With the Democrats now running the show in Sacramento, local business people are bracing for changes to Proposition 13. Some are concerned their property taxes will skyrocket.
One of them is Richard Otterstrom, who owns six apartment buildings in Los Angeles. He fears that attempts by state lawmakers to change California’s landmark property tax law will finally succeed and hurt him badly.
Otterstrom, who is also president of the Apartment Association of Greater Los Angeles, is especially concerned about any bills that would trigger property tax reassessments. He has owned three of his buildings for more than 30 years, so a reassessment to current or recent market prices would be devastating.
“If any of these properties were reassessed, my property tax bill could go up fivefold or even tenfold,” Otterstrom said. “And these properties are rent controlled, so I’m forbidden by law from passing on any tax increases to my tenants. So I’d have to absorb the entire cost.”
Several bills have already been introduced or are in the works that would change Proposition 13, including one that would prompt more frequent reassessments of commercial properties and others that it would make it easier for voters to pass parcel taxes.
Otterstrom is not alone in his concern over the latest round of attempts to tinker with Proposition 13, the 1978 measure that set the property tax at 1 percent of a property’s assessed value, capped tax increases at 2 percent a year and also prevents tax reassessments until properties change ownership.
Business owners and business groups say Proposition 13 has made property taxes predictable and competitive with other regions of the country. They contend that changing the law will destroy that certainty and add to a significant business tax burden in the state.
“Once again, the state is looking to property owners to bear additional burden of paying any taxes,” said Phil Jones, owner of Coldwell Banker Coastal Alliance in Long Beach, which represents both residential and commercial real estate clients.
But advocates for changing Proposition 13 say the law has shortchanged the state out of billions of dollars in money each year, especially from commercial property owners. They point to studies saying that homeowners now provide nearly 60 percent of property tax money, a switch from pre-Proposition 13 years, when commercial property owners paid nearly 60 percent.
The liberal-oriented California Tax Reform Association, Democratic lawmakers and their union allies have made repeated attempts over the years to break off commercial properties from Proposition 13, a process referred to as the “split roll.” They have also tried to pass bills requiring more frequent reassessments of commercial properties. But those attempts have all been stymied by intense opposition from Republican lawmakers and their business allies.
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