, which provides supplemental grants based on the enrollment of low-income students.

A shift in strategies

In the spring, Prop. 15’s organizing coalition, Schools and Communities First, was counting on a campaign of direct personal engagement: leafletting BART stations and knocking on doors to counter what it assumed would be a No on Prop. 15 spending juggernaut.

But Covid-19 forced it to “rewrite the book on how to mobilize volunteers when contacting people can’t be done in person,” said Karla Zombro, field director for California Calls, a statewide network of 31 community organizations, which is leading the Prop. 15 outreach. Every day, hundreds of volunteers are phoning, texting and sharing on social media, she said. It’s no substitute for one-on-one conversations but still, “we’ve gotten good at it.”

The campaign also has organized virtual town halls and small demonstrations at corporations like Chevron, whose refineries in Richmond and near LAX will face big tax bills after reassessment. Another inviting target is 552 California St. in San Francisco, the 52-story former Bank of America Complex, of which the Trump Organization owns 30%.

“Why should this man (Trump) get a tax break he doesn’t get at Mar-a-Lago and Trump Tower?” asked Ben Grieff, campaign director for Evolve, which organizes grassroots campaigns, and a member of Yes on Prop. 15’s executive committee. It’s not the best example of Prop. 13 abuse, though, since it was last assessed in 2007 and is paying about $14.4 million in taxes on an assessed value of $1.2 billion.

Chan Zuckerberg, SEIU and CTA money enabled Yes on Prop. 15 to pivot to the airwaves, where the message in 30-second ads (see here and here), is simple: Make big corporations that have escaped their fair share of taxes for decades pay for underfunded schools.

But TV watchers are also getting a stark, equally simple — and opposite — warning from No on Prop. 15: Prop. 15 is a tax that will put already Covid-weakened small businesses out of business, like the barber shop and the restaurant in these ads, through automatic rent increases. And if, like a hot potato, small businesses can pass the costs on, then consumers will get burned through higher prices: “$960 per family,” one ad claims.

An unconventional election

Conventional wisdom says initiatives need between 55% and 60% support heading into a negative ad blitz down the stretch. And late, undecided voters tend to vote no, Schnur said.

Two polls within the past month put support for Prop. 15 at about 50%, with 9% undecided in the Public Policy Institute of California voter survey and 17% undecided in UC Berkeley Institute of Governmental Studies’ survey.

But eight years ago, an income and sales tax increase championed by Gov. Jerry Brown passed 55% to 45% even though two voter surveys less three weeks before the vote, one by PPIC and other by the Field Poll found only 48% support.

And 2020 has been far from conventional. The pandemic and wildfires have crowded out all campaigns’ efforts to be heard. And with Trump trying to delegitimize late mail-in ballots and more people voting early, campaigns face a compressed time frame to convince voters.

Schnur said that the Yes on 15 organizers are counting on a massive Democratic turnout, especially among young voters who “tend to lean heavily left and may be willing to accept a populist anti-business message.”

Grieff said they also don’t view Prop. 13 “as a sacred cow.”

Then again, Schnur added, millennial voters may end up agreeing with the ads that Prop. 15 will hurt mom-and-pop stores. Bustamante, who chafes at the notion that Prop. 15 pits grassroots Davids against corporate Goliaths, said there’s no doubt in his mind about the outcome. “When voters see not only a threat to small business but the unraveling of Proposition 13, they will vote no,” he said.

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