Part 2 of our series on the Split-Roll Property Tax Initiative
In our last post, we took a look at the impact that Proposition 15 would have on the commercial real estate market if it passes on November 3rd. In this post, we look at where the money would go if it passes muster with California voters.
Why is Proposition 15 on the ballot in the first place? Backers are looking to raise up to an estimated $11.5 Billion in new revenue for distribution to local governments, K-12 schools and community college districts. However, even if that much money was raised, a big chunk of it would go to administrative costs and reimbursements to the State of California general fund for declines in income tax revenues caused by the deductibility of property taxes on personal and corporate tax returns. Of what remains, 60% would go to local governments and 40% to schools and community college districts. The 40% that goes to education would be split 89% to K-12 school districts and 11% to community colleges.
The proposition is being promoted as a major boost in education funding, though the bulk of the money raised would go to administration costs, the State of California and then to local governments before the schools see a nickel.
Let’s do some quick math starting with the estimated maximum annual revenue raise, $11.5 billion. First money out goes to pay for the 58 county tax assessors to perform the reassessment of at least a third of all commercial properties in the state every year. We’ve seen estimates of $600 million per year and more. We’ll go with the $600 million in our example. Then we add the reimbursement to the state for lost income tax revenue. Assuming an 11% marginal rate (in the middle of the range for most upper income taxpayers), that adds up to approximately $1.25 billion. Of what remains, 60% or $5.78 billion would go to local governments to spend however they please. The other 40%, or $3.85 billion, would be split 89% to K-12 school districts, roughly $3.4 billion, with the remaining 11%, or $424 million, going to community college districts.
According to the California Policy Center, Governor Newsom’s 2020-2021 K-12 education budget calls for $17,964 per child based on approximately 6.7 million students. So, the maximum per child contribution derived from Proposition 15 revenue would be just over $507 per year ($3.4 billion divided by 6.7 million), which is a 2.8% increase in funding per pupil. School districts could spend that money on anything they want, provided they disclose what they spend it on. They can even spend it on pension fund contributions.
How much of that will end up in the classroom? Who knows, but it won’t be $507. And, this is all based on the maximum expected tax revenue increase. The low estimate is $6.5 billion with no decrease in administrative costs, which means the net take for schools will be slightly more than half of the $507 per student.
The proposition is being heavily marketed as a vehicle to boost education funding, but little is said about the fact that most of the money will go to city and county governments, not to schools. The closer we look at the details, the less we like it. The big question for all Californians is: do we risk sending the commercial real estate market into a tailspin and drive more businesses out of the state over a proposition that redirects so much more business capital and personal income to local governments and schools with almost no accountability for how that money is spent? We think not.