This article has been saved to your Favorites!

Calif. Gov. Endorses Partial Rollback Of Property Tax Limits

By Abraham Gross · September 14, 2020, 7:34 PM EDT

California's governor threw his support behind a November ballot initiative that would alter the state's decades-old property tax law to help make up budget shortfalls caused by the novel coronavirus pandemic.

In a release issued Friday, Democratic Gov. Gavin Newsom said he endorses Proposition 15, which would raise an estimated $12.5 billion annually by removing commercial and industrial properties from certain state constitutional tax protections enshrined in California's 42-year-old property tax law.

"It's a fair, phased-in and long-overdue reform to state tax policy, it's consistent with California's progressive fiscal values, it will exempt small businesses and residential property owners," he said. "Most importantly, it will be decided by a vote of the people."

Under current law, the state is required to use the purchase price to assess and tax all residential, commercial and industrial properties and limits that tax to 1% of the purchase price with minimal annual adjustments for inflation. Prop 15 would switch certain commercial and industrial properties to being assessed on their fair market value.

Among his endorsements for various other propositions, Newsom also pledged not to sign legislation that would increase income taxes, putting him at odds with other members of his party who have proposed tax hikes on the state's top earners to bolster the fiscal standing of the cash-strapped state. 

Newsom signed a budget in June that accounted for a $54.3 billion revenue drop attributable to the pandemic through net operating loss deduction suspensions, tax credit limitations and spending cuts that would be triggered if the state doesn't receive additional federal aid. 

California's top tax rates were last raised in 2012 when voters approved Proposition 30, which temporarily increased them until 2019. Voters later extended those increases through 2030 when they approved Proposition 55 in 2016.

Business groups criticized Newsom's endorsement of Proposition 15, warning of the economic fallout from changing the state's property tax law in the midst of a recession.

Robert Spiegel, a policy advocate for the California Farm Bureau Federation, told Law360 that the group opposes the proposition because its exception for agricultural land leaves out improvements and fixtures, which can range from fruit trees and vineyards to barns and irrigation systems.

"For us California farmers and ranchers, a lot of the improvements and infrastructures that we put on our land is all about adding to the value that we produce," Spiegel said.

He added that the property tax law changes would also expose third parties and support industries, such as food processors and commercial packagers, to increased costs that would be passed down to consumers.

"It's not just the raw agricultural commodity — the rancher, the farmer etc. — but it's also the larger supply chain," Spiegel said.

The California Retailers Association said the measure would further burden retailers already struggling to stay afloat during the pandemic.

"For retailers, this means either higher property taxes or soaring rents when the state should be doing everything it can to help businesses get back on their feet," the group said in a news release.

Shannon Grove, the state senate Republican leader from Bakersfield, said in a statement to Law360 that "with millions of unemployed Californians and thousands of shuttered businesses, Gov. Newsom wants to raise taxes again, because there isn't a tax increase he doesn't love."

The association and the offices of Newsom and leadership of the majority and minority in the state Assembly and majority in the Senate did not immediately respond to requests for comment Monday.

--Additional reporting by Maria Koklanaris, Paul Williams and James Nani. Editing by Neil Cohen.

Update: This story has been updated with comment from Grove. 

For a reprint of this article, please contact reprints@law360.com.