Prop 19: California Measure's Pros And Cons

LOS ANGELES, CA — California voters will tackle two constitutional amendments that could dramatically change how property taxes are paid. While Proposition 15 affects commercial property taxes, it’s Proposition 19 that would impact homeowners up and down the state.

Proponents of the amendment claim it closes property tax loopholes. Critics claim it opens up new property tax loopholes while raising taxes on many families. They’re both right.

So what does Prop 19 do?

Thanks to 1978’s Prop 13, California has a unique property tax system that favors longtime homeowners, who pay property taxes based on their original purchase price no matter how much their home goes up in value over time. When their children inherit the home, the children inherit their parent’s favorable tax rate. Prop 19 would put an end to children inheriting their parent’s favorable property tax rate unless they moved into the home as their primary residence within a year of inheriting the property. It essentially stops children from taking advantage of the Prop 13 tax break while using their parent’s home as an income property. It would also prohibit parents and grandparents from handing down vacation homes at favorable tax rates. That’s how it closes a loophole.

Here’s how Prop 19 opens a new one. It would allow homeowners 55 and older, the severely disabled, or the victims of a wildfire, to bring their favorable property tax rate with them wherever they move statewide for up to three moves. Under current law, they could only take their favorable tax rate with them for one move, and it must be to a home of equal or lesser value. Also, the favorable tax rate only currently applies in a move within the same county or to one of about 10 California counties that agree to let newcomers bring their favorable tax rates with them.
Existing law is designed to allow seniors to downsize without seeing their tax bills skyrocket. Prop 19 expands the scope of favorable taxation for longtime homeowners, giving them significant advantages when competing with first-time and younger buyers in the real estate market.

It is undeniably a boon for older homeowners as well as realtors, who would expect to see more home sales.

SEE ALSO: Prop 15, The Multibillion Dollar Sleeper On The November Ballot

Backed by the real estate industry, the state legislature put Prop 19 on the ballot. According to the Legislative Analyst’s Office, the amendment would eventually raise tax revenues by hundreds of millions of dollars each year. Seventy-five percent of the tax revenue from the amendment would be allocated for firefighting. Fifteen percent would go to a fund for reimbursing counties for whatever tax revenue they lose as a result of the amendment.

“This is a billion dollar tax increase on California families,” said Susan Shelley, vice president of communications at the Howard Jarvis Taxpayer Association. “The (text of the measure) actively tries to hide it. It doesn't begin to tell you that it's a billion dollar tax increase. It’s really very poll tested and deceptive.”

Most middle class families have their wealth tied up in their homes, and the measure would deprive parents of one of their best tools for helping their children, according to critics of the amendment.

According to Shelley, grieving children who just lost a parent would be forced to sell their family home or face a skyrocketing tax bill.

However, the measure’s proponents contend the inheritance allows wealthy families to exploit a tax loophole while using the home as an income property.

“The loophole is taken advantage of by wealthy out-of-state investors,” said Becky Warren, the spokeswoman for the Yes on 19 campaign. “If you look at statistics in Los Angeles County, as many of 63% (of inherited properties) were used as second residences or rental properties.”

The trend is similar in other large California cities, and it prices many people out of the market, she said.

In addition to closing a tax loophole exploited by the wealthy, it enables seniors to move closer to their families no matter where they live in the state without taking a tax hit, said Warren.

“It will help limit property taxes for our most vulnerable —wildfire survivors, people with disabilities and seniors,” Warren said.

Most importantly, it will raise funds for firefighting that can’t be raided by the state, added Warren.

The measure’s proponents include Gov. Gavin Newsom, the state Democratic Party, firefighter and labor unions, the California Association of Realtors, several chambers of commerce and Californians for Disability Rights.

The measure is bankrolled by the California Association of Realtors, which has donated more than $30 million to see it passed.

It’s opponents include the Howard Jarvis Taxpayer Association as well as the editorial boards of the Los Angeles Times, The Orange County Register and the Mercury News.