Credit: Allen J. Schaben/Los Angeles Times/PolarisVoters have rejected a large tax increase on commercial properties, depriving schools of what could have been a significant source of revenue. Backers of Proposition 15, the first major effort to revise the iconic tax limitation initiative, Proposition 13, since its passage in 1978, conceded defeat on Tuesday.
Although 1.5 million votes, about 10% of the total cast, remain to be counted, Prop. 15 has remained narrowly behind, with the margin of difference about the same as on Election Day: 48.2% for, 51.8% against.
The defeat leaves schools and community college without a prospect of additional long-term revenue while they’re facing a pandemic that has hit low-income communities particularly hard, and potentially years of funding cuts and slow economic growth. The initiative would have provided an estimated $2.5 billion to $4.5 annually statewide to schools and community colleges out of an estimated $10.3 billion to $12.6 billion in revenue, with the rest going to cities and counties where the commercial properties are located.
The new revenue promised by Prop. 15 would not have provided any relief right away, however. The funding would have been phased in over 5 years, starting in 2022-23 — a fact that both supporters and opponents underplayed in ads that emphasized immediate benefits or dire consequences.
Nonetheless, Pedro Noguera, dean of the USC Rossier School of Education, called Prop. 15’s defeat “a significant loss.”
“We had a chance to really move California forward in per pupil spending,” Noguera said on EdSource’s most recent podcast. “We have made some progress, but at best we’re in the middle of the pack now. We could do so much more and this has implications for California’s future.”
Dozens of prominent California Democrats announced their support, but Noguera said the lack of an identifiable spokesperson hurt the cause. Gov. Gavin Newsom nominally backed the initiative but didn’t campaign for it — unlike former Gov. Jerry Brown, who led the successful effort in 2012 to pass Prop. 30. It generated billions of dollars in additional temporary sales and income taxes.
Prop. 15 was an expensive and contentious campaign pitting Schools and Communities First, a coalition of community, religious and advocacy groups, and public service unions led by the California Teachers Association, against business and real estate interests, including the California Business Roundtable, the California Chamber of Commerce and the anti-tax California Taxpayers Association.
Next to the Prop. 22, the successful $220-plus million mega-fight by Uber, Lyft and DoorDash to establish their drivers as private contractors, not company employees, Prop. 15 was the second most expensive initiative, with more than $140 million raised. The No on Prop. 15 ended with a modest edge in money.
Prop. 15 would have changed rules for assessing properties for commercial and industrial properties while leaving Prop. 13’s provisions for homes and all apartments intact. That’s why it was referred to as a “split-roll” tax.
Under Prop. 13, the taxable value of a property can increase a maximum of 2% annually, and properties can be reassessed only when sold. Prop. 15 called for reassessing commercial properties every three years. Since some large commercial properties hadn’t reassessed in decades, their taxes might have risen multifold, particularly in the Bay Area and parts of Los Angeles.
Losers take heart, winners feel vindicated
Proponents were unbowed in acknowledging defeat.
“Nobody said it would be easy, but the Schools & Communities First coalition took on this fight for the right reasons — to address our state’s most pressing challenges and inequities by investing in Californians,” said Alex Stack, spokesman of Yes on Prop. 15. “Against all odds, Prop. 15 made history by taking on the status quo to ensure California becomes a more prosperous and equitable state for everyone.”
Elisha Smith Arrillaga, executive director of the advocacy organization Education Trust-West echoed that sentiment. “Schools lack the financial resources necessary to provide a high-quality learning environment for all students. Prop 15 presented an opportunity to reimagine how educational resources are directed rather than maintain the status quo,” she wrote in a statement.
California Teachers Association President E. Toby Boyd said he was heartened by the strength of the grassroots coalition that organized to pass Prop. 15. “We came very close, but we demonstrated the power of democracy in action. We demonstrated the difference we can make for ourselves and the next generation. That alone is a victory.”
Opponents said the defeat proved their point.
“From day one, we knew that if voters understood the harm this deeply flawed tax hike would impose on California’s economy and its families, farmers and small businesses, voters would reject this ill-advised effort,” said Rob Lapsley, president of the California Business Roundtable and co-chair of the No on Prop 15 campaign. “Today’s victory should send a clear message to the proponents and warn all politicians that voters will continue to reject attempts to dismantle Prop 13.”
