Research disproves misinformation that initiative would have negative impact on small businesses
By Anthony Matthews
A new report recently released found that Proposition 15, the Schools and Communities First ballot measure, would not impact the cost of small business rents for the roughly 80% of businesses renting their place of business or raise property taxes for the vast majority of commercial properties. The study was conducted by Beacon Economics LLC for Silicon Valley Community Foundation.
“Most claims about Proposition 15’s impacts on small businesses are unfounded. Our analysis shows that this initiative will not strain small business owners with skyrocketing rents and should actually affect small businesses very little,” said Christopher Thornberg, founding partner of Beacon Economics. “Entrepreneurs will want to remain part of California’s high-performing, innovation economy and, should it pass, this initiative won’t change that.”
The study found Prop. 15 will not impact small business renters, including triple net lease tenants. An analysis of nearly 12,000 properties in 12 counties found reassessment after a property sale does not increase business rents for retail properties, warehouse properties, and research and development properties. Office space tenants are an exception where this can fuel rent increases of 0.1% each year. In other words, the reassessment of a commercial property after 20 years could cause a one-time 2% rent increase for an office space tenant.
Other key findings of the report include the following.
- Prop. 15 won’t impact two-thirds of commercial properties. In a random sample of over 22,000 commercial property transactions in 12 counties during 2018-2020, 66% of commercial property sales were under $3 million and would be exempt from Prop 15.
- Of nearly 1 million businesses in California, 56% have fewer than 5 employees, 17% have 5-9 employees, and 12% have 10-19 employees.
- Prop. 15 would restore equity to property taxes since homeowners now pay 72% of property taxes relative to businesses. In 1978, it was 55%. In Los Angeles County, commercial properties paid 46% of property tax in 1978 but paid just 28% in 2017.
“Commercial rents are based on many market factors but property tax is not one of them. If it were, reassessments would trigger rent increases and there is no evidence of this,” said Taner Osman, research manager at Beacon Economics. “Small businesses typically require less space to operate so they tend to occupy relatively less expensive properties. This is why most small businesses purchasing their place of business will not be impacted by Prop. 15.”
“For the first time, we can separate fact from fiction about Prop. 15 impacts on small businesses,” said Walter Wilson, CEO of the SIlicon Valley Minority Business Consortium. “Armed with this new material, we can keep lies of impending doom in check and know that, whatever fate this initiative faces, there is no need to fear for the future of our small business community.”
“Small business owners are active members of their communities. They want the place they call home and build their business to do well,” said Tara Lynn Gray, President and CEO of the Fresno Metro Black Chamber of Commerce. “This report shows small business owners the choice about Prop. 15 does not pit the interests of their business and community against each other.”
“This report shows a single ballot initiative will not change how businesses negotiate leases. Like other businesses, landlords set rent prices based on supply and demand,” said John Ballon, owner of Two Enlighten in Glendale. “Right now, demand for office space is in decline. I recently renegotiated my lease for nearly a third less than what I was paying before the pandemic. My landlord said my moving out was not an option and she would ‘do what it takes to make it work.’”
“With the potential to unlock $12 billion to benefit local governments and schools, Proposition 15 is one of the most significant ballot measures facing California voters this November,” said Gina Dalma, executive vice president of community action, policy and strategy at Silicon Valley Community Foundation. “Together with Stupski Foundation and other generous supporters, Silicon Valley Community Foundation has invested in independent and objective research that produces clear, data-driven information to help inform voters about the potential impacts of Proposition 15. This study from Beacon Economics has indicated a clear finding that there is no significant relationship between reassessments and an increase in commercial rents, further invalidating misinformation that claims Proposition 15 would harm small businesses.”
Prop. 15 would require most commercial properties, except those valued under $3 million, to be taxed at fair market value through reassessment every three years. The revenue would be directed to K-12 public schools, community colleges, and local governments. Currently, property taxes on commercial properties are based on property values at the time of purchase with a cap on increases.