Governor Signs: Budget Split Roll Property Tax Could Be on the Horizon

Breaking news from the California Apartment Association:

Under their new majority-vote authority, Democrats in the State Legislature passed a state budget on Wednesday with no Republican support. The new budget, signed by Governor Brown this afternoon, relies on a combination of spending cuts, possibly overly optimistic revenue projections and new fees.

Governor Brown vetoed an earlier version of the budget passed by the Legislature, saying among other things, the budget relied on borrowing billions of dollars and questionable legal maneuvering. For months, Brown has sought new revenue by attempting to extend a series of temporary taxes that are set to expire on July 1st. However, he was unable to find the two Republican votes in each house necessary to put the taxes on the ballot.

With no additional revenue, some analysts fear that the budget signed by Brown relies on shaky assumptions, which can lead to ongoing deficits in the coming years. While they were unsuccessful in extending the temporary taxes, Democratic leaders and the Governor continue to stress the need for new revenue and may, through the initiative process, ask voters to extend the personal income tax, vehicle license fee and increased sales tax approved two years ago.

In the meantime, organized labor groups are also considering ways to secure additional revenue through the initiative process. A number of proposals continue to be discussed, including a Split Roll property tax, oil extraction tax, new corporate taxes, and other taxes on the wealthy. At a recent conference of apartment owners and developers in San Francisco, Brown said that he “expects there will be efforts to accelerate the reassessment of commercial property tax.”

Of most concern to the California Apartment Association (CAA) is the Split Roll property tax concept that allows counties to reassess rental and commercial property annually based on its current market value. By reassessing residential rental property on an annual basis, a split roll system could cost California rental housing providers billions in new taxes.

With the Governor’s signature, the budget will be in place for the new fiscal year starting July 1. However, California’s long term fiscal health remains far from clear. The Governor and Legislature will undoubtedly be back at the drawing board again next year, likely facing yet another deficit.

CAA’s Legislative Briefing is an exclusive benefit provided to keep members informed of legislation and other regulatory issues that could or will have a direct impact on California’s rental housing industry.