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California Proposition 5, Property Tax Transfer Initiative (2018)
| California Proposition 5: Property Tax Transfer Initiative | |
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| Election date November 6, 2018 |
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| Topic Taxes and Property |
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| Status On the ballot |
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| Type Amendment & Statute |
Origin Citizens |
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California Proposition 5, the Property Tax Transfer Initiative, is on the ballot in California as a combined initiated constitutional amendment and state statute on November 6, 2018.[1]
| A “yes” vote supports amending Proposition 13 (1978) to allow homebuyers who are age 55 or older or severely disabled to transfer their tax assessments, with a possible adjustment, from their prior home to their new home, no matter (a) the new home’s market value; (b) the new home’s location in the state; or (c) the buyer’s number of moves. |
| A “no” vote opposes amending Proposition 13 (1978) to change how tax assessments are transferred between properties for homebuyers who are age 55 or older or severely disabled. |
Overview
What changes would this ballot initiative make to state law?
Proposition 5 would amend Proposition 13 (1978) to allow homebuyers who are age 55 or older or severely disabled to transfer the tax-assessed value from their prior home to their new home, no matter (a) the new home’s market value; (b) the new home’s location in the state; or (c) the number of moves.[1]As of 2018, homebuyers over 55 years of age were eligible to transfer their tax assessments from their prior home to their new home if the new home’s market value is equal to or less than the prior home’s value and once in their lifetimes. Furthermore, counties, not the state, decide whether tax assessments can be transferred across county lines.[2]
If the new home is a different value than the prior home, the initiative would allow for an adjusted value between the old and new values.[1] If the new home has a higher market value then the prior home, the assessed value would be adjusted upward. If the new home has a lower market value then the prior home, the assessed value would be adjusted downward. The formulas for the adjustments would as follows:[2]
Upward adjustment: (assessed value of their prior home) + [(the new home’s market value) – (the prior home’s market value)]
- Example: An individual sold her house for $500,000. The house had a tax-assessed value of $75,000. She bought a new house for $800,000. The tax-assessed value of the new house would be ($75,000) + [($800,000)-($500,000)] = $375,000.
Downward adjustment: (assessed value of their prior home) × [(the new home’s market value) ÷ (the prior home’s market value)]
- Example: An individual sold his house for $500,000. The house had a tax-assessed value of $75,000. He bought a new house for $300,000. The tax-assessed value of the new house would be ($75,000) × [($300,000) ÷ ($500,000)] = $45,000.
What does Proposition 13 have to do with this ballot initiative?
California Proposition 13, the Tax Limitations Initiative, was on the ballot for the election on June 6, 1978. Voters approved Proposition 13. Proposition 13 required that properties be taxed at no more than 1 percent of their full cash value shown on the 1975-1976 assessment rolls and limited annual increases of assessed (taxable) value to the inflation rate or 2 percent, whichever was less. When a property is sold or transferred to new owners, however, the property is reassessed at 1 percent of its full cash value and the limit on increases to assessed value resets.[3]
In 1986, voters approved Proposition 60, which amended Proposition 13 to allow homeowners over the age of 55 to transfer the taxable value of their present home to a replacement home, assuming the replacement home was of equal or lesser value, located within the same county, and purchased within two years of selling the original home.[4] Proposition 13 was again amended in 1988 when voters approved Proposition 90, which allowed qualified homeowners age 55 or older to transfer the current taxable value of their original home to a replacement home in another county, but only if the county in which the replacement home is located agrees to participate in the program.[5]
Who is contributing to the campaigns surrounding this initiative?
As of July 22, 2018, there was one ballot measure committee registered in support of the measure—Homeownership for Families and Tax Savings for Seniors. The campaign had raised $7.20 million, with 58 percent from the California Association of Realtors Issues Mobilization PAC and 42 percent from the National Associaton of Realtors. As of July 22, 2018, there was no committees registered to oppose the initiative.[6]
Text of measure
Ballot title
The official ballot title is as follows:[7]
| “ | Changes Requirements for Certain Property Owners to Transfer Their Property Tax Base to Replacement Property. Initiative Constitutional Amendment and Statute.[8] | ” |
Petition summary
The summary provided for inclusion on signature petition sheets is as follows:[7]
| “ | Removes the following current requirements for homeowners who are over 55 years old or severely disabled to transfer their property tax base to a replacement residence: that replacement property be of equal or lesser value, replacement residence be in specific county, and the transfer occur only once. Removes similar replacement-value and location requirements on transfers for contaminated or disaster-destroyed property. Requires adjustments to the replacement property’s tax base, based on the new property’s value.[8] | ” |
Fiscal impact
- Note: The fiscal impact statement for a California ballot initiative authorized for circulation is prepared by the state’s legislative analyst and director of finance.
