April 30, 2020

An initiative that would change property tax assessments is headed for the November ballot. The proposal is a partial revival of 2018’s Proposition 5, which CSAC opposed, and was ultimately defeated by voters. However, the 2020 measure contains significant differences from Proposition 5.

Property taxes are a major revenue source for local governments and schools, raising over $140 billion per year. Under current law, the base year value transfer program allows homeowners who are either 55 years and older or severely disabled to transfer their original base year value to a different home of equal or lesser value. To take advantage of this program the homeowner must be moving within the same county or to one of ten counties in the state that accept transfers. The law also allows homeowners to transfer their property to certain family members who can retain their advantageous assessed value, though such a transfer can only be made once.

This ballot measure would amend the State Constitution to expand the transfer rules for seniors and those with severe disabilities to allow them to move their base year value anywhere in the state and to a more expensive home. However, if they decided to purchase a more expensive home, the rate would be adjusted to partially account for the value increase. In addition, the ballot measure would allow homeowners to transfer their base year valuation up to three times in their lifetime, instead of just once.

All of the above changes would decrease the total property tax revenue that schools and local agencies would receive, likely by tens of millions of dollars, but the measure also includes several provisions that would increase revenue for local governments, likely by a couple hundred million dollars. It would do so by eliminating the ability for a base year value transfer to a family member to be used unless the inheritor uses the property as their primary residence. Currently around two-thirds of transferred properties are not used as primary residences. The measure would also cap the tax benefit in various ways, including by limiting it to only the first $1 million of value. Finally, the measure requires properties owned by legal entities to be reassessed if 90% or more of the ownership is cumulatively transferred over any number of transactions, instead of more than 50% in a single transaction.

Overall, the Legislative Analyst’s Office estimates that if this measure passes local governments and schools could see a net gain of tens of millions of dollars of property tax revenue per year, after accounting for the increased costs of county property tax administration, likely in the tens of millions of dollars per year.

CSAC will consider taking a position on this measure in the coming months, and will develop a more detailed analysis before the Government Finance and Administration policy committee discusses it and recommends a position to the Executive Committee and the Board of Directors.