CC 07-21-20 #20 Proposition 15-3. Legislative Analysis_Written Communication ANALYSIS BY TH�LEGISLATIVE ANALYST
Legislative Analyst's Office
7/15/2020 3:00 p.m.
FINAL
Proposition 15 .
Increases Funding for Public Schools, Community Colleges, and
Local Government Services by Changing Tax Assessment of
Commercial and Industrial Property.
Initiative Constitutional Amendment.
BACKGROUND
Local Governments Tnx Property. California cities, counties, schools, and special districts
(such as a fire protection district) collect property taxes from property owners based on the value
of their property. Property taxes raise around$65 billion each year for these local governments.
Overall, about 60 percent of property taxes go to cities, counties, and special districts. The other j
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40 percent goes to schools and community colleges. These shares are different in different �
counties. �
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Property Includes Land,Buildings, Machinery, and Equipment. Property taaces apply to
many kinds of property. Land and buildings are taxed. Businesses also pay property t�es on
most other things they own. This includes equipment, machinery, computers, and furniture. We
call these things"business equipment."
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How Is a Properly Ta�c Bill Calculated7�ach property owner's a�inual property tar.bill is �
equal to the taxable value of their property multiplied by lheir property tax rate. The typical
property owner's property t�rate is 1.1 percent.
T�able Value of Lanrl and Buildings Is Based on Original Purchase Price. In the year a
piece of land or a building is purchased, its taxable value typically is its purchase price. Each
year after that, the property's taxable value is adjusted for inilation by up to 2 percent. When a
property is sold again, its taxable value is reset to its new purchase price. The taxable value of
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ANALYSIS BY THE LEGISLATIVE ANALYST
Legislative Analyst's Of£ice
7/15/2020 3:00 p.m.
FINAL
most land and buildings is less than what they could be sold for. This is because the price most
properties could be sold for grows faster than 2 percent per year.
Taxable Yalue of Business Equipment Is Bresed on How Much It Could Be Sol�for.
Unlike land and buildings, business equipment is taxed based on how much it could be sold for
today.
Counties Mnnrcge tlae Property Tax. County assessors determine the t�able value of
property. County tax collectors bill property owners. County auditors distribute tax revenue to
local governments. Statewide, counties spend about$800 million each year on these activities.
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PROPOSAL �
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Tax Commercial ancllnduslrial Lnnd and Buildings Based on How Much They Could Be �
5old for. The measure requires commercial and industrial (after this referred to simply as
"commercial") land and buildings to be taxed based on how much they could be sold for instead
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of their original purchase price. This change is put in place over time starting in 2022. The ��
change does not start befare 2025 for properties used by California businesses that meet certain I
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rules and have 50 or fewer employees. Housing and agricultural land continues to be taxed based
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on its original purchase price. �
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Some Lower Vnlue Properties Not Included. This change does not apply if the owner has
$3 million or less worth of commercial land and buildings in California(adjusted for inflation
every two years). These properties continue to be taxed based on original purchase price.
Reduce Ti�es on Bcisiness Equipment. The measure reduces the taxable value of each
business's equipment by$500,000 starting in 2024. Businesses with less than $500,000 of
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equipment pay no taxes on those items. All property taxes on business equipmsnt are eliminated
for California businesses thaYmeet certain rules and have 50 or fewer employees.
FISCAL EFFECTS
Increased Tirxes on Commercial Lnnd nnd Buildings. Most owners of commercial land and
buildings worth more than$3 million would pay higher property taaces. Only some of these
property owners would start to pay higher taxes in 2022. By 2025, most of these properiy owners
would pay higher taxes. Beginning in 2025, total property taaces from commercial land and
buildings probably would be $8 billion to $12.5 billion higher in most years. The value of
commercial property can change a lot from year to year. This means the amount of increased
property taxes also could change a lot from year to year. i
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Decreasecl Taxes on Business Equipment. Property taaces on business equipment probably :
would be several hundred million dollars lower each year. '
Money Set Aside to Pay Costs of t7ae Measure. The measure sets aside money for various �
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costs created by the measure. This includes giving several hundred million dollars per year to �
counties to pay for their costs of carrying out the measure. The measure would increase the 1
amount of work county assessors do and could require changes in how they do their work. l,
'Counties could have costs from the measure before new money is available to cover these costs.
The state would loan money to counties to cover these initial costs until new property tax
revenue is available.
New Funding for Local Governments and Schools. Overall, $6.5 billion to $11.5 billion per
year in new property taxes would go to local governments. 60 perceut would go to cities,
counties, and special districts. Each city, county, or special districYs share oPthe money depends
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on several things including the amount of new taxes paid by commercial properties in that
community.Not all governments would be guaranteed new money. Some in ivral areas may end
up losing money because of lower taxes on business equipment. The other�40 percent would
increase funding for schools and community colleges. Each school or community college's share
of the money is mostly based on how many students they have.
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