An Initiative is Being Considered to Increase the Amount of the Homeowners’ ExemptionDecember 20, 2007Taxation Committee Legislative CommitteeThe following is for study only and has NOT been approvedby the Taxation Committee, Legislative or Executive Committees or the Board of Directors.Issue What are the provisions of the Homeowners’ Exemption (HOE) proposal that is being considered for circulation to collect signatures needed to qualify for the ballot?Action None required unless C.A.R. wishes to change its position on the consideration of proposals that have not yet qualified for the ballot.Options Not Applicable.Status/Summary The San Luis Obispo Association of Realtors approved a motion that C.A.R. consider an initiative that is being contemplated for circulation for qualification for the ballot that would increase the amount of the HOE. However, C.A.R.’s long-standing policy is to not consider initiatives prior to qualification for the ballot. The rationale for this policy is that in any given election cycle, there are many initiatives in circulation; however, only a handful of those will ultimately make it to the ballot. A REALTOR® from theSan Luis Obispo Association of REALTORS is considering circulating an initiative on the HOE that would increase the amount of the exemption to 25 percent of a home’s assessed value to a maximum of $100,000. Unless directed otherwise, C.A.R. will maintain its position of not considering taking a position on an initiative until it has qualified for the ballot.Discussion The San Luis Obispo Association of Realtors recently approved a motion that C.A.R. consider an initiative that is being contemplated for circulation to qualify for the ballot that would increase the amount of the HOE. C.A.R.’s long-standing policy is to not consider initiatives prior to qualification for the ballot. The rationale for this policy is that during every election cycle there are numerous initiatives in circulation; however, only a handful of which make it to the ballot. Therefore, the thinking goes, it doesn’t make sense to expend resources to analyze, brief and consider many proposals that will not make it to the ballot (85 initiatives have been submitted this election cycle alone with the prospect of only a dozen or so of those making it to the ballot). Should C.A.R. continue its policy of not taking positions on initiatives unless and until they have qualified for the ballot?The California Constitution currently exempts the first $7,000 of the value of a dwelling from property taxes. For example, a home with an assessed value of $500,000 will be taxed on the basis of a value of $493,000. The constitution also provides that any increase in the amount of the exemption must be accompanied by (1) an increase in state taxes in an amount sufficient to offset the loss in revenues to local governments and (2) an increase in benefits to renters equal to that provided to homeowners.A member of the San Luis Obispo Association of REALTORS is considering circulating an initiative on the HOE to collect the signatures needed to qualify for the ballot. The initiative would increase the amount of the exemption to 25 percent of a home’s assessed value to a maximum of $100,000. In other words, any home with an assessed value of $400,000 or more would receive an exemption of $100,000.Generally, two arguments are made in favorof increasing the HOE. One, the amount of the HOE has not been increased since 1972. Two, given that homes in California generally cost in the hundreds of thousands of dollars with a median value in excess of half a million dollars, the amount of the $7,000 exemption results in a minimal reduction in property taxes.The response given by opponents to increasing the HOE is that Proposition 13 was approved in 1978 and it provides homeowners with relief from property taxes. Proposition 13 limits property taxes to 1% of the assessed value of a home and limits annual increases to 2% of that amount. In addition, homeowners also receive an income tax deduction for mortgage interest paid.Property tax revenues are projected to increase statewide to $4.6 billion. However, due to declining property values, many homeowners are seeking to reduce their property tax bill by requesting that their homes be re-assessed. For example, according to the San Diego Union-Tribune, an estimated 15,000 property owners in San Diego County are seeking reassessment. Global Insight, a research and consulting firm, has predicted that California could lose $2.96 billion in property tax revenue over the next several years.Property taxes are a major source of revenue for local governments and those governments are already bracing for the wave of reassessment requests that will occur as property values continue to decline. The loss of revenues is particularly troubling to local governments at this time because of the projected state budget deficit for next year of $14 billion dollars and the negative impact the deficit will have on fiscal aid from the state to local governments. Moreover, entities such as the League of Cities would vehemently oppose any increase in the HOE because of the impact it would have on revenues and, consequently, on locally provided services. Other organizations, such as the California Tax Reform Association, would oppose on arguing that homeowners already receive substantial property tax relief due to Proposition 13.Unless directed otherwise, C.A.R. will maintain its position of not analyzing, briefing or considering an initiative until it has qualified for the ballot.