California is by far the most populous state in the country, which gives it the ability to have an influence beyond its borders. To help sort out what’s happening in the Golden State, representatives from four of California’s NAIOP chapters met for a legislative summit last week, hosted by NAIOP Corporate’s government affairs team, to discuss the condition of the commercial real estate industry in California.
After NAIOP President and CEO Thomas J. Bisacquino kicked off the summit, Rex Hime of the California Business Properties Association (CBPA) spoke about the largest ongoing attempt to target commercial real estate: Californians will vote next November on a state ballot initiative to increase the property tax burden on commercial and industrial properties by lifting the protections provided under Proposition 13.
Adopted in 1978, Proposition 13 caps the property tax rate at 1% and allows a maximum 2% increase in annual property tax assessments for both residential and commercial properties. The property tax protections for residential, multifamily and agribusiness properties would be left unchanged.
“If adopted, the ballot measure would result in all commercial real estate, apart from the exceptions, being reassessed to its market value in 2020,” NAIOP member James Camp warned in the Orange County Register this year. “After that, the reassessments would occur at least every 3 years. This would be a huge tax increase, up to $11 billion annually on commercial real estate.” CBPA is leading an effort to defeat the “split roll” ballot measure and preserve California’s existing tax structure.
Key topics of conversation at the summit included the lack of affordable housing and the problem of homelessness. Richard Gentry, president and CEO of the San Diego Housing Commission, discussed these issues with NAIOP’s chapters. The supply of affordable housing is practically nonexistent in many California communities. And while California has 12% of the country’s population, it has 25% of the nation’s homeless.
“The number 1, 2 and 3 issues in California are all housing-related,” said Craig Benedetto of NAIOP San Diego. The result is that across the state, local governments are looking to fund responses to these problems by increasing taxes specifically on commercial real estate.
Along with housing policy, public policy in California is also being driven by concerns about climate change. The state is fighting fires in the north and has dealt with drought in recent years as well. Summit attendees noted that many elected officials are focused on promoting policies to address global climate change, but do very little to advance offsetting policies that could maintain a business-friendly environment. Members also discussed several California laws and regulations that make it more difficult to do business in the state. Among the concerns:
- Implementation of the California Environmental Quality Act, “a statute that requires state and local agencies to identify the significant environmental impacts of their actions.” In recent years, Hime said that law has been used to block many building projects, ironically including affordable housing projects.
- The Indirect Source Rule. The California Air Resources Board (CARB) is considering regulations to hold building owners and/or tenants accountable for reducing the greenhouse gas emissions from trucks and other mobile sources visiting the property.
- The Vacant-Property Tax. Oakland adopted a new vacant-property tax that applies to any privately owned property in the city, including commercial, residential and empty lots, that are not “in use” for more than 50 days during a calendar year. San Francisco voters will consider a similar ballot measure in May that would place an annual vacancy tax, starting at $250 per linear foot square of store frontage the first year, doubling to $500 in second year and $1,000 fee for each year after.
- The Sustainable Communities Strategy. The California Air Resources Board released final guidelines on how the board evaluates Metropolitan Planning Organizations (MPOs) pursuant to the Sustainable Communities and Climate Protection Act of 2008. The new environmental oversight by CARB may have a devastating impact on local land use decisions for both residential and commercial development.
- AB 1482. It imposes caps on rent and could discourage growth.
The real estate industry is facing significant legislative and regulatory headwinds in California and nationwide. Because of this, it is important for chapters and members to remain engaged and work together to educate policymakers on the industry’s priorities and initiatives at every level of government. NAIOP Corporate will continue to support the chapters in this endeavor and advocate on behalf of the commercial real estate industry.
Toby Burke is the Senior Director of State and Local Affairs for NAIOP.