Proposition 15 - Look into it, Please!

Image Attribution:www.danjacoby.com

 First, a bit of context and a brief history lesson. 

“Proposition 13 (officially named the People's Initiative to Limit Property Taxation) is an amendment of the Constitution of California enacted during 1978, by means of the initiative process. The initiative was approved by California voters on June 6, 1978. It was upheld as constitutional by the United States Supreme Court in the case of Nordlinger v. Hahn, 505 U.S. 1 (1992). Proposition 13 is embodied in Article XIII A of the Constitution of the State of California.” Source: Wikipedia.

 Two hallmarks of the amendment are - 1. values of ALL real estate, residential, commercial, or otherwise are fixed at their 1976 levels. Assessed values may increase annually by the rate of inflation not to exceed 2%. Exceptions are for a property which is sold or newly constructed. These are then assessed at their “new” values. 2. Maximum amount of any ad valorem tax on real property cannot exceed 1%. 

This “third rail” of California law has been in place since some of us wore shag haircuts and big-belled Levis. Thank goodness those had shorter shelf lives than the legislation!

Flash forward to now - 2020, the year of the pandemic.

A ballot initiative - Proposition 15 will appear on November 3. You can read the full text of the initiative here. California Proposition 15, Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative (2020) - Ballotpedia

 From the website above - Simply, “a yes vote on Proposition 15 supports this constitutional amendment to require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value, rather than their purchase price.”

Ok. I’m with you so far - you may be thinking. I don’t own commercial real estate, schools need our help, so what’s the big deal? Please read on.

Owners of commercial real estate either occupy the buildings they own or rely upon a tenant to pay them monthly. Commercial real estate exists in three main categories - office, retail, and industrial. Office buildings - ranging from high rise towers to two story garden varieties - house your physician, dentist, CPA, wealth advisor, tax attorney, insurance broker, residential real estate agent, homeowner’s association, news organization, non-profit outfit, and many others. Retail - neighborhood shopping, regional malls, power centers, strips, freestanding, big box, automotive - provide purchasing destinations for goods such as your cat’s food, groceries, apparel, and school supplies - or services such as your favorite bar, restaurant, theatre, or gym. Finally, industrial - generally manufacturing, service, or logistics providers - who domicile in concrete boxes. Some notables are aerospace tooling, plastic molding, warehouse distributors, and trucking outfits.

Commercial real estate is EVERYWHERE! Whether you own it or not - your life - employment, consumption, entertainment - is impacted by someone who does.

If Proposition 15 passes - in this author’s opinion - five things are certain to occur.

First, property taxes on commercial real estate will increase. Second, the increased property taxes may be used to fund local communities and schools. Third, owners of commercial real estate will pass along the increased property taxes to those companies that occupy the commercial real estate - read. Tenants. Fourth, tenants - faced with increased costs - will raise the prices of their goods and services to offset the increase. Fifth, you - as the consumer of said goods and services - will pay more.

Please, educate yourself on Proposition 15 and exercise your civic duty and vote.

 Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.