Added Rex Hime, president and CEO of the California Business Properties Association, “Small businesses and property owners now have the opportunity to focus on making ends meet instead of formulating plans to close their doors. Every tax gets passed along or increases the cost of everyday goods and services. And that was certainly the case with Prop. 15.”
In several polls preceding the vote, support for Prop. 15 was just shy or slightly above 50%. But a rush of “No On 15” ads in the final weeks may have swayed wavering voters. Prop. 15 would have exempted owners of commercial properties valued less than $3 million. But small business owners in ads said the increased property taxes would be passed on to them in rents at a time when they’re already suffering losses due to Covid-19. Other ads falsely claimed Prop. 15 would equal a $900 tax increase for every family in the state.
Prop. 15’s defeat will likely discourage future efforts to change Prop. 13 — though it may not hold the same sway among young and middle-age voters born after its passage. A more palatable version of Prop. 15, further raising the exemption for small business, with a tradeoff of less revenue, could rise again someday. But Bob Blattner, a Sacramento-based consultant and a school finance expert, dismissed that as unlikely.
“The one thing we did learn is that Prop 13 is still the third rail of California politics,” he said. “You touch it even peripherally and you die.”
Ryan Smith, chief external officer for the L.A. Partnership for Schools, said that he hopes that the defeat of Prop. 15 will create the conditions for a more constructive dialog with the business community. “We have an economic imperative to ensure that our schools and communities are funded well because they are the future of our labor force,” he said. “Our business partners should come to the table with our community-based partners and many others so that we can have a discussion about what’s the long-term interest of the state.”
With Prop. 15’s defeat, many public school advocates will look to Washington for a significant federal bailout for schools, especially since CARES Act funding approved by Congress last March must all be spent by December. But the poor showing of Democrats in U.S. Senate races has dimmed those prospects.
“I think that most people believed that a Democratic trifecta, meaning a unified government where the Senate, the House and the presidency were all in same hands, was not only most likely but also would provide the most resources for schools,” said Blattner. “That’s looking pretty unlikely now.”
USC’s Noguera essentially agreed. “Education is still largely the state’s responsibility,” he said. “So we have to look to the state Legislature and to Gov. Newsom for some new ideas and new approaches to improve funding for our schools.”
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Geoffrey Sadwith 2 years ago2 years ago
Proposition 15 might have helped the school system -- to what degree we don't really know. Anything politicians say is suspect. But what would the downside have been? Residential and commercial landlords, property owners, would have been slammed with high property taxes -- and apt. building, office buildings, every store in California would be subject to huge tax hikes, and prices on all goods and services in the state would go sky … Read More
Proposition 15 might have helped the school system — to what degree we don’t really know. Anything politicians say is suspect. But what would the downside have been? Residential and commercial landlords, property owners, would have been slammed with high property taxes — and apt. building, office buildings, every store in California would be subject to huge tax hikes, and prices on all goods and services in the state would go sky high! Middle class Californians, basically 98% of the entire state, would be struggling to pay those taxes every year. Ultimately a disaster in the big picture. Would a statewide economic disaster be worth a few extra dollars to the schools?
Proposition 19 is bad enough, Proposition 15 would have killed us. Prop 19 limits the parent-to-child exclusion from paying reassessed property taxes … for middle class beneficiaries’ under Proposition 58 watering down homeowners’ ability to avoid property tax reassessment; weakening parent to child transfer rights, our ability to transfer parents property taxes when inheriting property taxes from parents. Force to move into an inherited home within 12-months as a primary residence only. This will cause so many problems, it’s hardly worth it either. Why weaken the only tax relief system we have, with Proposition 19, in the midst of a pandemic?
The Legislature should be strengthening property tax relief, not weakening it! There should be more tax reduction options, not less as the pandemic economy rages on and as unemployment and under-employment ravages the middle class.
Residents should be made more aware by the state government of current and new tax reduction options. Such as the ability to get a trust loan from a trust lender, in conjunction with Proposition 58, to buyout a co-beneficiary when inheriting property from parents — and, most importantly, to establish a low Proposition 13 level property tax base, basically forever for an inherited home.
