The harms of Prop. 19 will soon be clear

This column has previously described Prop. 19, which barely passed with 51 percent of the vote, as a steak laced with cyanide. It may look good, but you don’t want to eat it.

While there are some benefits from expanding property tax “portability” to allow homeowners to transfer their Proposition 13 base-year value to anywhere in California, the cost of this benefit is outweighed by the damage it will inflict on families planning to transfer property from parents to children.

Few voters were aware of this downside of Prop. 19. Specifically, beginning on February 16, 2021, no longer will parents and grandparents be able to transfer their property to their children or grandchildren without triggering a massive increase in property tax liability. These “intergenerational transfer” protections — placed in the California Constitution in 1986 and 1996 with overwhelming support from voters — have been sharply cut back.

Under the 1986 measure, a parent could transfer a primary residence and up to $1,000,000 of assessed value of other property to their children, and such properties would see no change in their tax bill when transferred. They would retain the Prop. 13-protected base-year value for property tax purposes. But under Prop. 19, that only remains true if both the parent and the child use the property as their primary residence.

None of the paid advertising about Prop. 19 alerted voters that they were losing important taxpayer protections. In fact, the primary sponsor of the bill, the California Association of Realtors, spent $50 million on campaign ads claiming it was beneficial to taxpayers, not disclosing the billion-dollar property tax increase. Their deceptive tactics were successful and will undoubtedly advance their underlying motivation of churning real estate sales.

But Prop. 19 is bad public policy. It was placed on the ballot by the Legislature with the passage of Assembly Constitutional Amendment 11. It rushed through the Legislature at lightning speed without going through the extensive analysis and public review typically associated with a legislative constitutional amendment. The ACA 11 language was amended on June 20, 2020, and the amendment fully cleared the Legislature on June 26, 2020 (technically past the legal deadline for the November 2020 ballot, which necessitated additional legislation to extend the deadline). The Legislature missed many policy and legal issues that would have been uncovered had the amendment gone through the regular and more extensive public review process.

Among the problems now recognized is that under Prop. 19, rents will increase. Buildings owned by aging “mom and pop” landlords, when passed to their children, will incur sharply higher property taxes.

Another problem for property owners is the impact of Assembly Bill 3088, which forces property owners to accept a 75 percent decrease in rent with a moratorium on evictions. It contains the unrealistic expectation that tenants will come up with a balloon payment after January 31st. Should they default, a landlord can only collect in Small Claims Court beginning March 1, 2021. Meanwhile, Prop. 19 takes effect on February 16, 2021. Families that suffer the loss of a parent will face huge property tax increases on rental property, while being unable to collect full rents.

Let’s dispel the myth that everyone who takes ownership of a parent’s property is wealthy. Many such families are middle- or low-income. Some rely on the rental income from inherited property to pay bills for medical care or assisted-living facilities.

Prop. 19 is a painful tax increase on hundreds of thousands of ordinary Californians.

Jon Coupal is president of the Howard Jarvis Taxpayers Association.