Strip mall in northern California
A strip mall in northern California. Photo via Wikimedia Commons

If the California Schools and Local Community Funding Act passes in 2020, it could trigger the closure of strip malls and small businesses across San Diego County as owners struggle to keep afloat due to massive spikes in their property taxes.

This deceptively named measure would end Proposition 13 protections for businesses, creating a “split roll” for property tax assessment. And Prop. 13’s residential protections could be next.

Any property tax increase on mall owners will most likely be passed onto store owners within the mall, and store owners generally pass the increase onto the customer. In essence, we will pay the tax through higher prices on goods and services.

Many mom-and-pop businesses are having a hard enough time surviving as they compete with online retail giants such as Amazon and cope with new minimum-wage requirements. In January the minimum wage increased to $12 per hour for large employers (26 employees or more) and $11 per hour for the rest. The minimum wage in California will rise to $15 in 2022, profoundly impacting small businesses.

If voters pass the California Schools and Local Community Funding Act, neighborhood strip malls will have a much tougher time meeting their financial obligations as stores close due to loss of revenue and increased rents.

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Mall closures are not limited to San Diego; they are closing all over the country. A recent report estimates that 20% to 25% of malls will shutter over the next five years, largely because of store closures. Many mall stores are closing for the same reason they’ve always closed: they are not meeting consumers’ needs. Technology is playing a big role in that, but it is not the only reason.

In California, high taxes have driven out many businesses, and it’s been widely reported that the soaring cost of housing and other living expenses in California is forcing many residents to move as well. California remains one of the highest-tax states in the nation. The latest gas tax hike has made fuel more expensive in California than Hawaii.

The California Schools and Local Community Funding Act would add to all these taxes by amending Prop. 13 to require reassessment of business property every three years starting in 2021, not just when a property is sold, as is the law now.

The state Legislative Analyst’s Office projects that the split-roll proposal would generate $6.5 billion to $10.5 billion in additional annual revenue, which would be divvied up between schools and local governments. However, the unintended consequences of any additional tax increase is a negative effect on our local economy for years to come.

Prop. 13 was a landmark when it passed in 1978 because it helped struggling homeowners deal with skyrocketing property tax increases. Many of these homeowners were seniors on fixed incomes who were facing foreclosure because they could not make their property tax payment.

But Prop. 13 did not eliminate property tax increases. It reset assessments to 1% of the 1976 value, then limited assessment increases to 2% a year, and allowed full reassessment only when the property sold. This kept the growth in taxes manageable. Many fear that if the split-role measure passes, its backers will come next for the residential side of Prop. 13, and the cycle of foreclosures and evictions will resume. That’s a problem that should concern everyone.

The need to better educate our students is clear as California ranks among the lowest in the country in terms of math and English test scores, and nationwide the achievement gap between disadvantaged and well-off students is as wide today as it was for children born in 1954. What we need are innovative solutions to address our struggling schools, such as Career Technical Education internships, community volunteers in the classroom, and parental empowerment through school choice programs.

But the need for good schools must be balanced by smart economic decisions. The unintended consequences of splitting Prop 13. could outweigh any perceived benefits. Splitting the tax roll will only shift the tax burden onto consumers who are already taxed enough.

As currently drafted, the California Schools and Local Community Funding Act is ill-advised and will most likely lead to some of the same economic and housing problems that Prop. 13 corrected. Let’s hope the voters are able to look at the unintended consequences of such a proposal and “just say no” to any additional tax increases in California.

Mark Powell is a real estate broker and a member on the San Diego County Board of Education.