In November, California voters will decide the fate of Proposition 5, which would make it easier for local governments to borrow money for housing and various public infrastructure projects.
(1) The California Constitution prohibits the ad valorem tax rate on real property from exceeding 1% of the full cash value of the property, subject to certain exceptions.
This measure would create an additional exception to the 1% limit that would authorize a city, county, city and county, or special district to levy an ad valorem tax to service bonded indebtedness incurred to fund the construction, reconstruction, rehabilitation, or replacement of public infrastructure, affordable housing, including downpayment assistance, or permanent supportive housing, or the acquisition or lease of real property for those purposes, if the proposition proposing that tax is approved by 55% of the voters of the city, county, city and county, or special district, as applicable, and the proposition includes specified accountability requirements. The measure would prohibit a city, county, city and county, or special district from placing a proposition on the ballot pursuant to these provisions if the voters have previously approved a proposition pursuant to these provisions or the below special tax provisions until all funds from the previous proposition are committed to programs and projects listed in the specific local program or ordinance, as described. The measure, subject to certain vote thresholds, would authorize the Legislature to enact laws establishing additional accountability measures and laws for the downpayment assistance programs authorized by the measure, as specified. The measure would specify that these provisions apply to any city, county, city and county, or special district measure imposing an ad valorem tax to pay the interest and redemption charges on bonded indebtedness for these purposes that is submitted at the same election as this measure.
(2) The California Constitution conditions the imposition of a special tax by a local government upon the approval of 2/3 of the voters of the local government voting on that tax.
This measure would authorize a local government to impose, extend, or increase a sales and use tax or transactions and use tax imposed in accordance with specified law or a parcel tax for the purposes of funding the construction, reconstruction, rehabilitation, or replacement of public infrastructure, affordable housing, including downpayment assistance, or permanent supportive housing, or the acquisition or lease of real property for those purposes, if the proposition proposing that tax is approved by a majority vote of the membership of the governing board of the local government and by 55% of its voters voting on the proposition and the proposition includes specified accountability requirements. The measure would prohibit a local government from placing a proposition on the ballot pursuant to these provisions if the voters have previously approved a proposition pursuant to these provisions or the above ad valorem tax provisions until all funds from the previous proposition are committed to programs and projects listed in the specific local program or ordinance, as described. The measure, subject to certain vote thresholds, would authorize the Legislature to enact laws establishing additional accountability measures and laws for the downpayment assistance programs authorized by the measure, as specified. This measure would also make conforming changes to related provisions. The measure would specify that these provisions apply to any local measure imposing, extending, or increasing a sales and use tax, transactions and use tax, or parcel tax for these purposes that is submitted at the same election as this measure.
Source: California Scretary of State
Below, a taxpayer watchdog says Prop. 5 will essentially let governments increase property taxes whenever they want. The opposing view: A local mayor says the measure will help public agencies pursue vital projects that can make California more affordable. (This article is a re-print from Cal-Matters)
Guest Commentary written by Susan Shelley is vice president of communications for the Howard Jarvis Taxpayers Association.
Proposition 5 makes it easier to raise property taxes.
The November ballot measure gets around Proposition 13’s limitations on property tax increases by making it easier for local governments to pass bonds, a method of borrowing money that is then paid back — with interest — by adding extra charges to property tax bills, sometimes for decades.
When property taxes rise, there’s little consideration of a homeowner’s ability to pay, or any hardship or disability. If people fall behind on their property taxes, their homes can be sold out from under them.
Currently, local bonds require a two-thirds vote of the electorate. This type of taxpayer protection predates the 1879 California Constitution and was first inscribed during the state’s inaugural constitutional convention three decades earlier.
The handwritten document from the Gold Rush era states, “It shall be the duty of the legislature to provide for the organization of cities and incorporated villages, and to restrict their power of taxation, assessment, borrowing money, contracting debts, and loaning their credit, so as to prevent abuses in assessments and in contracting debts by such municipal corporations.”
