Small businesses have rarely faced a more difficult set of circumstances than they are in 2020. The COVID-19 pandemic has closed many businesses permanently and forced others to adjust their core business models. Increased corporate consolidation has made it challenging for small businesses to enter the market and succeed. 85% of all businesses in California are small businesses (fewer than 20 employees), and together they employ over seven million people. This is why SVCF commissioned research to how Proposition 15, the Schools and Communities First initiative, will impact small businesses.
Proposition 15 will change the way commercial and industrial property is taxed to more closely align tax rates with the market value. Although 92% of the increase in taxes will be paid by the largest 10% of property owners, critics have claimed that small businesses will subsequently pay more for rent as property owners will simply pass the increase in taxes on to tenants in the form of higher rents. To examine the facts, SVCF commissioned Beacon Economics, a leading independent research and consulting firm, to explore if Prop. 15 will have a significant impact on commercial rents. SVCF has commissioned this as one part of a larger package of independent, objective research into the impacts of Prop. 15, and you can view additional research briefs on our Schools and Communities First landing page.
Beacon assembled a database of over 12,000 property transfers across 12 California counties identify a relationship between reassessments and higher rents. They reviewed multiple property types and sizes. After extensive review, Beacon found:
- Reassessment of commercial property does not increase rents. They did find that in one of the four categories they looked at – office buildings – there is a very small direct relationship. Reassessing a 20-year old commercial property to current market value could lead to a one-time rent increase of roughly 2%.
- They found that commercial rents are primarily driven by location, local market conditions, the nature of a local economy (higher wage areas are associated with higher rents), building age and building size.
SVCF is hopeful that this evidence provides voters with valuable insights as they consider weighing in on Proposition 15 this November. Read Beacon’s full paper here and refer to additional independent, nonpartisan research on our Schools and Communities First landing page.