Ever since Proposition 13 was passed with the support of nearly two-thirds of California voters in 1978, “reforming” it has been a high priority for the state’s powerful public employee unions and others who see California property owners as an untapped source of government spending money.
And “split roll” is their way in.
“Split roll” is a term for a property tax system that would allow higher taxes on businesses than on homeowners. The “roll” is the county assessor’s property tax roll, the list of all real estate parcels that are subject to property taxes. “Split” refers to a division of the list into different types of property, such as residential and nonresidential, or homes and businesses.
California has always had a single, unified property tax roll, going all the way back to the 19th century. Proposition 13 didn’t change that, but it lowered the property tax rate to 1 percent from a statewide average of 2.67 percent, and it put new limits on annual tax increases. Never again would a property owner in California open a tax bill to the shock that it had increased by 10, 15 or 20 percent because property values had spiked from the year before. Increases in taxable value were generally capped at 2 percent per year until there was a change of ownership.
A split-roll initiative, if passed, would begin the incremental destruction of Proposition 13. Emboldened activists have openly admitted that taxing business would be “the first step” for the ultimate repeal of Prop. 13 in its entirety. They would chip away at its protections for one group and then for another, until there is nothing left.
Split roll would be the log that broke the camel’s back for California’s beleaguered business community.
The cost of living, already high in California, would be pushed even higher as the new tax bills hit every business in the state at the same time. And it would be only the first of many tax increases – without Proposition 13’s cap on increases in assessed value, property taxes would rise along with real estate values in California, regardless of whether businesses had the cash flow to make those tax payments.
Inevitably, businesses would be forced to cut their workforce and raise their prices, and business flight out of California would accelerate.
In 2012, a study by the Davenport Institute at Pepperdine University’s School of Public Policy concluded that a split roll would have a “significant and detrimental impact on the state’s economy.” At the time, the Davenport Institute study estimated that split roll would raise property taxes on businesses by $6 billion and would cost the California economy $71.8 billion of lost output and more than 396,000 lost jobs over the first five years alone.
In 2020, the Tax Foundation found that Proposition 15, a failed attempt at split roll, introduced “the downside of greater revenue volatility without the upside of accurate, neutral valuations, since it skews property tax burdens disproportionately toward businesses” and that while Prop. 15 had exemptions for small businesses that “many small businesses rent space. Their rent is likely to go up as the tax increase is passed on through rental costs.”
And this year, the Pacific Research Institute’s economic and tax model estimated the impact of split roll would be “an $8 billion to $12.5 billion tax increase on California’s businesses” and that “within five years, the size of California’s economy could shrink between 3.4 percent and 4.8 percent relative to the baseline.”
Further, “the growth in the average household’s income would be between $2,170 and $3,090 smaller, the growth in jobs would between 225,000 and 322,000 less, and the exodus of people from the state would increase between 46,000 and 66,000.”
That’s probably why voters have rejected every attempt at a split roll that has been put before them. On the same ballot as Proposition 13, there was Proposition 8, which allowed for split roll. It failed. The aforementioned Prop. 15 in 2020 failed, too.
Meanwhile, Prop. 13 remains as popular with Californians as it has ever been, with 65 percent of respondents in the most recent statewide poll saying it is a “mostly good” thing. That’s because Prop. 13 works for everyone.
Prop. 13 protects long-time homeowners from unpredictable increases, it protects new homeowners who would pay more than double in their first year, and it protects business owners who already have a hard enough time staying open in this state.
Californians are taxed enough. Say no to split roll. Protect Prop. 13.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.