The fiscal impact statement is as follows:[7]
| “ | 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.[8] | ” |
Full text
The full text of the initiative is available here.
Support
The Homeownership for Families and Tax Savings for Seniors, a political action committee, was organized to sponsor the ballot initiative.[6]
The California Association of Realtors (CAR) developed the ballot initiative. Alex Creel, senior VP of governmental affairs for CAR, filed the initiative. CAR, in a statement about the initiative, said, “It’s important because seniors, who are often on a fixed income, fear they will not be able to afford a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of this ‘moving penalty’ almost three-quarters of homeowners 55 and older haven’t moved since 2000.”[9]
Arguments
Steve White, president of the California Association of Realtors, said:[10]
| “ | Many seniors live in homes that no longer fit their needs because their homes are now too big or too far away from their families. If they want to downsize or move closer to their children, they could face property tax increases of 100 percent, 200 percent or even 300 percent.[8] | ” |
The California Chamber of Commerce endorsed the ballot initiative, stating:[11]
| “ | California is facing a massive housing shortage and needs at least 100,000 additional new units a year to meet demand. The CalChamber Board voted to support this measure because it could help ease the shortage by freeing up modest-priced and move-up housing for young families.
The change is important because seniors, who often are on a fixed income, fear they will not be able to afford a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of this “moving penalty,” almost three-quarters of homeowners 55 and older haven’t moved since 2000. In addition, a recent estimate from the Legislative Analyst’s Office found that this initiative would increase home sales in the tens of thousands per year.[8] |
” |
Opposition
Opponents
Arguments
Rep. David Chiu (D-17) said he opposed the initiative:[13]
| “ | It doesn’t add housing, and it is going to make it harder for cities and counties to pay for schools, infrastructure and public safety to the tune of $2 billion per year. We’re in the midst of the most intense housing crisis our state has ever experienced, and this proposal does nothing to address it.[8] | ” |
Laura Clark, executive director of YIMPY Action, criticized the measure, saying:[13]
| “ | We’re talking about, once again, another tax giveaway to people who are wealthy.[8] | ” |
Campaign finance
| Total campaign contributions: | |
| Support: | $7,204,875.08 |
| Opposition: | $0.00 |
As of July 22, 2018, there was one ballot measure committee registered in support of the measure—Homeownership for Families and Tax Savings for Seniors, Sponsored by the California Association of Realtors. The committee had received $7.20 million, with 58 percent from the California Association of Realtors Issues Mobilization PAC and 42 percent from the National Associaton of Realtors. The committee had spent $6.14 million.[6]
As of July 22, 2018, there were no committees registered in opposition to the measure.[6]
Support
The contribution and expenditure totals for the committee in support of the initiative were current as of July 22, 2018.[6]
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Donors
The following were the donors who contributed to the support committee as of July 22, 2018:[6]
| Donor | Cash | In-kind | Total |
|---|---|---|---|
| California Association of Realtors Issues Mobilization PAC | $3,700,000.00 | $504,825.08 | $4,204,825.08 |
| National Associaton of Realtors | $3,000,000.00 | $0.00 | $3,000,000.00 |
Background
Proposition 13 (1978)
California Proposition 13, the Tax Limitations Initiative, was on the ballot for the election on June 6, 1978. Voters approved Proposition 13, with 64.79 percent voting for passage.[3][14] Howard Jarvis, who founded the Howard Jarvis Taxpayers Association, developed Proposition 13. He also worked with Paul Gann on writing the initiative.[15][16]
Proposition 13 required that properties be taxed at no more than 1 percent of their full cash value shown on the 1975-1976 assessment rolls and limited annual increases of assessed (taxable) value to the inflation rate or 2 percent, whichever was less. When a property is sold or transferred to new owners, however, the property is reassessed at 1 percent of its full cash value and the limit on increases to assessed value resets.[3]
Amendments to Proposition 13
The following ballot measures amended Proposition 13 to change who can transfer their home’s taxable value and how the transfers work:
- Proposition 58 (1986): Voters approved Proposition 58, which allowed the transfer of a principal residence between spouses or between parents and children without a reset on the home’s taxable value. In other words, the recipient of a house, whether a spouse or a child, would continue to pay the taxable value based on the limit set following the 1975-1976 tax assessment.[4]
- Proposition 60 (1986): Voters approved Proposition 60, which permitted homeowners over the age of 55 to transfer the taxable value of their present home to a replacement home, assuming the replacement home was of equal or lesser value, located within the same county, and purchased within two years of selling the original home.[4]
- Proposition 90 (1988): The voter-approved Proposition 60 allowed qualified homeowners age 55 or older to transfer the current taxable value of their original home to a replacement home in another county, but only if the county in which the replacement home is located agrees to participate in the program.[5]
Proposition 90 tax transfers between counties
In 1988, voters approved Proposition 90, which allowed qualified homeowners age 55 or older to transfer the current taxable value of their original home to a replacement home in another county, but only if the county in which the replacement home is located agrees to participate in the program.[5]
As of 2018, 11 counties in California had adopted ordinances to accept the tax transfers of qualified homeowners age 55 or older from the other counties allowing tax transfers between counties. For example, a person age 55 or older who sold a house in Los Angeles County would be allowed to transfer their original home’s taxable value to their new home in San Diego County, assuming the new home was of equal or lesser value than the original home.
