CSAC Weighs in on Two Ballot Measures
September 3, 2020
Today the CSAC Board of Directors voted to take positions on two propositions that will be on the November ballot.
The CSAC Board of Directors voted to support Proposition 16. This measure, approved by the Legislature as ACA 5 (Weber), would repeal Section 31 of Article I of the California Constitution, which prohibits the State of California, including counties and other local agencies, from granting preferential treatment or discriminating based on race, sex, color, ethnicity, or national origin in matters of public employment or contracting. This section was adopted in 1996 with the passage of Proposition 209.
Proposition 16, if passed by voters, would not in and of itself implement any changes to state or local hiring, contracting practices, or public education. However, it would increase local control by allowing counties and other government agencies to implement affirmative action policies, within limits proscribed by federal law. In Regents of the University of California v. Bakke, the Supreme Court found that factors such as race are constitutionally permissible when used as one factor in government decision making in furtherance of a compelling public interest, but not a decisive factor without individual consideration. Therefore, if Proposition 16 were to pass, counties would be limited to programs that fall within the bounds permitted by the U. S. Constitution and federal law.
The CSAC Board of Directors voted to oppose Proposition 19. The purpose of this measure is to increase home sales by, first, allowing most homeowners to keep their accumulated tax benefit when purchasing a new home and, second, restricting the property tax benefit currently given to inheritors of real property.
Proposition 19 would 1) significantly expand the tax benefit for existing homeowners wishing to move, but 2) restrict the benefit for transfers of family property. It would also 3) establish funds with the intent of providing increased funding to certain fire protection districts and local agencies.
Under current law, homeowners who are over 55 or who are severely disabled are allowed to take their accumulated Proposition 13 tax benefit to a new home under a few conditions. First, the replacement property must become their primary residence and it must be worth no more than 10 percent more than their current home. Second, the new home must be located in the same county as the home they are moving from, or in one of ten counties that currently allow out-of-county home buyers to bring their tax benefit with them. Third, this portability is only allowed to be used once. (Those restrictions generally do not apply to taxpayers affected by disasters or contamination, or those whose property is acquired by a public entity.)
Proposition 19 would discard most of the restrictions on tax portability for homeowners who are over 55 or severely disabled. Their replacement home could be a home of any value anywhere in the state. In addition, they would be allowed to move with their accumulated tax benefit three times in their life, instead of the single occurrence allowed by current law. The measure would similarly ease restrictions for replacement homes for victims of wildfires and natural disasters.
Another part of Proposition 19 relates to the general rule that property be reassessed upon a change in ownership, specifically the exception for transfers from a parent to their child. Under current law, inherited property retains its accumulated tax benefit, as long as it stays in the line of descendants. Parents can transfer their primary residence and up to $1 million in value of other property, such as second homes or business properties, without reassessment. A grandparent may use these same provisions for transfer to their grandchild, but only if the parents of the grandchildren are deceased.
Proposition 19 would instead state that the transfer of a family home from a parent (or grandparent) to a child (or grandchild) does not count as a change in ownership subject to reassessment, as long as the home continues as the family home. To continue as the family home, the transferee must claim the homeowner’s tax exemption or the disabled veteran’s exemption at the time of transfer or within one year.
The tax benefit can only be used on the home’s taxable value plus $1 million, as determined at the time of the transfer. If the home’s fair market value is higher than that, the excess value is taxed at the full rate. The $1 million limit would be adjusted annually by the state to account for inflation (so, for instance, for transfers occurring in five years the benefit could be used on the home’s taxable value plus about $1.13 million).
Proposition 19 would extend the tax benefits enjoyed by family homes to family farms as well. However, the measure would eliminate the existing tax benefit for up to $1 million of other real property, such as other homes or business properties.
Finally, Proposition 19 would create two funds at the state level, the California Fire Response Fund and the County Revenue Protection Fund. The measure would require the Director of Finance to calculate increased revenues and net savings to the state resulting from the tax changes described above, if any. Of those increased revenues and net savings, 75 percent would be transferred to the California Fire Response Fund, to supplement funding for Cal FIRE and underfunded fire districts, and 15 percent would be transferred to the County Revenue Protection Fund, to mitigate any negative revenue impacts for local agencies resulting from the tax changes described above. However, give the state’s declining enrollment and the effect of that on Proposition 98 funding for schools, it is not clear whether these two funds would have any appreciable amount of money in them.
The fiscal effect for counties is uncertain, depending on how the law is interpreted and how it changes the behavior of property owners. On the high end, the Legislative Analyst’s Office estimated that a similar measure might result in increased revenue in the tens of millions of dollars per year collectively for local agencies, but also tens of millions in new costs for county assessors. On the low end, the measure could reduce local agency revenues by tens of millions of dollars in addition to increased costs to assessors.