When Proposition 19 eked out a narrow victory in the November election, most California voters knew the measure had something to do with protecting wildfire victims, seniors and the disabled from higher property taxes.
What most California voters didn’t know is that Prop. 19 took away an important taxpayer protection that had been part of the state constitution for more than three decades: the ability for parents to pass property to their children without reassessment.
Under Proposition 13, the iconic taxpayer protection initiative passed overwhelmingly by voters in 1978, annual increases in the assessed value of property may not exceed 2% unless there are significant improvements to the property, such as adding a room, or if there is a change of ownership. In the first instance, the improvements are assessed at market value, while the rest of the property maintains its Prop. 13-protected assessment. Upon change of ownership, the entire property is reassessed to fair market value, generally the sale price.
In 1986, voters overwhelmingly passed Proposition 58, which changed the state constitution to create an exclusion from reassessment for certain properties transferred between parents and children. These transfers could include a home of any value plus up to $1 million of assessed value of other property. This second category encompassed income property such as apartment buildings or duplexes.
Proposition 19 repealed Proposition 58 and replaced it with a much narrower exclusion—except for family farms, only a parent’s principal residence that also becomes the principal residence of the child within one year is excluded from reassessment, and the exclusion is capped at $1 million above the current assessed value. Any other property that is transferred between parents and children is now reassessed to fair market value as of the date of transfer.
This means the owners of small apartment buildings who hoped to leave income property to their children will also be leaving the kids a new property tax bill that is 1% of the current market value on the day they inherit the property.
It’s already tough for small landlords to stay afloat, squeezed between rising costs and expanding rent control laws. Do the math with a new property tax bill based on the appreciated value of property almost anywhere in California, and it will break your pencil in two.
For people who worked hard their whole lives and invested in housing for income, hoping to provide future security for themselves and their children, Proposition 19 is a cruel trick that will force children to sell long-held family properties if they can’t come up with the cash every year to pay the new property tax bill.
In some cases, even selling the properties may be difficult. Buildings under rent control won’t pencil out for anybody if the property taxes are suddenly doubled, tripled or worse. Owners may incur high costs for paying tenants to relocate, and critically important housing stock could be demolished.
It was a different story entirely under Proposition 58. The children would have inherited the building with $1 million of the assessed value excluded from reassessment, and it is far more likely that the property would have continued to be utilized as much-needed rental housing.
Proposition 19 is having the same unfortunate effect on all small business properties, such as restaurants and retail stores. Family businesses that are passed on to the next generation are saddled with new property tax bills based on the market value as of the date of transfer.
For all these reasons, the Howard Jarvis Taxpayers Association opposed Proposition 19. HJTA is now taking action to reverse this cruel and unnecessary tax increase on California families.
HJTA worked with Assemblyman Kevin Kiley (R-Granite Bay) to craft Assembly Constitutional Amendment 9, which would reinstate Proposition 58. It would also restore Proposition 193, a 1996 measure that extended the same protections to transfers of property between grandparents and grandchildren if the children’s parents were deceased.
ACA 9 needs a two-thirds vote in each house of the Legislature to get on the ballot, and then it needs a simple majority of the electorate to become law.
HJTA urges all California property owners, as well as all tenants who rent apartments in family-owned buildings, to call their state representatives and urge them to support ACA 9. You can look up their names and contact information at findyourrep.legislature.ca.gov.
It will not be easy to persuade the current super-majority dominated Legislature to reverse a tax increase. It’s worth noting, however, that in 1986 the measure that became Proposition 58 was put on the ballot by a unanimous vote of both the Assembly and the state Senate. That gives you some sense of the intense public outrage that resulted from county assessors slamming families with sharply higher property tax bills after the death of a parent. Proposition 58 passed with more than 75% of the vote.
Public pressure could make that happen again. However, if the Legislature fails to act, the Howard Jarvis Taxpayers Association is considering all options to restore these constitutional protections for California families. We intend to restore Proposition 13 for our children.
Learn more at www.hjta.org/Reinstate58.
Jon Coupal is President of the Howard Jarvis Taxpayers Association – California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights. For more information, visit www.hjta.org.