A lot of Californians are not aware that they can challenge a tax assessor and reduce property taxes, saving thousands of dollars. Niche firms even offer a free tax reduction consultation and property tax appeal evaluation.
Most middle class people right now are struggling financially due to a pandemic crisis that received negative federal support for the first year! Beneficiaries inheriting property should be researching options available through Proposition 13 as well as Proposition 58. Property tax breaks like property tax transfer, the right to transfer parents property taxes and everyone’s ability to keep parents property taxes, can be verified at government sites like https://www.boe.ca.gov, or with niche articles such as https://medium.com/@geoffreysf1/ca-proposition-58-parent-to-child-exclusion-the-right-to-avoid-property-tax-reassessment-at-6661b2986217 and specific articles at first rate blogs such as https://propertytaxnews.org.
The more knowledge we have concerning tax breaks and property tax reduction solutions we have access to, the better we’ll be able to use these gifts and survive this pandemic.
Douglas Shartzer 2 years ago2 years ago
In a state where we are already overly burdened with taxes, the middle and poor are the ones paying for all these taxes. All expenses occurred by business owners and property owners transferred down.
The poor pay the price again.
Jennifer Bestor 2 years ago2 years ago
Last year, Proposition 15 kept almost nine hundred million dollars OUT of education. The legislature, not voters, directed $890,796,342 of education-allocated property tax away from schools and community colleges in five Bay Area counties. As a strategy to generate votes for Proposition 15, it worked brilliantly. And the price? Only an equitable education for a few hundred thousand kids, unknowing martyrs to the cause. Starving the poorest school districts in California's … Read More
Last year, Proposition 15 kept almost nine hundred million dollars OUT of education. The legislature, not voters, directed $890,796,342 of education-allocated property tax away from schools and community colleges in five Bay Area counties. As a strategy to generate votes for Proposition 15, it worked brilliantly. And the price? Only an equitable education for a few hundred thousand kids, unknowing martyrs to the cause.
Starving the poorest school districts in California’s wealthiest counties creates a spectacular contrast between privileged communities and those of color. And it leads homeowners to assume that someone else must be massively cheating, given their own sky-high property tax bills. It is fiscally unnecessary, but see how it generates votes:
The county with the largest redirection — San Francisco — had $292,373,902 of education-allocated property tax legislatively sidearmed to the county and city government, per the CDE’s 2019-20 Apportionment Web Exhibits. This represents almost $3000 per SFUSD student, and another $1500 per community college student. San Franciscans cast 71% of their ballots in favor of the proposition, the highest proportion in the state. Residents voted to raise $800 million in new local taxes, of which just $51 million would have flowed to San Francisco Unified, its charters, and SF community colleges. First identified less than two years ago, the growing windfall is defined as ‘excess’ by statute. The $292 million is handed off to a county/city government that already receives over twice the state average per resident in property taxes — $2,300 vs 1,000. Good for local governments, yes! Good for votes, yes! Good for kids, no.
Would this require an initiative to fix? No. Just 200 words in the Ed Code and a 50%+1 vote in the legislature.
Then there’s San Mateo County. Keeping $268,450,022 of existing education-allocated property tax — and away from East Palo Alto, Daly City, Pacifica and other state-funded districts — generated 59% in favor of increasing local taxes. Of the “$12 billion for schools and blah blah,” an additional $800 million would come from San Mateo — and just $42 million would have gone to local education. Handing off hundreds of millions of existing revenue by legislative fiat works! Revenue & Tax Code Sec. 97.2(d)4(B)i(III)) declares anything above the flat statewide school funding formula ‘excess’ to the education needs. These districts, like SFUSD, are crushed by super high regional costs. The same super-high regional costs drive super-high regional property tax receipts. San Mateo city, county and special district governments get 40% more than the state average — $1400 per resident already — then wolf down $270 million allocated for schools as the icing on their cake.
But wait! There’s more.
