Status Quo in State Elections
While the primary focus of the 2020 U.S. election may have been on the race for the White House and control of the United States Senate, there were important state elections and statewide ballot initiatives before the voters as well. There were nearly 6,000 state legislative races in 44 states according to Ballotpedia, and over 120 state ballot initiatives. The outcome of these races and ballot initiatives revealed that voters favored maintaining the status quo over significant policy or political changes within their states.
Many pundits anticipated a “blue wave” of newly elected state legislators across the country as Democratic fundraising hit new highs. The heightened optimism was bolstered by national polls favoring or trending toward Democratic candidates, and the potential coattails of presidential candidate and former Vice President Joe Biden, who was leading President Donald Trump in most polls. The “blue wave” simply never materialized, either at the federal or state level.
Republicans maintained their majorities in all state chambers under their control prior to the election with slight increases in a few states. Democrats made a little gain in the battleground state of Arizona, but fell short of having a majority in either chamber. The only two state chambers to switch parties in 2020 were the New Hampshire House and Senate, with Republicans wresting the majority from Democrats. The National Conference of State Legislatures suggests that the “Live Free or Die” state may be “the nation’s swingiest state” with the legislative chambers changing majorities from one party to the other six times out of the last eight election cycles. With the Republican win in New Hampshire, there are now 38 states controlled by one political party – 23 Republican and 15 Democratic.
State legislative elections were particularly consequential this year. Most state legislatures oversee and control the redrawing of congressional districts based on the population reapportionment from this year’s census. These new district lines will have long-term implications for the political makeup of the United States House of Representatives. This is the key reason state legislative candidates were able to raise over $900 million in 2020 from such groups as the Republican State Leadership Committee and the Democratic Legislative Campaign Committee. Independent expenditures by groups to either defeat or elect a candidate, not done in coordination with a candidate’s campaign, also added to the record level of election-year spending. Such groups include organizations such as the National Democratic Redistricting Committee, led by President Barack Obama and Eric Holder Jr., who served as his attorney general, and other partisan so-called “super PACs.”
In addition to state legislative races, there were over 120 state initiatives placed on the November ballot through either a citizen’s petition or referendum by the state legislature. Several of this year’s ballot initiatives had important policy and, in particular, tax implications for NAIOP members and the economy. With few exceptions, these initiatives to increase taxes on commercial real estate or our members were rejected by voters.
NAIOP and its California chapters were part of a broad coalition that successfully defeated Proposition 15, a targeted $11.5 billion property tax increase on commercial and industrial properties. There was a collective effort by NAIOP, the chapters, the California Business Properties Association and others to educate Californians in voting against lifting the property tax protections on commercial real estate under Proposition 13 of 1978. If adopted, Proposition 15 would have established a split roll structure that increased revenue for education and local governments by increasing property taxes only on commercial real estate. The passage of Proposition 15 would have been detrimental, not only to our industry, but small businesses and a state economy struggling through the pandemic.
As in California, NAIOP Colorado was also active in supporting the effort for a fair and balanced property tax structure, supporting passage of “Amendment B,” which repealed the Gallagher Amendment of 1982. That law mandated a 45% to 55% split in property tax collections between residential and non-residential (commercial) real estate. As a consequence, as home values dramatically increased, residential tax rates had to drop. While the commercial real estate tax rates remained the same, cities and counties had to increase mill levies on commercial real estate to offset the lost residential property tax collected causing commercial real estate taxes to rise by 300%, while residential taxes stayed the same.
Voters in two other states also went to the polls this year to decide whether to increase income taxes in order to generate additional revenue to fund government services and programs. Arizona will now apply an additional 3.5% income tax on top of the current rate for individuals with income over $250,000 filing solely or $500,000 filing jointly with the passage of Proposition 208. This effectively places an 8% income tax rate on these individuals. The Illinois legislature placed a similar measure on the ballot to replace the flat income tax rate with a graduated rate based on income levels. That initiative, the Constitutional Amendment No. 1, was rejected by voters.
Every ballot initiative for the legalization of marijuana, for either medical or adult use, was successful in 2020. In many states, this may have implications for commercial real estate because of the increased need for warehouse space for the hemp and marijuana industries. The support for these efforts, either through the success of ballot initiatives or through passage of state legislation, may bolster legalization efforts at the federal level.
The key takeaway from this year’s election is that Republicans maintained their majorities in state capitols as a “blue wave” did not materialize in states like Arizona, Minnesota and Texas where Democrats had hoped to win back state legislatures. The race for the White House notwithstanding, at the state level, the status quo is the consequence of the 2020 election.