Today’s legislature thinks it knows better. Prop. 5 would slash the two-thirds vote requirement down to 55%, allowing cities and other local government entities to pile debt onto residents.
In 2000, voters were persuaded to pass Proposition 39 and cut the vote threshold for school bonds from two-thirds down to 55%. In the years since, that’s made it much easier for districts to pass parcel taxes to pay for school buildings. We can see the impact on our tax bills.
Prop. 5 would cut the vote requirement for nearly everything else. If the proposition passes, governments will be able to more easily borrow money for “public infrastructure,” which includes everything from facilities, parks and emergency services to transit improvements, libraries and ports. The lower vote threshold would also apply to new debt for utilities, disaster protections and home hardening.
It’s not just cities and counties that can take on debt, either. So can “a transit district, a regional transportation commission, and an association of governments.”
If California wants to build more housing, the ballot measure easing bond votes is crucial
That’s not the end of it. There’s also the housing component — everything from affordable housing to homelessness facilities, including for people with mental illnesses.
The lower vote threshold similarly applies to new debt to pay for “down payment assistance programs” and “first-time homebuyer programs.”
Taken altogether, Prop. 5 is worse than a tax increase — it’s a turbo engine to try and raise property taxes whenever government agencies want.
In a sneaky maneuver, the Legislature wrote a provision into Prop. 5 that makes it apply retroactively to any infrastructure and housing bond measure that appears with it on the November ballot. Had Bay Area officials opted to stick with a proposed $20 billion housing bond instead of withdrawing it, it would have only needed 55% approval if Prop. 5 passed at the same time.
Higher property taxes generally raise the cost of housing, and not just for homeowners. Tenants will see higher rents as landlords deal with increases to the cost of providing rental housing. Even the smallest businesses will see rent increases as higher property tax bills are passed onto commercial tenants.
Ultimately, Prop. 5 creates a perverse incentive for local governments to misallocate public funds.
When it’s easier to borrow money, some elected officials are likely to spend existing tax revenues on everything except high-priority needs. In future years, municipal budgets could become increasingly strained as more and more revenue gets diverted to repay investors for old debt.
Early Californians had the right idea: The power to incur debt or liability must be tightly controlled to prevent abuses. The two-thirds vote requirement to pass local bonds is a crucial protection for California residents now and in the future.
FROM OTHER ARTICLES
LA Times
Who are the supporters?
Backers of Proposition 5 include labor, affordable housing and local government interests among others. Principal supporters are labor groups representing firefighters and construction workers. These organizations contend that it should be easier for voters to approve government financing for needed housing and other public projects.
Who are the opponents? Opponents include an array of business and taxpayer groups, including the Howard Jarvis Taxpayers Assn. They argue that Proposition 5 will erode taxpayer protections against government spending and result in higher taxes.
Take the Cal-Matters Proposition 5 Quiz: Your anwers will revela if you Support or Oppose Proposition 5.
Understanding Prop. 5
California has a lot of things: beaches, mountains, Silicon Valley, Hollywood. One thing it lacks? Affordable housing.
According to the California Legislative Analyst’s Office, the typical renter pays a 50% premium to live here compared with what renters pay in the rest of the country. Homebuyers can expect to spend double what they would in other states.
Addressing the shortage of reasonably priced housing has been near top of mind for L.A. voters. Prop. 5 is yet another measure aiming to address that problem. But will homeowners support the measure if it could mean higher property tax bills?
The history behind it
Prop. 5 is on the ballot because the state legislature voted to put it there.
Lawmakers say the goal is to make it easier for local governments to ask voters for permission to raise money for plans to construct affordable housing and offer assistance to first-time homebuyers — as well as for projects that build infrastructure, such as hospitals, roads and broadband internet networks.
How it would work
If the voter approval threshold is reduced from two-thirds to 55%, the obvious outcome is that local housing and infrastructure initiatives would have a better chance of passing. That may incentivize local governments to put more of those proposals on the ballot.
If these measures pass, projects would be funded through bonds issued by local governments. That essentially means borrowing money that will need to be paid back, with interest, by future property tax revenue.