Prop. 15 would threaten small businesses and hinder economic recovery

I’m not going to write about the “new normal” resulting from COVID-19. While the topic is ever-present, what dominates my time and energy is creating a predictable and positive business environment to help small businesses get back on their feet.

Small businesses, particularly minority-owned small businesses, are the lifeblood of California’s economy. A NAACP study found that 5% of all businesses in the state are owned by African-Americans and nearly one-quarter are owned by Latinos. When these businesses are open, they provide valuable goods and services in communities throughout the state.

Looking at the challenges small businesses face, anything that impedes a return to work or slows economic growth demands our immediate attention. To date, government assistance has either been slow and unpredictable, or has failed to keep pace with the rapidly changing public health and public policy climate.

On the ballot next month, though, is a statewide proposition that is so potentially destructive that its harmful impacts must be exposed.

Proposition 15, the largest property tax increase in California history, is a serious threat to small businesses. Its proponents claim that only the largest corporations will be taxed. That PR-spin is quickly dispelled when anyone with basic business knowledge reads the proposition.

First, Prop. 15’s “small business” definition is so narrow that it’s virtually impossible for most small businesses to qualify for the full business personal property tax exemption the measure’s proponents tout as a “tax cut.” 

Does a business have fewer than 50 full time employees? Is it independently owned and operated? Does the business own real property in California? Unless a company meets all three criteria, they don’t qualify as a small business and are taxed.

Second, according to the National Federation of Independent Business, 78% of small businesses rent the properties on which they operate. Many of those small businesses have a “triple-net” lease, meaning the small business owner is responsible for paying all real estate taxes, building insurance and maintenance costs in addition to the normal components such as rent and utilities. 

Prop. 15’s $11.5 billion-a-year property tax increase will immediately be passed on to these small business owners, further cutting into their ability to stay in business at a time they face rapidly rising costs for energy, fuel, rent, salaries and worker benefits.

Third, when minorities can’t find work, they start their own businesses. But, as the NAACP study highlights, Prop 15’s higher property taxes will hurt Black and Latino businesses the most. They’ll be the first to go under and make systemic racism and inequality even worse.

Fourth, Prop. 15 would devastate predominantly minority communities throughout the state by speeding up gentrification. The same NAACP study found, “As new businesses able to afford rising rents move into an area to serve higher income new residents, long time neighborhood businesses – as the result of simply being located where they are – will suddenly face added cost pressures from property taxes as well.”

Fifth, Prop. 15 misleadingly calls itself “Schools and Communities First.” Schools are Prop. 15’s lowest funding priority. If the measure’s proponents cared about public schools, the measure would have focused solely on education. For California’s African American community, Prop. 15 represents another empty promise – a system that has received more state funding but continues to under-perform in educating students with the skills they need to succeed in today’s world.

Finally, Prop. 15 defies common sense. Don’t believe anyone who tells you that an $11.5 billion property tax increase won’t cause economic harm, particularly in a state facing more than 11.4% unemployment, with millions of businesses closed or a pay period away from closing.

As the head of the largest African American nonprofit business organization in the state, we’re laser focused on assisting local chambers with business growth and economic development for their chamber members. Unless defeated by voters this November, Prop. 15 makes this challenging task all but impossible. Vote no on Prop. 15.

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CalMatters Guide to the propositions: Proposition 15: Business property taxes