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Prop 5: A tax-break that could break the bank

For decades, longtime homeowners in California have received a break on their property taxes. Proposition 5 is designed to let these home owners keep that benefit, even if they move into a new, more expensive house.

This could cost California cities and counties hundreds of millions of dollars in the long run, according to Voter Information Guide put out by the California Secretary of State’s office.

The proposition is for homebuyers over 55, the severely disabled and homeowners displaced by disaster, and with baby boomers looking to retire, this could lead to more people getting a cut on their property taxes.

In California, if you own a house for a long time, you're protected from your home value going up so much that your property taxes price you out of the home you own. Prop 5 would allow qualified homeowners to transfer that benefit when they move.

This is already allowed, but only if the home they're buying is worth less money than the one they're selling and if they buy a house in the same county. Prop 5 would expand this to buying any home, in any California county.

The California Association of Realtors supports Prop 5.

"The goal is to broaden the number of homes on the market. So that the younger generation has something that they can buy," Jeanne Radsick, president-elect of the California Association of Realtors, said.

Those opposed to Prop 5 dispute that.

"I think it's disingenuous for the real estate in industry to call this a housing measure, because it doesn't build one more unit," Dorothy Johnson, a California State Association of Counties legislative representative for government finance and administration policy, said.

Radsick said the proposition was not written with the intent to make real estate agents more money.

"This is about facilitating people moving," Radsick said, not about increasing real estate agents’ commissions.

The fiscal impact of Prop. 5 will hit schools and local governments.

The summary on the Voter Information Guide states that “schools and local governments each would lose over $100 million in annual property taxes early on, growing to about $1 billion per year. Similar increase in state costs to backfill school property tax losses.”

The legislative analyst with the CSOS office said the proposition could have multiple effects on property tax revenue:

Less taxes from people who would have moved anyway – “Right now, about 85,000 homeowners who are over 55 move to different houses each year without receiving a property tax break. Most of these movers end up paying higher property taxes. Under the measure, their property taxes would be much lower. This would reduce property tax revenue.”

Higher taxes from higher home prices and more home building – “The measure would cause more people to sell their homes and buy different homes because it gives them a tax break to do so. The number of movers could increase by a few tens of thousands. More people being interested in buying and selling homes would have some effect on home prices and home building. Increases in home prices and home building would lead to more property tax revenue.”

But the analyst adds that the revenue losses would be bigger than the gains from higher home prices and home building, leading to losses of $1 billion a year over time for schools and local governments.


Original Article