As the coronavirus pandemic drags on, California and the rest of America wallow ever deeper into the worst recession since the Great Depression of the early 1930s.
Millions of Californians are out of work. Thousands of businesses that were products of hard work, initiative, sacrifice and devoted nurturing are gone or soon will be. In every field from restaurants to nail salons, hobby shops and sporting goods outlets, hundreds of once-thriving businesses are dying or dead. When – or if – their eventual replacements will appear remains unknown.
For owners of commercial real estate, which range from individuals to large real estate trusts owned by pension funds and millions of small investors, this is a formula for disaster and possible destitution.
Into this quagmire step the sponsors of California’s split roll ballot initiative, which earlier this spring submitted signatures for a November yes-or-no vote even as the pandemic peaked.
This measure aims to do what liberal politicians and activists have sought since the landmark Proposition 13 property tax limits passed in 1978: tax commercial real estate based on market prices, while leaving residential properties alone, their levies based on either one percent of the latest purchase price or one percent of 1975 assessed value.
If sponsors of the as-yet-unnumbered split roll proposition, mostly labor unions, are wise, they will pull their measure out of November. If it goes ahead, it is likely doomed.
Even before the pandemic, this idea’s fate was questionable, although it has some merit. Based on late-2019 values of commercial property, it would give between $7.5 billion and $12 billion to public schools, community colleges and local governments, often cash-strapped since passage of the original Proposition 13.
But only God knows what current values of California commercial property might be, given the havoc wrought by COVID-19. It’s not merely that so many businesses are dead or dying and therefore not paying rent, but also that numerous ongoing businesses have refused to pay rent since the beginning of April, assured of staying in place by government edicts that ban evictions at least until mid-summer.
Sure, they might eventually have to pay back rent. But even if they do, it amounts to an interest-free loan subsidized by owners of commercial property. It’s a deal some businesses could not resist, so at least one-fourth of all commercial renters nationally have paid nothing for their quarters for the last two months.
Anyone can see this reduces the value of commercial property and that cuts the revenue benefits of a split roll. How long that might last is anyone’s guess.
Meanwhile, property owners might try to respond by raising the rent on other tenants, a cost those businesses would try to pass on to customers. So the net split roll benefit to the voting public, if any, is unknown.
Into this information vacuum step the pre-existing opponents of the split roll. Prior to the pandemic, the Howard Jarvis Taxpayers Assn., named for one of Proposition 13’s two progenitors, was already blanketing homeowner mailboxes with material that looked a lot like official government communications.
The split roll, the Jarvis organization claimed months ago, would “take Proposition 13 apart.” A vote against the split roll, the mailer told homeowners, would be essential “to preserve your Proposition 13 tax savings.”
Never mind that not a word of the split roll measure had anything to do with residential property. As far as the Jarvis group is concerned, an attack on any part of its favorite law is an attack on the entire thing.
Similar arguments often help defeat local school bond measures, and this year’s canards expanded on prior ones, claiming most money from split roll would go to fund existing public employee pension deficits. Never mind that even if this were true, those pensions were promises made to public employees by duly elected officials, essentially deferred pay for the workers involved.
Reducing pensions would be a broken promise, rendering all future government commitments unreliable.
It’s a climate that makes split roll’s fate very dicey this fall, if the unions sponsoring it persist. They would be much wiser to wait for a better time.
Email Thomas Elias at firstname.lastname@example.org. His book, "The Burzynski Breakthrough, The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It" is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net