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Thursday, Nov 30, 2023

A New Way to Hurt Our Businesses

 Don’t be fooled by the proponents of Proposition 15 who claim the so-called split roll tax proposition on the November ballot largely will spare smaller and medium sized businesses and consumers.It won’t. It will fall heavily on smaller companies – which we have a lot of in the Valley area. Prop 15 would end the tax protection that commercial properties got under the famous Proposition 13 passed in 1978. If Prop 15 passes Nov. 3 – it only takes a simple majority – it means commercial and industrial properties would be assessed for tax purposes under then-current market value. As it stands now, they are assessed at the time of the last sale. Residential properties would remain unaffected. Hence, we’d end up with split roll: commercial parcels would be assessed under a different standard than their residential cousins.That sounds innocuous enough, but the net effect would be the biggest property tax increase in history. It would transfer as much as $11.5 billion from the private sector to the state. Every year. That would equal more than 5 percent of the state’s budget.On the face of it, it’s hard to fantasize how a such a massive tax jolt could leave many state residents unshaken. But that’s what the Yes on 15 website would have us believe. It says Prop 15 leaves small businesses “protected” and the measure mostly would affect “a relatively small group of corporations with valuable properties….They include Disneyland and the Irvine Company in Orange County, studio and theme parks like Paramount and Universal Studios in Los Angeles…”OK, so the biggest commercial property owners will suffer the biggest tax hikes. That falls solidly in the “duh” category. What they leave out is that it would hurt small businesses and, well, virtually everyone.That’s because most small to mid-sized businesses are renters, and higher property taxes for the landlord simply get passed on to the renter. In fact, triple net leases are common. That means each tenant pays, in addition to their rent, their portion of the property taxes, insurance and maintenance costs. When the property tax bill comes in, it goes straight to the tenants – most of which, again, are small or mid-sized operations. I suspect that may be why small-business groups seem wide-eyed with fear about Prop 15 while big landlords, although opposed, are relatively muted.And what happens when businesses large and small all up and down the state of California get hit with the biggest property tax hike in history? They will pass the new costs on to their customers, of course. Yes, that means higher prices for everyone for pretty much everything, Disneyland tickets and all. For Prop 15 supporters to imply that consumers would be unaffected is obviously untrue and seems bizarrely disconnected from reality.The effect on the retail sector could be scary in spots. I don’t know if the   California Teachers Association, the SEIU California State Council, Mark Zuckerberg and the other funders of Prop 15 are aware of this, but retailers are hurting. How do you suppose struggling retailers such as Sears and Macy’s will react when they get whacked with huge property tax bills? For that matter, what happens to your neighborhood shopping mall when some of the few tenants still hanging on declare that the much higher property taxes are the last straw?  What happens to the office building when many of the tenants – who are already assuming they need less space going forward because the state-imposed lockdowns forced them to work remotely – see the property tax increase as a reason to downsize even more? And what happens to the hotel….well, you get the picture.Supporters point out that Prop 15 exempts properties less than $3 million in value as well as tangible personal property worth up to $500,000. That will help very small businesses and could be significant for them. But it’s the equivalent of a bone tossed to one of the underfed dogs.Prop 15’s supporters say the money raised from Prop 15 would supply “desperately needed” cash to underfunded public schools and community colleges. I don’t doubt that schools are underfunded, but that’s because the state legislature underfunds them. Californians pay plenty of tax money – 21 percent more than average on a per capita basis according to the Tax Policy Center – but the legislature chooses to spend all that money elsewhere. Maybe the supporters should hit up the profligate legislators instead of the overburdened taxpayers.This is a long way of saying: Vote no on Proposition 15.

Charles Crumpley
Charles Crumpley
Charles Crumpley has been the editor and publisher of the San Fernando Valley Business Journal since March 2016. In June 2021, it was named the best business journal of its size in the country – the fourth time in the last 5 years it won that honor. Crumpley was named best columnist – also for the fourth time in the last 5 years. He serves on two business-supporting boards and has won awards for his civic involvement. Crumpley, a former newspaper reporter, won several national awards and fellowships for his work, and he was a Fulbright scholar to Japan.

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