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.

Photo by Peter Barreras/Invision/AP

Mark Zuckerberg and Priscilla Chan at the 7th annual Breakthrough Prize Ceremony at the NASA Ames Research Center in Mountain View in 2018.

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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  1. Corvinus 1 month ago1 month ago

    I just can't understand the "pay your fair share" people. I suspect most of them either don't have any skin in the game (young people who think everything should be 'free') or public employees, on the dole or otherwise benefiting from the extraction of wealth from the middle class. California already has the highest taxes in the nation and one party rule. What do you get for your money? Homeless all over major metro areas, … Read More

    I just can’t understand the “pay your fair share” people. I suspect most of them either don’t have any skin in the game (young people who think everything should be ‘free’) or public employees, on the dole or otherwise benefiting from the extraction of wealth from the middle class. California already has the highest taxes in the nation and one party rule.

    What do you get for your money? Homeless all over major metro areas, ‘schools’ that are more keen to indoctrinate than provide education, boondoggles like the defunct high speed rail system and a generally terrible environment for business. People are leaving in droves and yet California liberals keep doing the same thing over and over again hoping that it will work. Fools!

  2. Jim Wickstrom 1 month ago1 month ago

    Here is just one of the issues for Prop 15 and commercial properties: Commercial properties turn over much slower than residential and it’s easy for the wealthy to transfer properties but keep the same 1975 tax rates, despite the facts the commercial values have jumped exponentially. Everyone knows the game and how it’s played. Not only that, there are tens of thousands of foreign investors, who own commercial properties in CA, and yet have manipulated … Read More

    Here is just one of the issues for Prop 15 and commercial properties: Commercial properties turn over much slower than residential and it’s easy for the wealthy to transfer properties but keep the same 1975 tax rates, despite the facts the commercial values have jumped exponentially.

    Everyone knows the game and how it’s played. Not only that, there are tens of thousands of foreign investors, who own commercial properties in CA, and yet have manipulated “who” owns the property, while keeping the tax rate low and undervalued. Is that what we want? Did you know that 41% of Chinese real estate purchases are in CA? Can you guess why? Is it fair they can snake the CA tax system?

  3. Russell Johnson 2 months ago2 months ago

    You are incorrect in stating that commercial properties under $3 million will not be subject to reassessment every three years. All three of the following boxes must be checked to qualify for the exemption. 1. The aggregate value of all commercial property owned by the owner must be less than $3 million. 2. The owner must occupy the majority of the space 3. All principal officers of the company must be California residents. All non-owner-occupied commercial property is … Read More

    You are incorrect in stating that commercial properties under $3 million will not be subject to reassessment every three years. All three of the following boxes must be checked to qualify for the exemption.

    1. The aggregate value of all commercial property owned by the owner must be less than $3 million.
    2. The owner must occupy the majority of the space
    3. All principal officers of the company must be California residents.

    All non-owner-occupied commercial property is subject to full reassessment every 3 years.
    Please update your readers accordingly. Thank you.

  4. Jay Alexander 2 months ago2 months ago

    I just wanted to point out an error in your article, an one that is often found in pro-15 articles and is repeated in the summary of the voter pamphlet. The assessment is not on "properties over $3 million". It is on properties that are at any price if the owner of the property owns a total of commercial properties valued at over $3 million. So, in other words, if I am leasing … Read More

    I just wanted to point out an error in your article, an one that is often found in pro-15 articles and is repeated in the summary of the voter pamphlet. The assessment is not on “properties over $3 million”. It is on properties that are at any price if the owner of the property owns a total of commercial properties valued at over $3 million. So, in other words, if I am leasing a space in a building assessed at $200,000 but is worth $500,000. . .if the owner of my building owns other properties, the taxes on the building where I rent will go up. And, in nearly every commercial and industrial lease in California, the tenant pays the taxes, not the landlord ….so nearly every small business in California will have their taxes go up.

    I just wanted to clarify a misconception that buildings worth under $3mm are excluded, they aren’t.

    Replies

    • John Fensterwald 2 months ago2 months ago

      Thanks for your comment, Jay. Our Guide to Prop. 15 covers your point – that it is the total value of the properties someone owns that counts toward the $3 million cutoff – but this article does not make the distinction.

