California Proposition 15 was a failed citizen-initiated proposition on the November 3, 2020, ballot. It would have provided $6.5 billion to $11.5 billion in new funding for public schools, community colleges, and local government services by creating a "split roll" system that increased taxes on large commercial properties by assessing them at market value, without changing property taxes for small business owners or residential properties for homeowners or renters. The measure failed by a small margin of about four percentage points.
Proposition 15 would have amended the Constitution of California to adjust the limitations on property taxes introduced by 1978 California Proposition 13. It would have changed the property tax assessment on owners of commercial properties with a combined value of greater than $3 million to pay property tax based on the property's current market value, not purchase price. The measure would have exempted all agricultural land and small businesses that owned their own properties. It also included a small business tax cut by increasing the small business personal property tax deduction. All residential properties for homeowners and renters were exempt and other special circumstantial exemptions were provided under the proposition, such as an exemption for rental units or properties with a higher value in which the owner does not in the property (in this case, the tax would have been based on the market value of the property starting in 2022).
According to the official ballot summary, Proposition 15:
Would have raised $8 billion to $12.5 billion in new funding—$6.5 billion to $11.5 billion after the costs of implementation—in new funding. First, funding would have gone to the state to supplement for the decreasing tax revenue. Only 60% of the remaining funding will go to local government services such as public health, safety and fire prevention and only 40% of the remaining funding will go to K–12 public schools and community colleges. Would have required commercial properties worth $3 million or more to be taxed at fair market value—not purchase price Would have exempted small businesses, agricultural lands and residential properties for homeowners and renters Would have cut taxes for small businesses by reducing personal property taxes According to the official voter information guide:
"A YES vote on this measure means: Property taxes on most commercial properties worth more than $3 million would go up in order to provide new funding to local governments and schools." "A NO vote on this measure means: Proposition 13 still stands—property taxes on commercial properties would stay the same. Local governments and schools would not get new funding."
It was one of two ballot measures on the 2020 California ballot that would adjust the original Proposition 13, the other being Proposition 19.
Background In 1978, the California voters passed Proposition 13, which limited property taxes to 1% of assessed value, limited increases in assessed value to at most 2% per year, and set assessed value at the 1975–76 value. The assessed value only changes when the property is sold, when there is new construction on the property, or when a change of ownership otherwise occurs.Cal. Const., art. XIII A, § 2, subd. (a). This led to a 60% decrease in property tax revenue collected by local governments the year after Proposition 13 was passed, and forced local authorities in California to subsequently rely on sales taxes, which are more regressive, as well as on state government funding originating from California's personal income tax, which is more progressive but also more volatile.
If Proposition 15 passed, it would have required owners of large commercial, non-residential properties of a combined value of over $3 million to pay property taxes based on current market value, not purchase price. Owners of commercial parcels with a combined value of under $3 million and owners of agricultural or residential property would still be covered by Proposition 13. This type of "split roll" property tax system would have resulted in most owners of large commercial properties paying higher property taxes commensurate with the property's current market value, without changing property taxes for small businesses, agricultural lands, or residential properties. Upon this proposition passing, there would have been a reduction in taxes on business equipment. The amount of funding allocated to the local government and schools is dependent on the Local Control Funding Formula.
Property transfer loophole
Some businesses have exploited a property transfer loophole in Proposition 13 implementing statutes created by the California LegislatureProposition 13 implementing statutes were adopted by the California Legislature and are not part of the actual constitutional provisions of Proposition 13. that define what constitutes a change in property ownership.Chapter 2 of Part 0.5 of Division 1 of the California Revenue and Taxation Code. To take advantage of this loophole, businesses only have to make sure that no change in ownership exceeds 50% in order to avoid a property tax reassessment.
One of the world's largest investment firms The Blackstone Group, for example, avoided paying $2.7 million in property taxes when they purchased 49% ownership of a San Francisco property in 2017. The Trump Organization, owned by Donald Trump, is another notable property owner who has avoided millions of dollars in California property taxes as a result of the loophole. In 2018, the California Board of Equalization estimated that closing this loophole would raise up to $269 million annually in new tax revenue.
The Legislature could close the property transfer loophole with a 2/3 vote. The loophole was almost closed in 2014 by a bipartisan coalition in the state legislature but the effort died after progressive politicians, organized labor, and community groups refused to support the effort. In 2015 and 2018, Republican efforts to fix this loophole were stalled by Democratic state legislators in legislative committee. Another Republican attempt to close the loophole was made in 2020. Democrat Don Perata, former California senate leader, said this loophole is left open by his party to create justification for ending Proposition 13.
