Voters Could Give Older California Homeowners A New Property Tax Break
But would Proposition 5 ease the state’s housing crisis?
California's property tax laws are already generous to older residents, capping annual increases in a way that benefits longtime homeowners.
But a measure on the ballot this November would provide a new tax break, allowing elderly homeowners to keep their original home's property tax benefits, even if they buy a more expensive house.
Proponents have sold Proposition 5 as a way to cure the “moving penalty” that keeps many older people in their homes. This would allow senior citizens to move closer to relatives, while opening up “starter homes” to first-time homebuyers, proponents have said.
But critics have noted that price tag for local governments would be an estimated $1 billion a year in lost revenue, while arguing that current property tax laws in California already provide benefits to help older people downsize without being hit with a big tax bill.
California’s property tax landscape was set in 1978, when voters passed Proposition 13. That established limitations on how much property taxes could rise, setting the taxable value of property at 1 percent of the assessed market value when it changes ownership. That assessed value also can only increase 2 percent annually, which is a benefit for people who stayed in homes for a long time as property values steadily grew.
Subsequent ballot measures permitted older homeowners to—one time only—transfer the taxable value of a home they are selling to a newly purchased home, so long as the market value is the same as or less than the old one. People age 55 or older could do so only if their governments approved. Eleven county governments do.
People with severe disabilities are also able to transfer the taxable value of their previous home, but Proposition 5 would give both them and seniors “an even greater tax break,” said Jonathan Kaplan, senior policy analyst with the California Budget & Policy Center.
That’s because the ballot measure would allow people age 55 or older or with disabilities to buy a more expensive home but pay property taxes tied to the value of their old one anywhere in the state, an unlimited number of times.
“This is a major expansion of the way that the law works,” Kaplan said.
If passed, Proposition 5 would reduce the taxes paid by people who would have moved anyway and result in more people moving—about 85,000 homeowners annually, Kaplan added.
The Yes on Prop 5 campaign declined to comment, but their website makes the case the measure is intended to help vulnerable Californians on fixed incomes, who can’t afford large property tax increases. Home values will increase as a result, the campaign argues, increasing tax revenue.
But Kaplan said the losses will outweigh the gains from increased home values and new home construction.
Government funding for health, public safety and social services will take the biggest hit, according to a CBPC analysis, because even though K-14 education would see $1 billion less over time from state and local governments, current law mandates a minimum funding requirement for schools and community colleges in California. In other words, the state is legally required to backfill those losses at the expense of other programs and services.
Older homeowners already receive significant tax breaks and are “whiter and healthier,” Kaplan said.
CBPC estimates of the 4.1 million households eligible for the tax break, less than 3 percent will be due to a disability. Two-thirds of recipients will be white and 15 percent will have a higher median household income than those who are ineligible.
Those eligible residents also generally already pay less than younger, less affluent homeowners in property taxes, Kaplan said.
California’s housing crisis necessitates construction of 1.8 million new homes by 2025 to meet demand for that year, and Proposition 5 does nothing to alleviate the problem, Kaplan added.
Proponents counter that by incentivizing people to move, more housing units will become available.
Dave Nyczepir is a News Editor at Government Executive’s Route Fifty and is based in Washington, D.C.
NEXT STORY: ‘Opportunity Zones’ Rules Help Bring Program Into Sharper Focus