20180508 REALTORS Tax Initiative Draws Opposition

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Written By: Bob Hunt

Some months ago October-November, 2017 we wrote that the directors of the California Association of REALTORSreg; CAR had voted to support a signature drive with the intention of placing a CAR-sponsored initiative on the November 2018 California ballot.

The initiative, if passed, would allow "individuals 55 years of age and older to transfer their property tax basis to any home in the state, to purchase any price home, and to transfer their basis as many times as they wish."

To appreciate the significance of this, it is necessary to have some idea of Californias property tax system. Property tax valuations are based on purchase price. You buy a house for 700,000, the assessor will value it at 700,000. After that, increases in property tax value are seve>If you have lived in the same home for 15 -- 20 years or more, you are probably enjoying >Californians sought to solve this problem in 1986 with the passage of Proposition 60. It allowed seniors to keep their property tax base assessment when they moved within the same county. However, in 1988, Proposition 90 was passed which allowed each individual county the option of participating in this tax base transfer by seniors who move from one county to another. This had great significance, because many retirees move to a different county e.g. in the mountains, or desert than the ones in which they had lived.

Only eleven of Californias 58 counties will allow a senior from another county to transfer his or her old property tax base to a newly-acquired home in that county. It is estimated that 75 of California homeowners over the age 55 are still living in the same home they lived in since the year 2000. That is not because they still love living there. It is because of the tax consequences.

Suppose that Mr. and Mrs. Baby Boomer bought a home in 2001 for 400,000. It was taxed on a value of 400,000 the first year. Its value for property tax purposes could only increase 2 per year. So now it might have a taxable value of 560,000. At a Proposition 13 tax rate of 1, that is 5,600, even though the house might now have a market value of 900,000.

If Mr. and Mrs. Boomer sought to move down in size, they might buy a nice not fantastic two-bedroom which could cost them 700,000. Under current law their taxes would increase by 1,400 to 7,000.

However, if the CAR tax initiative were in effect, their tax value would be proportionately the same to actual value as with their previous home. In this case, it would be 62, and their property tax would be 4,340. It would be 2,660 less than it would under current law.

No wonder the initiative garnered more than one million signatures to put it on the ballot 585,407 was the required number. Its the best idea since sliced bread, right? Well, no; not in everyones eyes.

Ballot initiatives are accompanied by a report of the Legislative Analysts Office LAO. In this case the LAO painted a bleak picture of the initiatives impact on tax revenues. According to one briefing paper, the initiative would result in a 150 million loss for cities and counties and special districts, and another 150 million loss for school districts in the first years. Ultimately, it would grow to a total of 2 billion in losses.

It now appears that the LAO analysis has generated significant opposition to the initiative by city and county governments as well as teacher unions and firefighter associations.

CAR argues that the LAO analysis is flawed because it looks at the potential revenue lost because of the tax savings, but it doesnt account for the revenue gained as a result of the seniors home now having a new, increased tax base. It is a "static" analysis rather than a dynamic one.

Now, all of this could be sorted out through an extensive educational campaign; but that costs money, lots of money. It has been estimated that strong opposition could push the costs of backing the initiative into the 90 million range. Frankly, CAR doesnt have that kind of money lying around.

At their recent meetings Sacramento, May 2 -- 5, CAR directors voted to pursue an alternative to the ballot initiative as well. It would be to seek support to have the legislature place the issue on the ballot in 2020. By seeking such legislative support, CAR would be able to free up resources to address other crucial issues in 2018. Whether this alternative will be possible wont be known until late June. Stay tuned.

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