Support
Political endorsements This measure was supported by over 650 federal, state, and local elected officials and the California Democratic Party. Notable endorsements include:
Newspapers: Los Angeles Times, The New York Times, The Sacramento Bee, San Francisco Chronicle Candidates for president and vice president: Former Vice President Joe Biden and U.S. Senator Kamala Harris U.S. senators: Bernie Sanders, Elizabeth Warren, and Cory Booker U.S. representatives: Barbara Lee, Ro Khanna, Karen Bass Statewide elected officials including Governor Gavin Newsom, Secretary of State Alex Padilla, State Insurance Commissioner Ricardo Lara, State Controller Betty Yee, and Superintendent of Public Instruction Tony Thurmond 8 CA State senators including President Pro Tem Toni Atkins, Nancy Skinner, Scott Wiener, and Bob Wieckowski 21 CA State assembly members including Speaker pro Tempore Anthony Rendon 66 mayors including Los Angeles Mayor Eric Garcetti, San Francisco Mayor London Breed, Oakland Mayor Libby Schaaf and Sacramento Mayor Darrell Steinberg 9 counties including Alameda, Los Angeles, Santa Clara, and San Francisco 340 school board members and 182 city council members
Organizational endorsements The measure was also supported by a broad coalition of over 900 education, health and public service employees, and advocacy groups. Notable endorsing organizations included:
Education advocates: California State PTA, California Federation of Teachers, California Teachers Association Health and public safety unions: California Nurses Association, Service Employees International Union (SEIU), American Federation of State, County and Municipal Employees, California State Firefighters Association Civic organizations: League of Women Voters of California, ACLU of Northern and Southern California, Planned Parenthood Affiliates of California, Dolores Huerta Foundation Environment groups: Sierra Club California, California League of Conservation Voters, Natural Resources Defense Council Agriculture: Community Alliance with Family Farmers, California Climate and Agriculture Network Business: Consumer Federation of California, Silicon Valley Minority Business Consortium, Kern County Black Chamber of Commerce, Sierra Business Council Housing: California Housing Partnership, California Coalition for Rural Housing, Housing California, Non-Profit Housing Association of Northern California, Southern California Association of Nonprofit Housing Senior advocates: California Alliance for Retired Americans, California Retired Teachers Association, Senior and Disability Action Philanthropy organizations: California Community Foundation, The Chan-Zuckerberg Initiative, United Ways of California Racial and social justice groups: California Calls, PICO California, Courage California This initiative attracted 1.7 million signatures as part of the ballot initiative campaign, a number which organizers describe as 'record-breaking'.
Donations The Yes on Proposition 15 campaign raised over $67.6 million mostly from foundations and public service unions. The top 3 contributors were the Chan Zuckerberg Initiative, California Teachers Association, and SEIU California.
Supporter arguments Supporters said Prop 15 is a broad coalition of 1600 organizations launched by civil rights organizations, housing groups, parents, teachers, nurses, firefighters and community-based organizations who advocate for equality and justice for communities of color.
Supporters stated that 92% of the revenue generated from Prop. 15 would be paid by 10% of the highest value commercial properties based on a study using the assessor's property tax data. Almost half of the revenue generated would be paid by properties that have not been reassessed since before 2000.
Supporters cited a report that Proposition 15 will not impact small businesses, including those who rent and are in triple net leases. The report was published by Beacon Economics and commissioned by the Silicon Valley Community Foundation. The study said that rents are determined by the local market, not by the property taxes paid.
U.S. President-elect Joe Biden said: "Every kid deserves a quality education, and every family deserves to live in a safe, healthy community. That's why I support Prop 15." while previous U.S. Senator from California and Vice President–elect Kamala Harris, also a supporter, stated: "A corporate tax loophole has allowed billions to be drained from our public schools and local communities. No more. I'm proud to support Prop 15."
Proponents of the split roll property tax system said the intent of Proposition 13 was to protect residential property taxes from spiking and say the broad application of Proposition 13 to corporate property is a loophole.
Governor Gavin Newsom announced his endorsement of Proposition 15, calling the proposal "a fair, phased-in and long-overdue reform to state tax policy." The governor said in a written statement, "It's consistent with California's progressive fiscal values, it will exempt small businesses and residential property owners, it will fund essential services such as public schools and public safety and, most importantly, it will be decided by a vote of the people."