  5. Julian 2 months ago2 months ago

    Why is it most of these news articles regarding Prop 15 merely rehash the framing of the big money "yes" (save our schools, look at Disney) and "no" (what about the small restaurant and property owner) campaigns without providing context by investigating the underlying taxing problem- why is it our taxing paradigm stuck in the 20th century? If our intellectual/virtual property is as real as (and substantially more valuable than) the buildings in our cities; … Read More

    Why is it most of these news articles regarding Prop 15 merely rehash the framing of the big money “yes” (save our schools, look at Disney) and “no” (what about the small restaurant and property owner) campaigns without providing context by investigating the underlying taxing problem- why is it our taxing paradigm stuck in the 20th century?

    If our intellectual/virtual property is as real as (and substantially more valuable than) the buildings in our cities; why isn’t this taxed? If we taxed the intellectual property of Apple, Amazon or Facebook (whose founder’s wife Priscilla Chan is the main backer of Prop 15) the same way that Prop 15 will tax my wife’s nail or hair salon, the incremental tax revenue from just one of these tech companies would almost equal the incremental tax revenue from all brick and mortar businesses statewide. Also, it wouldn’t require $1-2 billion annually to administer- the enterprise value of these companies are readily available.

    While brick and mortar/Main Street businesses – that are the lifeblood of city revenue streams – are declaring bankruptcy and hitting 52-week lows in record numbers, tech companies are hitting all-time highs and are getting through Covid unscathed. If Amazon or Facebook’s marketplaces directly compete with our community’s businesses, why should they not contribute in kind to our communities? Why is the mainstream media not framing this as a battle between the virtual and brick and mortar world?

    Absent a tax policy change, the more sales that occur online through untaxed IP, the less sales that occur at the tax burdened community level, the less revenue for communities and the larger the plug for the revenue loss. To keep increasing taxes on local, physical businesses only puts brick and mortar businesses at a larger competitive disadvantage and only perpetuates this community death spiral. I’d appreciate it if someone bucked the mindless trend of articles and investigated the ones pointing the finger, clamoring for “fair taxes” and analyzing the consequences of applying a tax fairly on the digital infrastructure and its creators who are intentionally calling attention away from themselves…

  6. Deborah 2 months ago2 months ago

    Prop 13 and its extensions allow the wealthy to pass down billion dollar homes and multibillion dollar businesses to their children, grandchildren and in-laws. If you think these tax breaks are passed on to small businesses, think again! They are then rented out at full market value and they walk away laughing to the bank while young people are unable to afford housing and California has a giant homeless problem because cities are forced to … Read More

    Prop 13 and its extensions allow the wealthy to pass down billion dollar homes and multibillion dollar businesses to their children, grandchildren and in-laws. If you think these tax breaks are passed on to small businesses, think again! They are then rented out at full market value and they walk away laughing to the bank while young people are unable to afford housing and California has a giant homeless problem because cities are forced to overtax new construction to make up tax losses so that the wealthy can get ahead even more!

    Demanding businesses like Disneyland pay their taxes isn’t too much to ask to improve the quality of life in our cities, to help make sure kids get a decent education! Even states that are less progressive than California have more money per pupil than California because they don’t have an outdated Prop 13 taking the taxes from the poor and subsidizing the wealthy!

    I’m tired of the country where the richest live in Camelot and the poor live on the streets and never have a chance to get ahead! Prop 13 was a mistake – even the man who wrote it realized that! There’s very little chance of overturning it but at least it’s time that 2 businesses sitting side by side have a level playing field in society! If the owner can’t afford to be taxed fairly, then they will need to be more innovative with the rest of new business trying to get into the California economy!

  7. Paul Rodriguez 2 months ago2 months ago

    Sure, why not. Unions already have all of today’s money, give them some more of tomorrow’s money. Great system, until the population flees and no one is left to pay for city services performed 40 years ago.

  8. Rob Benson 2 months ago2 months ago

    Zuckerberg-Chan are major funders of proposition 15?

    This entity is so far disconnected from other small mom and pop entrepreneurs, and second homeowners like myself that it is mind-boggling to me that they would even consider supporting this initiative.

  9. jskdn 2 months ago2 months ago

    Property tax allocation is complicated in California. But that doesn’t mean that citizens don’t deserve to have journalists attempt to explain it to them so they might have an informed opinion about that system. Prop 13 itself introduced unfairness in taxation through it’s time of purchase assessment that ignores changes in the real value of property, creating great disparities with artificial valuations for calculating taxes and hence horizontal disparities between citizens in the burden of … Read More

    Property tax allocation is complicated in California. But that doesn’t mean that citizens don’t deserve to have journalists attempt to explain it to them so they might have an informed opinion about that system.

