Shopping Centers Today International

DEC 2015

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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Page 121 of 143

commercial property for more draco- nian treatment," Coupal said. "That's not good in any state." At issue is the Proposition 13 tax- payer protection law, which Jarvis co-au- thored and which the voters approved by a 65 percent majority in 1978 to stave off rapid increases in the tax rate or taxable property values. The measure set the tax rate for all property types at a uniform 1 percent of market value as of that year and set a limit on future increases in assessed property value of no more than 2 percent annually. A change in ownership triggers a reas- sessment to current market value, typi- cally equal to the sales price, with the 2 percent annual increase cap in place for the future. Several groups have mounted campaigns in recent years to overturn portions of Proposition 13 and single out commercial properties for additional taxation. "In the last cou- ple of years, I've sensed a renewed push for a split roll," Coupal said. There are billions of dollars in new tax collections at stake. One University of Southern California study estimated that local governments could collec- tively pull in an additional $9 billion in the 2019–2020 tax year by boost- ing taxable assessed values on all com- mercial properties up to market value, while leaving assessment practices for residential and agricultural proper- ties unchanged. USC's Dornsife Pro- gram for Environmental and Regional Equity published the study in May, ti- tled Getting Real About Reform: Estimating Revenue Gains from Changes to California's System of Assessing Commercial Real Estate. Yet exposing commercial properties to more-frequent assessments and, as some reformers have proposed, annual tax increases greater than the current 2 percent cap would be bad for the state economy, argues Rex Hime, president and CEO of the California Business Properties Association. "One of the major values of California property since Prop 13 has been that you know with certainty what that is going to cost you annually when it comes to property taxes," Hime said. "Some economists say that if we were to go to this new system, there would be a 7 or 8 percent drop in the value of commercial real es- tate in California." A decline in commercial property value would bring down the net as- set value of REITs, pension funds and other commercial owners of California properties, Hime contends. In a state with already high costs of living and of doing business, tax volatility would drive some companies out of the state — and of course they would take their jobs with them, he says. "So you have loss of value, a great deal of uncertainty, a loss of jobs just as we are getting back on our feet, and you have another disincentive for people to locate or expand here," Hime said. "And given the fact that so much commercial real estate in Cali- fornia is in various pension funds and investment groups, it certainly would have an impact on things way beyond the boundaries of California." So far, opponents of Proposition 13's protections for commercial prop- erty owners have lacked sufficient sup- port to substantially change the law, thanks in part to information cam- paigns by taxpayer and business groups that are intent on preserving the mea- sure, including ICSC, the California Business Properties Association, the Howard Jarvis Taxpayer Association and others. In the 2013–2014 legislative session alone, pro-business groups successfully stymied five bills in the state Senate and two more in the Assembly that sought to undermine various portions of Prop- osition 13, according to the Jarvis Tax- payer Association. The fight continues, however, as both sides endeavor to convince law- makers and voters that fairness and equitability are on their side. One ef- fort to rework Proposition 13 fizzled out as recently as September, when legislators concluded the 2014–2015 session without voting to put a consti- tutional amendment on the Novem- ber 2016 ballot. That measure, State Constitutional Amendment 5, would have created a split tax roll allowing commercial properties to be taxed dif- ferently from residential properties and required a phased-in reassessment of most commercial properties to be taxable at current market value. State Sen. Loni Hancock, who co-au- thored the proposed amendment with Sen. Holly Mitchell, had submitted a similar bill in the Assembly in 2003, when she served in that chamber. That earlier measure, which failed to reach the ballot, proposed a split tax roll and annual reassessments of commercial properties. In a June 10 statement in- troducing a slimmed-down version of Senate Constitutional Amendment 5, Hancock described the measure as addressing "structural flaws in the commercial property side of Prop 13 that have allowed a minority group of wealthy corporations and commercial property owners to dramatically lower their tax bills and shift that responsi- bility onto home owners and renters." The authors attempt to support that position in the text of the bill itself, 122 S C T / D e c e m b e r 2 0 1 5 "Some economists say that if we were to go to this new system, there would be a 7 or 8 percent drop in the value of commercial real estate in California."

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