Ballot Initiative 17-0055 (Measure), commonly referred to as a "split roll" measure, proposes amending the California constitution to eliminate property tax assessment protections under Proposition 13 for commercial and industrial real property while retaining them for residential real property.

Adopted in 1978, Proposition 13 amended the California Constitution and established an acquisition value system of assessment. Under that system, real property is assigned a "base year" value that reflects fair market value at the time of purchase or when new construction is completed. Assessment increases on this "base year value" are limited to no more than 2% annually, absent a subsequent change in ownership or new construction of the property. This maximum annual increase is significantly below historical rates of appreciation for real property in California, so assessed values typically fall below market value, especially when property has been held for many years.

The Measure proposes reassessment to fair market value for commercial and industrial real property, with continued reassessment to fair market value at least once every three years. Residential real property, including single family homes and apartment complexes, would continue to be protected from annual revaluation under Proposition 13 as it currently exists.

According to the non-partisan Legislative Analyst's Office, the Measure would increase property tax revenues statewide by $6 to $10 billion annually. Commercial and industrial real property with older "base year" values would be particularly affected given the amount of appreciation that is not reflected in current assessed values. The Measure would also give 60% of any additional revenue generated to local governments and 40% to school districts.

The Measure has been endorsed by the California Democratic Party, the Los Angeles Unified School District, the Mayor of Los Angeles, and other elected officials. Teachers and government employee unions are also strongly backing the Measure. The California Taxpayers Association and other business-oriented organizations oppose the Measure. The California Assessor's Association, as well as several individual county assessors, have publicly criticized it.

Measure scheduled for vote in November 2020

The Measure is scheduled for a statewide general election vote on November 3, 2020, and needs only a simple majority to become law. If passed, the changes could go into effect as early as the 2020 assessment year.

In August 2019, spilt-roll proponents filed a revised measure, Ballot Initiative 19-0008, to resolve drafting errors and gain broader voter support. The revisions aim to address criticism that it would be legally, administratively, and financially difficult to implement. If the requisite signatures are obtained by May 2020, this new version will qualify for the November 2020 ballot and will likely replace the current version of the Measure.

Implications

While it is too early to gauge whether this ballot initiative will be approved by voters, taxpayers with commercial and industrial real property in California should monitor this development, as approval could result in significant future property tax increases.

EY will monitor this development and issue additional Tax Alerts as warranted.

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