Prop 5 and Prop 10 Matter. Here is How I’ll Be Voting in November.

There are two notable real estate related initiatives on the ballot this November. Both initiatives could have a big impact on our cities and counties as well as our personal property rights and the real estate industry. Consequently, below are my thoughts about the two initiatives and a note on how I’ll be voting.

No on Prop 5: Despite the California Association of Realtors backing this proposition, I am voting against Prop 5.

First a quick refresher on Prop 13 (which plays into Prop 5). Prop 13 was voted into law in 1978. Prop 13 restricts increases on our assessed value (for both single family homes and commercial property) to a maximum of 2% a year. (This in a market where the value of our real estate has appreciated, on average, 6-8% a year during that same 40-year period.) A goal of Prop 13 was to keep grandma and grandpa from having to leave their homes because of limited incomes and increasing property tax bills. While Prop 13 has protected seniors from losing their homes, it has also greatly reduced property taxes and thus greatly reduced the amount of County revenue available for public services like schools.

Here's a quick example of how Prop 13 works:

A friend of mine bought his Berkeley bungalow in 1968 for $22,500. His current property tax is $3,179 per year. If he were paying property tax on the market rate value of his bungalow (now worth about $1,300,000) his annual property tax bill would be approximately $20,150. Prop 13 provides my friend an annual property tax savings of approximately $16,971.

But wait, there’s more!

There are two other propositions that play into Prop 5, Prop 60 and Prop 90. Prop 60 gives seniors the ability to transfer their lower property tax basis to a newly purchase home in the same county. Prop 90 permits seniors to transfer their property tax basis to a new County (if that said County permits them to do so).

Some counties have voted to allow Prop 90 transfers because they are trying to attract new buyers/citizens to their Counties. Other counties have decided not to participate in Prop 90 because they have found that their participation in Prop 90 has too great of an impact on their local property tax revenues and related services.

Prop 5 requires all California counties to accept property tax transfers. So, for instance, Inyo County (a sparsely populated County in the Sierra Nevada with just over 18,000 people) would be required to allow a property tax basis transfer from Alameda County where our population is well over $1.6 million people. Requiring these inter County property tax transfers could have a notably negative impact on these rural counties that are often already struggling to provide public services to their local populations.

Fiscal impact of Prop 5: “Annual property tax losses for cities, counties, and special districts of around $150 million in the near term, growing over time to $1 billion or more per year (in today’s dollars). Annual property tax losses for schools of around $150 million per year in the near term, growing over time to $1 billion or more per year (in today’s dollars). Increase in state costs for schools of an equivalent amount in most years.”

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