In Marin, $62,113,486 was turned away from Novato Unified, San Rafael Elementary, and other state-funded schools in the county. Result? 62% voted in favor of raising $100 million, of which just $15 million was for education. Were the city/county/special districts in this high-cost county underfunded? No, they were getting $1,500 per resident already — 50% more than the state average.
Santa Clara? $236,121,368 allocated to schools but not going there — producing a 55.5% yes vote. Santa Clara city/county/special district governments were already getting $1,200 per resident — 20% more than the statewide average.
Doubt my numbers? Head to the principal apportionment section of the CDE website at https://www.cde.ca.gov/fg/aa/pa/ . Drill down on the 2019-20 P-2 for the SELPAs in these counties (and Napa). Select the “Local Revenue” exhibit. Look at the bottom line. (You’ll have to do a bit of math for Santa Clara, as it has six SELPAs — or check the others and trust me on this one.) “Unused Excess ERAF” C-1 is education-allocated property tax that gets handed off outside education.
Thinking, won’t this year be lower? Actually, the numbers will grow, since property tax revenues increased 6%+ in these counties, in the face of a flat LCFF. But the LAO discovered that counties were not calculating their redevelopment obligations to schools correctly — and diddling Prop 98 Guarantee funding in the process. Even with those adjustments, there will still be at least $600 million. For more details — and to look at the property taxes per capita already flowing to local governments, check out the LAO’s February 2020 publication on Excess ERAF. https://lao.ca.gov/Publications/Report/4193
Can we please FIX this now? A simple regional cost supplement in the Local Control Funding Formula would not cost the general fund a red cent for the four hardest hit counties. The “more equitable, more rational” school finance system first proposed in 2008 — which became the Local Control Funding Formula — included regional costs and special education with its allowance for disadvantage. Who proposed it? Michael Kirst (President, California Board of Education, 1975 – 1982, 2011 – 2019), Alan Bersin (California Secretary of Education, 2005 – 2006; State Board of Education, 2006 – 2009; Superintendent of Schools, San Diego, 1998 – 2005), and Goodwin Lieu (California State Supreme Court, 2011-current; Associate Dean & Professor, UC Berkeley School of Law, 2003-2011; special assistant to the deputy secretary of the U.S. Department of Education, 1999-2000.) This isn’t a bright idea of mine. It’s simple economic equity.
And notice that I haven’t even mentioned this year’s legislative diversion of $9.4 billion of education-allocated property tax to satisfy state vehicle license fee obligations — while the “hold harmless” guarantee in its enabling legislation (SB 1096 (2004)) is only returning $6.4 billion of General Fund revenue to education. Or the $100 million that’s being taken from County Offices of Education to pay the state’s trial court costs — rather than allocated to special education.
Oddly, if you add these up, you’ll discover $4 billion of property tax allocated to education that isn’t getting there. Not that far off from the absolute maximum $4.4 billion that the proposition was supposed to generate.
We can keep punishing the poorest communities in the wealthiest counties to generate votes for propositions that funnel 60%+ of their proceeds to other governments. We can keep diverting property tax that’s allocated to education away from education. But let’s not blame voters who are living much closer to economic reality than the Bay Area bubble — who reject them.
Stan Sexton 2 years ago2 years ago
I have a great idea. Instead of a Prop 15 backfilling those huge CalPERS and CalSTRS pensions, maybe pensioners like Curtis Ishii can give half his $418,600 pension to education.
Esther Carl 2 years ago2 years ago
As a teacher in LAUSD, I voted no on Prop 15. Although I have been a member of the CTA for many years, I recently exited the union because their politics are radically left and, in my opinion, their policies do not put students first. I am witnessing first hand public education turn into a breeding ground for political propaganda. Even though I am a public educator, I recently pulled my children out of public education. Teachers … Read More
As a teacher in LAUSD, I voted no on Prop 15. Although I have been a member of the CTA for many years, I recently exited the union because their politics are radically left and, in my opinion, their policies do not put students first. I am witnessing first hand public education turn into a breeding ground for political propaganda. Even though I am a public educator, I recently pulled my children out of public education. Teachers and students are being used for the union’s political goals and pouring more money into this corrupt machine (via Prop 15) will only enable this abuse of power to continue.
