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A proposed ballot initiative in California could encourage older homeowners with larger homes to downsize and move to other counties, freeing homes for younger families and potentially easing the state's chronic housing shortage.
The real estate industry is leading the charge to qualify the measure for the Nov. 6 election ballot and has already raised about $6.7 million for the effort. Monday is the deadline for proponents of the measure to turn in signatures to qualify the measure for the November ballot.
A state analysis of the proposed initiative, however, said the measure could end up costing local governments more than $2 billion annually in lost revenue and have a fiscal impact on the state itself.
The proposed voter measure would allow homeowners age 55 and older to sell their primary home in one county and move anywhere else in California without a significant property tax hit, assuming the new property is valued the same or less. If the replacement property is higher value, though, there are still incentives under the portability measure since it keeps property tax benefits under the citizen-led Proposition 13 tax rate rollback passed in the 1970s.
"Right now there's a disincentive for older Californians who may be in bigger houses than they need to move out because they've got that Prop 13 base," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, one of the original groups that backed Prop 13 and now supports the portability tax measure.
Under Prop 13, taxes on California homes are capped to 1 percent of the property's acquisition value and usually limited to just 2 percent annual increases, assuming the homeowner stays. The sale of a home triggers a reassessment on the property for the new owners.
Previously, California voters approved allowing the tax break within counties or reciprocity agreements between counties to transfer the property tax burden. But fewer than a dozen of the state's 58 counties accept the so-called inter-county transfers so it leaves out a huge swath of the state.
Coupal said passage of the measure could encourage older homeowners and empty nesters with larger homes to perhaps downsize and move to another county, thereby freeing up the house they're leaving to younger families with kids. He said it's not a panacea for the housing problem in the state but it can help.
"Many seniors live in homes that no longer fit their needs because their homes are now too big or too far away from their families," said Steve White, president of the California Association of Realtors, the group behind the proposal. "If they want to downsize or move closer to their children, they could face property tax increases of 100 percent, 200 percent or even 300 percent."
The real estate industry has already raised just under $7 million for the initiative. Earlier reports suggested the industry is prepared to spend up to $50 million on the campaign.
Proponents need at least 585,407 valid signatures to qualify for the ballot. As of Thursday, White claimed they were on track to reach nearly 1 million signatures.
White said the Prop 13 tax portability initiative also could benefit older people in counties where recent natural disasters occurred, whether the wine country wildfires in Sonoma or Napa or mudslides in the Santa Barbara area, by freeing them of "a moving penalty if they choose to move outside of their disaster-torn county."
The proposed tax portability initiative also is available to "severely disabled people," according to White.
Meanwhile, some groups representing local governments have previously expressed reservations about such initiatives because they see tax breaks on property tax as reducing the increase in property tax revenues that would would normally come from the sale of a home.
Indeed, the official fiscal analysis done by the state's Legislative Analyst's Office estimates there would be losses in property tax revenues.
According to the nonpartisan office, the first few years could result in property tax losses for schools and local governments of about $150 million apiece annually. It estimates those losses could only grow over time, and result in schools and local governments each losing $1 billion or more annually. Also, it said there could be costs to the state for school and community college in some years due to the fiscal impacts at the local level and state laws that guarantee some public education funding levels.
Eva Spiegel, a spokesperson for the League of California Cities, said the group has not taken a formal position on the measure but indicated in the past they "opposed similar legislative proposals."
The league, a lobbying group representing cities around the state, estimated in March 2017 that about 78 percent of the counties in California had less property tax revenue than in 2008, when adjusting for the impact of inflation and population.
On the other hand, proponents dispute the impact of lower property tax revenues from the measure and insist the reduction in property taxes could be offset somewhat by economic activity elsewhere.
For example, they say with neighborhoods repopulated with young families there could be more spending in the community on such things as household furnishings, renovations and other economic activity. And in the case of renovations, it can raise the home's value and result in a higher assessed value for property taxes.
In recent years, 350,000 to 450,000 homes have sold in the California market annually, according to the Legislative Analyst's Office. It estimates that the proposed measure has the potential to increase that number "by as much as tens of thousands per year."
Finally, the California Chamber of Commerce supports the voter measure and says the state has "a massive housing shortage and needs at least 100,000 additional new units a year to meet demand." It also believes the initiative "could help ease the shortage by freeing up modest-priced homes and move-up housing for young families.