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"Come for a day and stay for a lifetime…"(R)

Why Prop 5 restores fairness to tax system

by Carla Griffin on August 20, 2018

Seniors in California who want to downsize from their three- or four-bedroom home, now that their children are gone, find themselves facing a costly and daunting dilemma. If they sell, they would lose the property tax protections they’ve enjoyed under Proposition 13.

Instead of paying what experts are calling a steep “moving penalty” in the form of a sharp property tax increase, these people stay in a home that could otherwise be sold to a young family. This is part of the reason why California is facing a crushing affordable housing shortage: fewer single family homes are reaching the sales market.

Voters can fix this problem and eliminate California’s property tax moving penalty by voting yes on Proposition 5, known as the Property Tax Fairness Initiative. The measure, qualified for the ballot by nearly 1 million registered voters, protects people 55 years and older by allowing them to take their property tax protections with them when they move, giving them the ability to move to a safer, more practical home, or one that is closer to their children and grandchildren, or health care facilities. That same protection would also be extended to the severely disabled and to victims of natural disasters.

The law was carefully written to ensure that people would be protected while still paying their fair share of property taxes. Currently, a homeowner’s property tax bill is calculated at 1 percent of the home’s assessed value at the time of the sale, with annual increases of no more than 2 percent. Over time, as California’s real estate market has heated up, that has provided long-time homeowners with an important safeguard against higher taxes. But it has also effectively blocked people from moving.

San Diego has not been immune. In fact, a recent census report indicated that San Diego’s population growth is rapidly outpacing its housing growth and the local median housing prices have risen more than 6 percent in the last 12 months alone.

Ballot measures passed in recent years attempted to address this problem by allowing residents to keep their assessment, as long as the house they bought was the same value or less than the one they sold. But there are sticking points. They could only do this once. And the new home has to be in the same county, or in one of 10 counties that allow these transactions. These rules are confusing and unfair.

Proposition 5 fixes this by allowing seniors the flexibility to move anywhere in the state, limiting the tax penalties they might face while also ensuring they pay their fair share of property taxes. For example, let’s say a senior sells a house assessed at $300,000 for $700,000. That senior then buys a new home for $800,000. The new assessment would then be $400,000, reached by adding the difference between the sale and purchase price to the original assessed value.

This measure enjoys significant support from taxpayer and from veterans’ groups, including the American Legion-Department of California, the California Association of County Veterans Service Officers and the National Guard Association of California.

This turnover of homes would be a welcome boost at a time when California is experiencing a severe shortage of housing. It would revitalize existing neighborhoods by bringing in young families with children and enhance enrollment in neighborhood schools.

In addition to unlocking the housing market, these sales would also mean an increase in property tax revenues from the home that is sold.

New buyers would pay higher taxes on that newly-assessed home, providing an increase in revenues to local governments and school districts. There would be other increases in economic activity, associated with payment of transfer and escrow fees and spending on housing renovations and furniture.

Seniors, the disabled and natural disaster victims should not be penalized by an unfair tax system that prevents them from making the housing choices that are best for them. Proposition 5 would provide the fairness and freedom that California deserves.

By Steve White,  president of the California Association of Realtors.

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