Gubernatorial candidate Tom Steyer speaks at the California Democratic Party in San Francisco on Feb. 21. Steyer is proposing a 2027 special election ballot measure to hike corporate taxes.

Last week, Politico reported that billionaire and California gubernatorial candidate Tom Steyer is floating an idea for a 2027 special election ballot measure to hike corporate taxes. His proposal aims to revive a “split roll” property tax reform — similar to 2020’s Proposition 15, which, had it passed, would have assessed large commercial properties at full market value.

Steyer has rightly identified Proposition 13 as the root cause of the state’s fiscal dysfunction. However, Steyer’s approach simply shifts the tax burden onto commercial properties, leaving Prop 13’s historical giveaways — and unequal treatment — firmly in place.

Ever since Prop 13 artificially capped property tax revenues in 1978, California has perpetually hunted for other ways to fund basic services. Prop 13 rolled back assessed values to mid-1970’s levels, capped annual assessed-value growth at 2% (until sale/new construction) and limited the general property tax rate to 1% of assessed value.

Article continues below this ad

Perennial budget shortfalls ensued. To make up for them, the state has steadily hiked other levies, like sales taxes, while burdening Californians with the highest top income tax rate in the nation.

The heavy reliance on income and sales taxes has fueled California’s affordability crisis, driving residents and businesses toward states like Texas and Florida.

See more S.F. Chronicle on Google

As Prop 13 squeezes the tax base, municipal budgets tighten and lawmakers propose increasingly desperate measures — like the one-time wealth tax on billionaires — to extract the revenue needed to maintain the services voters demand.

It is a vicious cycle: cap property taxes, raise income taxes, watch people leave, then squeeze whoever remains.

Article continues below this ad

Steyer’s instinct to straighten out California’s tangled tax code is correct; the status quo is just plain unfair. Because property valuations freeze at the time of purchase and grow by a maximum of 2% annually, new property owners often pay significantly more than their neighbors, even for identical homes. The largest tax breaks often go to those with the most valuable properties.

A 2016 Legislative Analyst’s Office report further details how these discrepancies create a punishing penalty for moving, protecting long-established owners while shifting the tax burden entirely onto young families and new buyers.

Prop 13 also distorts urban development and starves localities of the value they create. When a city uses public funds to build a transit line or improve a school, the surrounding land becomes more valuable. In a normal system, that appreciation generates additional tax revenue, creating a virtuous cycle that pays off infrastructure investments and funds future projects.

Under Prop 13, that value capture is severed. The public foots the bill for infrastructure, but the untaxed windfall of skyrocketing land value is captured entirely by private landowners, who impose a second, private tax, in the form of high rent on their tax-sheltered properties.

This dynamic not only rewards land speculation and stifles development, but it also benefits people for sitting on empty lots. When property taxes are low, there is no pressure to put land to productive use. Instead, a landowner can hold a vacant lot in a prime downtown area, pay pennies on an outdated assessment and wait for the housing crisis to drive the resale value into the millions. A 2023 parcel-level study by the Berkeley Institute for Young Americans confirmed this, finding that vacant land enjoys the highest relative tax discount of any property class under Prop 13.

Steyer’s split-roll reform would let this ruinous weed grow unchecked.

So, if Prop 13 is the root of the rot, why not rip it out right away?

Dropping an uncapped, market-rate assessment overnight on California residents would cause a sudden shock, killing its political feasibility.

There’s a better way: pair sensible reform with revenue neutrality. The goal is not to give municipalities a bottomless piggybank, just to straighten out an unequal system.

California should unwind Prop 13 and implement a levy-level cap — that is, cap the budget, not the property valuations. Washington state’s 1% revenue limit or Massachusetts’ Proposition 2½ are successful models that achieve this without increasing overall taxes.

Under these systems, the total property tax revenue a city can collect (the levy) is strictly constrained. It is usually allowed to grow only by a small, fixed percentage each year to account for inflation, plus new construction. If overall property values double, the city does not get double the money. Instead, the tax rate automatically floats downward so total revenue remains within the cap. This pairs well with local democracy — if a majority of residents desperately wants to collect more revenue from property taxes, they can always vote in a special levy. But the city just can’t sneak it in the back door without residents actually being on board.

Meanwhile, every property is assessed at its true market rate, meaning neighbors with identical homes pay identical taxes. Land speculators are forced to pay their fair share, encouraging housing development where it is needed most. The burden is shared equitably, and while the government’s baseline revenue is constrained, local communities still retain the democratic option to approve additional service spending.

Guest opinions in Open Forum and Insight are produced by writers with expertise, personal experience or original insights on a subject of interest to our readers. Their views do not necessarily reflect the opinion of The Chronicle editorial board, which is committed to providing a diversity of ideas to our readership.

Read more about our transparency and ethics policies

Uprooting Prop 13 is the best way to correct California’s fiscal trajectory, incentivize development and lay the groundwork for a more equitable and balanced system. Pruning the edges by targeting only commercial real estate is not enough. When one neighbor pays next to nothing and the other pays it all, the well is poisoned, and the tree it waters bears toxic fruit.

Let’s chop Prop 13 down entirely and plant a revenue-neutral levy cap in its place.

Lars Doucet and Greg Miller are co-founders of the Center for Land Economics, devoted to studying the role of land and property in our economy. Doucet is the author of “Land is a Big Deal.” Miller is a former program analyst at the U.S. Department of Housing and Urban Development.

© San Francisco Chronicle