    Prop 13 itself introduced unfairness in taxation through it’s time of purchase assessment that ignores changes in the real value of property, creating great disparities with artificial valuations for calculating taxes and hence horizontal disparities between citizens in the burden of funding government. Fixing that so that all taxpayers are treated equally under the law is the reform that’s needed. If commercial property isn’t paying their share based on the market value property, they aren’t alone. But Prop 15 isn’t about fairness between taxpayers, it’s about getting more money from taxpayers for those in government and those who get money from government.

    It’s worth noting that the legislature is also responsible for disparities in tax burdens originating with the legislation it enacted by using the pre-Prop 13 tax systems in jurisdictions to assign the share of 13’s statewide, uniform 1% tax rate to that went to fund schools vs local government. I see the responsibility of paying for the education any and all the children in California as something that should be equitably shared. It shouldn’t be a function of the accident of post-13 legislation or Prop 13’s assessment provisions. Disparities in the share of the 1% that goes to schools leaves disparities in what’s left over to fund local government and special districts. If taxpayers in a jurisdiction pay a higher percentage, then they have less available to fund their local government and either have to make that up elsewhere and/or have less services, and vice versa.

    There’s no reason taxpayers shouldn’t know the variation in how much of the 1% goes to schools by jurisdiction so they can understand where they fit in with their tax burden. The Board of Equalization has a data portal where you can see the percentage of Property taxes that go to schools, but I think it include the aggregate with voter overrides above the 1%.

  10. Timothy Morgan 2 months ago2 months ago

    Jerry Brown, in a rare debate maybe 10 years ago, readily admitted that he opposed Prop 13 and then "supported" it by enforcing it. It was not just his Jesuit-trained penchant for telling the truth, but an opportunity to acknowledge that that initiative law needed fixing. It passed the year I graduated law school (1978) and imposed long-term "fixes" on short-term problems. Very few people still benefit by 1978-level taxes on their … Read More

    Jerry Brown, in a rare debate maybe 10 years ago, readily admitted that he opposed Prop 13 and then “supported” it by enforcing it. It was not just his Jesuit-trained penchant for telling the truth, but an opportunity to acknowledge that that initiative law needed fixing. It passed the year I graduated law school (1978) and imposed long-term “fixes” on short-term problems. Very few people still benefit by 1978-level taxes on their homes. This is a very sensible fix, and the notion that small business after surviving the pandemic will be driven out of business is ridiculous.

  11. Jennifer Bestor 2 months ago2 months ago

    Ten years from now we’ll marvel at how Zuckerberg-Chan funded a measure that so seriously damaged every school district in their own backyard. As the proposition pulls $3 billion a year from San Francisco, San Mateo and Santa Clara counties — returning just 8% to local schools — someone will say, “Whoa, where did our normal commercial property tax growth go?!” And the answer will be Los Angeles. Not because of need, but because … Read More

    Ten years from now we’ll marvel at how Zuckerberg-Chan funded a measure that so seriously damaged every school district in their own backyard.

    As the proposition pulls $3 billion a year from San Francisco, San Mateo and Santa Clara counties — returning just 8% to local schools — someone will say, “Whoa, where did our normal commercial property tax growth go?!”

    And the answer will be Los Angeles. Not because of need, but because the mechanics of the measure so profoundly favor low-property-tax-allocation-to-education Los Angeles.

    Clever Los Angeles figured out that, if you got a sweetheart legislative deal in the chaos after Prop 13 — getting to funnel your own property tax to local city and county governments and getting the state to pay for your schools — you could double down on it. Put 26¢ into the statewide education pot for every dollar paid in your area and mandate that everyone else deposits 40¢ from theirs — then take out your full share through the ‘equitable’ school funding formula. Presto change-o. No need to pass parcel taxes.

    Even more clever, sweep all existing commercial property tax into a statewide pot and you can hand yourself a perpetual income stream.

    Commercial property assessment is complex. Property tax allocation is complicated. School funding is super complicated. Constitutional amendments are set in stone.

    Understanding none of these, thereby allowing the debate about this proposition to be “small business versus schools,” has been simply tragic.