California to vote on realtors-backed property tax transfers and exemptions initiative in November

On April 23, 2020, the office of Secretary of State Alex Padilla announced that a random sample of signatures projected that enough were valid for the California Association of Realtors’ (CAR) initiated constitutional amendment to appear on the ballot for November 3, 2020.

Some of the ballot initiative’s provisions are similar to CAR’s 2018 ballot initiative, Proposition 5, which was defeated. Like Proposition 5, the ballot initiative would increase opportunities for eligible homeowners to transfer their property’s tax assessment to a new home.

In California, properties are taxed at no more than 1 percent of their market value at the time of their purchase (with an exception for voter-approved taxes) and assessed value can increase each year based on the inflation rate or 2 percent, whichever is lower. According to the California Legislative Analyst, residential market values have increased faster than 2 percent per year in the state. Therefore, movers could have higher tax bills on their new home than their old home, despite the new home having a similar or lower market value than the old home. In 1986 and 1988, voters approved ballot measures that allowed eligible homeowners to transfer the taxable value of their sold home to a newly purchased home, with limitations. Homeowners who are eligible for tax assessment transfers are persons over 55 years old, persons with severe disabilities, and victims of natural disasters and hazardous waste contamination.

The ballot initiative would allow eligible homeowners to transfer their tax assessments anywhere within the state, increase the number of times a tax assessment can be transferred from one to three, and allow tax assessments to be transferred to a more expensive home with an upward adjustment.

Unlike Proposition 5, the ballot initiative would address reassessments for inherited properties and changes in ownership of business properties. In California, parents or grandparents can transfer their properties to their children or grandchildren without the property’s tax assessment resetting to market value, which would happen upon sale to someone else. For vacation homes, business properties, rental properties, and other types not used as the parent’s main residence, the first $1 million of taxable value is exempt from re-assessment when transferred. The ballot initiative would require that properties not used as main residences be reassessed at market value when inherited; therefore, the first $1 million would no longer be exempt. The reassessment exemption on residential properties would also change so that the first $1 million would not be reassessed but the remaining value would be.

CAR’s 2020 ballot initiative would also require that a legal entity’s property be reassessed to market value if 90 percent of a legal entity’s ownership changes, even if no one person or entity acquires more than 50 percent. Currently, the property is only reassessed if one person or entity acquires more than 50 percent of a legal entity’s ownership.

In 2018, opponents of Proposition 5 emphasized the fiscal analyses of the ballot measure, which suggested that local governments and school districts would lose $2 billion or more per year in the long term. CAR’s 2020 ballot initiative would have a net positive effect on local and school revenue, according to the California Legislative Analyst. While the expansion of opportunities for eligible homeowners to transfer their property’s tax assessment to a new home would cause a decrease in revenue, the ballot initiative’s changes to inherited properties and ownership transfers would cause an increase. CAR has said the ballot initiative would encourage people, especially seniors, to downsize their homes, which would increase the housing stock for young families.

Through April 17, 2020, which is when the most recent campaign finance report was filed, the campaign behind the ballot initiative has raised $12.15 million from CAR and the National Association of Realtors. In 2018, the Proposition 5 campaign received $13.22 million.

The ballot initiative is the fifth citizen-initiated measure certified for the general election ballot in California. As of April 24, three additional ballot initiatives were pending signature verification. The deadline for signature verification is June 25, 2020, but the state’s recommended deadline to file signatures was April 21, 2020. The California State Legislature could also refer constitutional amendments, bond issues, and statutes to the ballot.

Additional reading:
California 2020 ballot propositions
California Proposition 5, Property Tax Transfer Initiative (2018)