California Proposition 5 could reduce property taxes, state funding

Schools and local governments could eventually lose up to $1 billion annually if a proposition to provide qualified homeowners a major tax break is approved.

Proposition 5, which will be on the November 2018 statewide ballot, would allow property tax savings for homeowners over 55 years old, homeowners with disabilities and homeowners affected by natural disasters across California. In turn, schools and local governments could lose up to $1 billion per year in property taxes, according to the California Legislative Analyst’s Office.

Proposition 5 will modify another proposition passed in 1978, which allows a qualified homeowner to transfer their previous, preferable tax base of their current residence to a new principal residence. The new house, according to the earlier proposition, must be of equal or lesser value. Proposition 5 would allow homeowners to buy a more expensive house while still paying the previous tax base.

Kirk J. Stark, a UCLA tax law and policy professor, said Proposition 5 will strengthen the effects of the earlier proposition, Proposition 13, which he said fundamentally changed the way property taxes have been implemented in California since it was passed in 1978.

Proposition 13 set a tax rate of 1 percent of a house’s price at the time of purchase, he said. Stark added a house might increase in value, but its property tax would still be based on the original price it sold for, not what it’s worth.

Stark also said other previously passed propositions allowed people under certain circumstances to receive tax benefits. If Proposition 5 passes, it would expand these benefits even further.

For example, under current law, qualifying homeowners can apply their tax benefits within the same county one time only. Proposition 5 would allow them to buy a house anywhere in the state and utilize this benefit as many times as they’d like.

Susan Reuben, a board member of the Holmby Westwood Property Owners Association, said she thinks approval of Proposition 5 would hurt schools that are paid for by property taxes. She added she thinks real estate agents are supporting the proposition because they will benefit from it.

“Real estate people are proposing this and are the ones encouraging it. They would be making double commissions and that is what’s happening right now,” Reuben said.

Lotus Lou, a spokesperson for the California Association of Realtors, said in an email statement the association sponsors Proposition 5 because it thinks it will create housing opportunities and generate more sales in existing neighborhoods. She added the association thinks seniors, people with disabilities and people affected by disasters should be allowed to move into more suitable homes without an increase in their property taxes.

Stark said he thinks this change will not encourage economic activity. He added he thinks Proposition 13 gave homeowners an incentive not to move so they could preserve their low property tax, and Proposition 5 will remove that obstacle at the cost of substantial revenue for the state.

“That means we’re going to be raising taxes somewhere else or cutting services: bigger classroom sizes, fewer police and firemen, less emphasis on assisting people in need,” Stark said. “All the things the state and local government do will be diminished if Proposition 5 is adopted.”

Matt Benowitz, Bruin Democrats external vice president, said he thinks Proposition 5 will hurt California’s economy, and people should not receive tax benefits based on their age. He added that he thinks the taxes on houses should reflect their value.

“Someone who’s already receiving social security benefits and is retired ought to contribute their fair share,” Benowitz said. “Inflation is a factor and over time you’re going to have different costs.”

Stark added he thinks Proposition 5 isn’t a good idea because property tax is a better source of revenue for local governments than alternative sources like income tax and sales tax.

“Tax policy is always about finding the right balance,” Stark said. “In the meantime, I don’t see any value for the state in adopting Proposition 5.”

Chelsea Dyapa, a third-year philosophy student, said she thinks Proposition 5 won’t benefit anybody except the qualified homeowners.

“It seems kind of fishy to me because it diminishes taxes from people who already own property,” Dyapa said. “It seems to benefit the already-rich homeowners.”

Stark also said this could affect students because property taxes are tied to the general state fund, and the proposition will require the state to prioritize where its funding goes, such as to university systems.

“The more revenue that is lost through these measures means that more money has to come from the state government. It’s going to be that much harder for the general system to fund the UC systems, the Cal State systems,” Stark said. “There’s a very obvious trend for how to deal with that, and that is to increase tuition.”