Proposition 5, on the November ballot as a combined initiated constitutional amendment and state statute, proposes to change current property tax law to allow homebuyers ages 55 or older and severely disabled persons to transfer the tax-assessed value of their prior home to a newly purchased home no matter 1) the new home’s market value (either higher or lower than a previous home), 2) the new home’s location in the state (applies to all state counties), and 3) the number of moves (previous law allowed transfer only one time and only in same county as the previous home, later amended by ballot proposition to permit transfer between counties that have agreed to participate in a transfer program).

As an aside, Riverside County, along with Ventura, San Bernardino, San Diego, Los Angeles and Orange counties, already have agreements to transfer between counties.

Prop 5 was developed as a ballot initiative and is heavily funded by the California Association of Realtors. Alex Creel, senior VP of Governmental Affairs for the CAR, filed the initiative and argued for its passage. “It’s important because seniors who are often on a fixed income, fear they will not be able to afford a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of the ‘moving penalty,’ almost three quarters of homeowners 55 and older haven’t moved since 2000.”

Before addressing the formulae by which assessments would be calculated if Prop 5 were passed, as well as addressing its effect on making more housing available statewide, it is helpful to review the nonpartisan Legislative Analyst’s Office overview of fiscal effects of passage of Prop 5.

According to the LAO, passage would have two primary effects: “[It would] reduce tax revenue from people who would have moved anyway and create potentially greater tax revenues from higher home prices and more home building. Revenue losses from people who would have moved anyway would be bigger than gains from higher home prices and home building.

“This means the measure would reduce property taxes for local governments. In the first few years, schools and other local governments each probably would lose over $100 million per year. Over time these losses would grow resulting in schools and governmental units [infrastructure, transportation, public safety] losing about $1 billion a year in today’s dollars” which the state would have to make up. Current law requires the state to provide more funding to schools to cover any property tax losses.

The LAO notes the losses could be offset by increased home sales generating tax revenue to cities and counties, but not to the extent of the losses. Similarly, increased income tax revenues (on taxpayers’ income taxes on home sale profits) would not be enough to offset losses. Also, county assessors would need to create processes (costing set up time and administrative hours) to calculate the taxable value of homes covered by this measure.

Under the measure, transfer of property tax base for seniors and disabled would work this way: The new home’s taxable value would be equal to the prior home’s taxable value plus the difference between the new home’s market value and the prior home’s market value at time of sale. For example, if the current home a has taxable value of $200,000 and a market value at sale of $600,000, and the new home was bought for $700,000, the new home’s taxable value would be $300,000 ($200,000 plus difference between new home purchase price of $700,000 and sale of previous home of $600,000 or $100,000, totaling $300,000.)

The measure is endorsed by CAR, the National Association of Realtors and the California Chamber of Commerce. It is opposed by the Service Employees International Union California state political committee, the California Teacher’s Association, the County Supervisors Association of California, California Federation of Teachers and the American Federation of State, County and Municipal Employees Council 57.

Supporters argue passage would eliminate the “moving penalty” (fear that moving to a more suitable home would drive up property taxes at new home) that has kept seniors and persons who are or who have become disabled in their homes longer. In so doing, supporters argue those who sell and move help alleviate the current housing shortage.

Opponents argue passage of Prop 5 would not build any new housing, does not help first-time homebuyers, does not bring down the cost of rent and does not address homelessness. Said Shamus Roller of the National Housing Law Project, “Prop 5 does nothing for affordable housing and will even make the current situation worse.”

State media support is divided with the Orange County Register and San Diego Union Tribune giving qualified support observing that passage would free up critically needed housing stock and give older people “more flexibility with their lives,” while also observing that passage would greatly benefit realtors and “many wealthier Californians.”

The San Francisco Chronicle, San Jose Mercury News and Sacramento Bee oppose based on the measure’s provision of tax breaks to people who would be selling long-held homes for high profit and making current property taxes “less fair while devastating the budgets of local schools and governments.”

Major donors that support the measure are: the California Association of Realtors Issues Mobilization PAC at $10,204,825 and the National Association of Realtors for $3 million.

Donor opponents include SEIU for $1 million, the California Teachers Association Issues PAC for $500,000, the County Supervisors Association of California for $100,000, the California Federation of Teachers Ballot Committee for $90,000 and the American Federation of State, County and Municipal Employees Council 57 Issues PAC for $50,000.

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