Item No. 1.
| MEETING DATE: August 17, 2020 |
|
| TO: | HONORABLE MAYOR AND COUNCILMEMBERS |
| FROM: | JIM SADRO, CITY MANAGER By: Rob Ferrier, Assistant to the City Manager |
| SUBJECT: | CONSIDER A REQUEST TO ADOPT A RESOLUTION IN OPPOSITION OF PROPOSITION 15 |
RECOMMENDATION:
That the City Council consider a request from the Orange County Taxpayers Association (OCTax) to:
A. APPROVE AND ADOPT RESOLUTION NO. ____ ENTITLED: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LA HABRA, CALIFORNIA, OPPOSING PROPOSITION 15 ON THE NOVEMBER 3, 2020, BALLOT AND AFFIRMATION OF SUPPORT FOR PROPOSITION 13 FOR ALL PROPERTY OWNERS; and
B. Provide direction to staff.
DISCUSSION:
The Orange County Taxpayers Association (OCTax) has requested the City of La Habra adopt a draft resolution (Attachment 1) in opposition to Proposition 15, which is a statewide ballot measure that will be considered by California voters on the November 3, 2020, ballot. The request was submitted to the City Council by OCTax, and Mayor Beamish and Councilman Shaw subsequently requested the matter be placed on the agenda for City Council discussion and consideration.
Background
Approved by California voters in 1978, Proposition 13 requires that residential, commercial, and industrial properties be assessed a property tax rate based on a property's purchase price. The tax is limited to no more than 1 percent of the purchase price, at the time of the purchase, with an annual adjustment equal to the rate of inflation or 2 percent, whichever is less. Because market values can increase at a rate greater than 2 percent per year, the current taxable value of residential, commercial, and industrial properties can often be lower than the property's market value.
If approved by voters, Proposition 15 would amend the California State Constitution and require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value rather than their purchase price. This proposed change, also known as a "split roll," would not affect residential properties, which would continue to be assessed property taxes in relation to their purchase price, subject to the annual adjustment described above.
If approved by the voters, the proposed change in how property taxes are assessed for most commercial and industrial properties would be phased in beginning in Fiscal Year 2022-2023. In some instances, certain commercial and industrial properties, such as retail centers whose occupants are 50 percent or more small businesses, would be taxed based on market value beginning in Fiscal Year 2025-2026, or at a later date as determined by the California Legislature. The ballot initiative makes an exception for properties whose business owners have $3 million or less in holdings in California, as those properties would continue to be taxed based on their purchase price.
Proposition 15 would also create a process in the state constitution for distribution of revenue from the revised tax on commercial and industrial properties. First, revenue would be distributed to the state to supplement anticipated decreases in revenue from the state's personal income tax and corporation tax due to an increase in the amount of tax deductions that could occur, as well as to counties to cover the costs of implementing the measure. Of the remaining revenue, 60 percent would be distributed to local governments and special districts, and 40 percent would be distributed to school districts and community colleges.
Background
Approved by California voters in 1978, Proposition 13 requires that residential, commercial, and industrial properties be assessed a property tax rate based on a property's purchase price. The tax is limited to no more than 1 percent of the purchase price, at the time of the purchase, with an annual adjustment equal to the rate of inflation or 2 percent, whichever is less. Because market values can increase at a rate greater than 2 percent per year, the current taxable value of residential, commercial, and industrial properties can often be lower than the property's market value.
If approved by voters, Proposition 15 would amend the California State Constitution and require commercial and industrial properties, except those zoned as commercial agriculture, to be taxed based on their market value rather than their purchase price. This proposed change, also known as a "split roll," would not affect residential properties, which would continue to be assessed property taxes in relation to their purchase price, subject to the annual adjustment described above.
If approved by the voters, the proposed change in how property taxes are assessed for most commercial and industrial properties would be phased in beginning in Fiscal Year 2022-2023. In some instances, certain commercial and industrial properties, such as retail centers whose occupants are 50 percent or more small businesses, would be taxed based on market value beginning in Fiscal Year 2025-2026, or at a later date as determined by the California Legislature. The ballot initiative makes an exception for properties whose business owners have $3 million or less in holdings in California, as those properties would continue to be taxed based on their purchase price.
Proposition 15 would also create a process in the state constitution for distribution of revenue from the revised tax on commercial and industrial properties. First, revenue would be distributed to the state to supplement anticipated decreases in revenue from the state's personal income tax and corporation tax due to an increase in the amount of tax deductions that could occur, as well as to counties to cover the costs of implementing the measure. Of the remaining revenue, 60 percent would be distributed to local governments and special districts, and 40 percent would be distributed to school districts and community colleges.
FISCAL IMPACT/SOURCE OF FUNDING:
According to the summary of the initiative prepared by the California Secretary of State, advocates of Proposition 15 estimate the initiative could generate as much as $6.5 billion to $11.5 billion in new revenue annually; however, it is not immediately clear how much or how quickly cities might benefit from any potential new revenue. For example, if the initiative were to be approved by voters, the California Legislature would still need to consider and adopt implementation legislation, which would not likely be forthcoming until six months or more after the initiative is adopted.
The League of California Cities, an advocacy organization working on behalf of local government, has not yet prepared any estimates of how much new revenue could potentially go to cities, citing the complexity of how property taxes would be assessed, the need to identify which properties are subject to the initiative and which may be exempt, and the need to clarify how property taxes would be collected and then allocated among the various taxing entities, such as the state, counties, cities, school districts, and special districts. For these same reasons, HdL, the City's property tax consultant, is also unable to provide any estimates of how much potential new revenue could be generated by Proposition 15 for the benefit the City of La Habra.
The League of California Cities, an advocacy organization working on behalf of local government, has not yet prepared any estimates of how much new revenue could potentially go to cities, citing the complexity of how property taxes would be assessed, the need to identify which properties are subject to the initiative and which may be exempt, and the need to clarify how property taxes would be collected and then allocated among the various taxing entities, such as the state, counties, cities, school districts, and special districts. For these same reasons, HdL, the City's property tax consultant, is also unable to provide any estimates of how much potential new revenue could be generated by Proposition 15 for the benefit the City of La Habra.
GENERAL PLAN RELEVANCE:
ED 9.1 Balanced Fiscal Practices
ED 9.2 Long-Term Fiscal and Infrastructure Viability
ED 9.2 Long-Term Fiscal and Infrastructure Viability