We disagree with David Newman and the JCRC’s support for Proposition 15, which they think will “redress unjust policies implemented more than 20 years ago in California,” respecting property taxes on commercial properties. It does not confront economic inequalities. It punishes tenants and people who own commercial property. While it would bring new funding to education and social programs, there are more equitable ways to achieve this goal.
We are not against the concept of an increase in property taxes on under-assessed commercial properties, nor opposed to the funds going to education. We are against Prop. 15.
Our biggest concern is that this proposition is choosing winners and losers. In this case, it is the tenants who will be the losers, not the landlords. Almost all commercial leases allow landlords to bill the tenant for any increase of property taxes. This means tenants will pay the tax. Leases are clear and concise — tenants will pay this tax increase, and will keep paying increases with every new reassessment.
For properties that have been held by the same owner since the enactment of Prop. 13 in 1978, this could mean an increase of more than 50 times what they are currently paying in property tax. For nonprofits (like this publication) and for thousands of small businesses — lawyers, accountants, small storefronts, etc. — this could mean thousands of dollars in increased rent. It likely will put many tenants out of business or force them to relocate.
Think of the buildings in San Francisco’s Mission District — filled with small businesses. Most of these buildings fall in the over $3 million value threshold, and many have been owned by families, not corporations. When the tax bill comes, landlords have choices — they can enforce the lease and make their tenant pay; they can absorb the tax, and look for a new tenant willing to pay the higher rent; or they can sell the building to developers that will build taller buildings. All of these options will result in a fundamental change in the neighborhood, one that will be repeated throughout the city and the state.
In the long run, rents will increase and absorb the new taxes, and landlords will pay only some of the new tax. In high-demand markets, like California, and the Bay Area in particular, a majority of these taxes will be borne by the tenants (and ultimately by their customers), not the landlord. In the short run, the impact is that many small businesses and service providers will not be able to survive. Keep in mind this disruption is after businesses are barely surviving due to Covid.
The proponents’ biggest argument is that big corporations are able to avoid the reassessment and higher taxes. Under Prop. 13, if a building is bought by an entity (a corporation or LLC versus a person) and if changes in the control or ownership of the entity do not change so that no one person or entity owns more than 50 percent, there is no reassessment. This allows the corporate ownership of a building to be sold to another entity and avoid higher property taxes. The specific sections on control and ownership are the problem, and the specific sections should be addressed without changing the whole system. The answer is — fix the loophole, do not make another problem.
Please don’t buy into the campaign ad rhetoric (on either side). Instead let’s fix the current problem, and not create a new problem. Vote no on Proposition 15.