An initiative on the November ballot that would allow senior California homeowners to move and still get a property tax break could cause revenue to Sonoma Valley schools and the city of Sonoma, as well as schools and cities across the state, to drop significantly.
Experts say Proposition 5, proposed by the California Association of Realtors, could play out in different ways. However, if more and more homeowners over 55 moved to the Valley, bringing their lower taxes with them, revenue would stagnate or even drop – and 21 percent of the city’s general fund comes from property taxes.
Schools and other local governments each probably would lose over $100 million in annual property tax revenue in the first few years, growing over time to about $1 billion per year in today’s dollars, according to the state Legislative Analyst’s Office, a nonpartisan fiscal agency that has advised the state legislature for decades.
“Places like Sonoma are at a threat of having a freeze or even reduced property taxes if (the proposition) passes, because someone will bring a tax base with them that is lower than would have happened otherwise,” said Robert Eyler, a professor and chair of economics at Sonoma State University.
“Many people who live in San Francisco would love to move to Sonoma because it’s this beautiful place to retire, and the property tax they would end up paying because of (the initiative) is lower,” Eyler said. “That is where places like the Sonoma Valley might suffer.”
This is just one scenario that might occur should Proposition 5, the Property Tax Fairness Initiative, pass, Eyler said. Under other scenarios, revenue might be unaffected, or even increase.
Placed on the ballot by the 185,000-member Realtors’ association, the initiative would expand Proposition 13, a state constitutional amendment that has kept homeowners’ property taxes artificially low for decades.
California homeowners’ property tax bills are based on the assessed value of their homes. Under Proposition 13, a home is assessed at its purchase price when it is sold.
In between the purchase and the next sale, the assessed value can go up by no more than 2 percent per year(the value of additions or major improvements can be added into the mix).
The result: The property taxes of many people who have owned homes for a long time are far below what they would pay if they bought a new house in today’s expensive market. This tends to discourage people from moving, according to the Legislative Analyst’s Office.
The aim of the initiative is to encourage people over 55 to move, freeing up houses currently owned by seniors for would-be homeowners.
“My mother is locked into a house in Berkeley. If I wanted to move her up here to Sonoma County, she would lose her tax base, because her home is in Alameda County,” said David Kerr, a Sonoma Valley real estate agent.
“Her property taxes are a couple thousand dollars a year now,” Kerr said. “She would buy a house in Temelec in a hot second, but she would be paying (thousands more per year) if she moved to Sonoma County.”
The real estate agents’ association posits the proposition as a potential partial solution to the housing crisis that has dogged the state for years. As of early 2016, the Bay Area economy had added 480,000 private-sector jobs over the previous five years, but only 50,000 housing units.