Proposition 5 would allow homebuyers who are age 55 or older or severely disabled to transfer their tax assessments between any counties, not just the counties adopting ordinances for the transfers.[1]
The following map illustrates which counties allow for tax transfers between each other, as of 2018:[17]
Media editorials
Other opinions
- San Diego Union-Tribune (November 28, 2017) called for more thorough study on the initiative: “The Legislative Analyst’s Office warns that the measure could eventually lead to $2 billion or more in lost annual tax revenue. Realtors challenge this assertion and point to the new revenue that would come in as older homes worth $500,000 and more are finally taxed at their current value. This question needs more thorough study because the basic concept of the Realtors’ proposal makes considerable sense — at least if it can’t be readily gamed by wealthy people to limit their property taxes. Retirement security is a huge issue for millions of aging Californians on fixed incomes. Protecting this growing group is a good idea.”[18]
Path to the ballot
Process in California
In California, the number of signatures required for an initiated constitutional amendment is equal to 8 percent of the votes cast in the preceding gubernatorial election. Petitions are allowed to circulate for 180 days from the date the attorney general prepares the petition language. Signatures need to be certified at least 131 days before the general election. As the verification process can take multiple months, the secretary of state provides suggested deadlines for ballot initiatives.
The requirements to get indirect initiated state statutes certified for the 2018 ballot:
- Signatures: 585,407 valid signatures were required.
- Deadline: The deadline for signature verification was June 28, 2018. However, the suggested deadlines for turning in signatures was March 7, 2018, for initiatives needing a full check of signatures and April 24, 2018, for initiatives needing a random sample of signatures verified.
Signatures are first filed with local election officials, who determine the total number of signatures submitted. If the total number is equal to at least 100 percent of the required signatures, then local election officials perform a random check of signatures submitted in their counties. If the random sample estimates that more than 110 percent of the required number of signatures are valid, the initiative is eligible for the ballot. If the random sample estimates that between 95 and 110 percent of the required number of signatures are valid, a full check of signatures is done to determine the total number of valid signatures. If less than 95 percent are estimated to be valid, the initiative does not make the ballot.
Initiative #17-0013
Proponents filed three versions of the initiative: Initiative #17-0011, Initiative #17-0012, and Initiative #17-0013.[19] Initiatives #17-0011 and #17-0012 would have allowed homebuyers of all ages to blend the tax amount due on their old property and the tax amount due on their new property.[20][21]
Alex Creel, senior VP of governmental affairs for the California Association of Realtors, said the group would begin polling the three proposals and select one to collect signatures for at the group’s meeting in San Diego in mid-October 2017.[22] The association selected Initiative #17-0013, rather than #17-0011A1 or #17-0012A1, to collect signatures for. Creel said the group would aim to collect around 1 million signatures and was willing to spend $20 million to $50 million on a campaign.[23]
Alexander Creel submitted a letter requesting a title and summary on July 20, 2017. A title and summary were issued by the California attorney general’s office on September 25, 2017, allowing petitions to begin collecting signatures. By January 5, 2018, supporters of the initiative had collected 25 percent of the required signatures. On March 26, 2018, the support committee reported filing 960,361 signatures for the ballot initiative.[24] Counties had until May 17, 2018, to conduct a random sample of signatures.[25]
On May 17, 2018, the secretary of state’s office announced that the random sample of signatures indicated that 731,019 signatures were valid—145,612 more than was required. As 960,361 signatures were filed, the validation rate was 78.92 percent.[26]