Erik Kengaard 2 years ago2 years ago
Where is the rest of the story? Where are the poll results showing which communities voted for, and which against? Which communities benefit? Which lose?
Peter Schrag, some years ago, in Paradise Lost, tread the path of explanation, in code, of course.
Replies
Geoffrey Sadwith 1 year ago1 year ago
Erik has a good point. What I see – now that Prop 15 is thankfully gone, replaced by Proposition 19 – is the realtor community benefiting and the Legislature benefiting with extra property tax revenue.mBut certain residents, homeowners, are also benefiting from property tax relief, though maybe not as much as before. However, folks age 55 and up are benefiting more than ever from property tax relief, as are those who are victims of … Read More
Erik has a good point. What I see – now that Prop 15 is thankfully gone, replaced by Proposition 19 – is the realtor community benefiting and the Legislature benefiting with extra property tax revenue.mBut certain residents, homeowners, are also benefiting from property tax relief, though maybe not as much as before. However, folks age 55 and up are benefiting more than ever from property tax relief, as are those who are victims of natural disasters or forest fires, and people with severe disabilities.
Now that Prop 19 has passed, and we can admit that many Californians do have buyer’s remorse, we should still, in all fairness, all step back and acknowledge that, unlike other states, California still has property tax relief in the form of Proposition 19 and Proposition 13 – allowing not-wealthy middle class California homeowners and beneficiaries inheriting real property to transfer parents’ property taxes when inheriting property and inheriting property taxes – and to keep parents’ property taxes basically forever, establishing a low property tax base through a parent-to-child exclusion.
But the key here is being able to avoid property tax reassessment, as well as solving a widespread family estate conflict that involves siblings squabbling over “to sell or not to sell” the home they have inherited from their parents. Making note of the fact that siblings selling inherited property shares get much more money than selling to a conventional buyer, usually involving a broker or realtor, charging their 6% commission, legal fees, transaction fees, etc. I’d suggest going to the California State Board of Equalization for official rules & regs and facts, at https://www.boe.ca.gov – or visit a property tax blog like https://propertytaxnews.org or maybe a hands-on trust lender who can provide all sorts of practical facts, like https://cloanc.com for example. The more you know, the better off you’ll be when the situation arises that requires this kind of know-how!
Todd Maddison 2 years ago2 years ago
"The new revenue promised by Prop. 15 would not have provided any relief right away, however. The funding would have been phased in over 5 years, starting in 2022-23 — a fact that both supporters and opponents underplayed in ads that emphasized immediate benefits or dire consequences." Maybe the people are just tired of being lied to when it comes to school funding? How many ads did we see pushing the idea that Prop 15 was needed … Read More
“The new revenue promised by Prop. 15 would not have provided any relief right away, however. The funding would have been phased in over 5 years, starting in 2022-23 — a fact that both supporters and opponents underplayed in ads that emphasized immediate benefits or dire consequences.”
Maybe the people are just tired of being lied to when it comes to school funding?
How many ads did we see pushing the idea that Prop 15 was needed in part to provide resources to deal with Covid – including PPE and such. Of course the odds we’ll still be needing that for Covid two years from now are…. zero?
I’m not a “no new funding” guy when it comes to schools – we just need a way to do it that actually forces the money to be spent on our kids, not on higher pay and benefits for the adults as we’ve seen our Prop 30 funds used for exclusively.
Let’s stop lying to people. Let’s actually tell the public how existing funds are really being used before trying to pitch them on more.
Median total comp in my disrict for administrators is now $158,000/year. Median total comp for teachers is $120,242/year.
Let’s stop with the “our schools can’t possibly fund the services we need for our kids” story line and start talking about whether putting every spare dollar we have into pay and benefits for the adults is proving to be an effective way to improve education.
Mary Bachman 2 years ago2 years ago
So with the billions already received by education in CA, why is it you are incapable of staying within a budget? You must know the higher taxes on business directly transfers to the people. Shame on you.
Jim 2 years ago2 years ago
The state has much larger revenues than other states that spend more on K12. The Serrano v. Priest decisions moved the responsibility for funding to the state. State legislators have no interest in funding K12 as they see new programs they can attach their names to as better for their careers.
The amount of funding to the state will not fix this basic problem.