Propositions! November 2020 (First Batch)

There are a bunch of propositions on the November ballot, and some of them are pretty dense, so I haven't had the mental bandwidth to analyze all of them yet, but here is a first batch.

Proposition 14 - Probably yes. This proposition would authorize the issuance of $5.5 billion in general obligation bonds to fund grants for stem cell and other medical research and therapies, medical training and construction of research facilities.  This is a follow up to a 2004 bond issue to fund stem cell research. (Which I recall being an in-your-face move to the Bush II administration refusing to fund it because stem cells could come from fetal tissue.)

According to the Secretary of State’s website, the cost to California will be $7.8 billion to pay off principal ($5.5 billion) and interest ($2.3 billion) on the bonds, and the average annual debt payments would be about $310 million for 25 years.

On the one hand, this is a worthwhile and potentially useful thing to fund, and there is likely a lack of federal funds for this research.  On the other hand, there are a few questions to ask: 1) given the significant cost, is this the highest priority use for this money, or is there something else we should be spending it on; 2) how much debt should California take on, and how risky is it for the state to add this debt; and 3) should bonds be used to pay for ongoing expenses rather than large capital projects (like bridges, etc)?

So if you like the purpose of the bill, and you are okay with the borrowing and spending necessary to fund it, vote for it.

Proposition 15 - Yes. This proposition modifies the existing Proposition 13 limits on property taxes, by creating what is known as a “split roll” system.  Right now, property taxes on all real estate in California – houses, apartment buildings, farms, factories, high rises, shopping malls, etc. are capped in how much they can increase (I think it is 2% a year), regardless of how much the actual value of the property has increased.  But it does get reassessed at market value when a property is bought/sold. So if you bought a property one year ago for $500,000 and now it is worth $1 million, your assessed value for calculating property tax would only be $510,000, not $1 million.

Proposition 15 would have property taxes for commercial and industrial property (but not residential or farm property) calculated based on the actual value of the property, and no longer subject to the cap of Proposition 13. There is an exemption for commercial and industrial property with a value of less than $3 million.  While Proposition 13 has helped keep property taxes on peoples’ homes more manageable, it has also acted as a subsidy for real estate speculation and has created weird market distortions.  This proposition would result in significantly higher property tax revenue, and allocates that additional revenue to schools and local governments. (Local governments and school districts took a big hit from Proposition 13.) This type of reform to Proposition 13 is long overdue. Vote yes.

Proposition 16 - Yes. This proposition would repeal Proposition 209 that was passed in 1996 and prohibited the state from “discriminating against, or granting preferential treatment to, any individual or group on the basis of race, sex, color, ethnicity, or national origin in the operation of public employment, public education, or public contracting. The California Constitution defines the state for these purposes to include the state, any city, county, public university system, community college district, school district, special district, or any other political subdivision or governmental instrumentality of, or within, the state.”

Proposition 209 resulted in more than just barring affirmative action in school admissions or hiring, and has more broadly limited or prevented the consideration of and support for diversity. Proposition 209 did not magically result in a color and gender blind society, and in fact appears to have had the opposite effect - a marked loss of diversity. (Spoiler: racism and sexism still exist.) While there may be disagreement on what measures should be used to promote diversity, doing so should not be barred by law. Vote yes.

Proposition 17 - Yes. Right now, people cannot vote in California if they are in prison or on parole for a felony, or if they are mentally incompetent. (That last criteria seems to be rather laxly applied, at least in some states.)  This proposition would allow people out on parole to vote.

This makes sense to me – we want former criminals to feel like they are part of society. Once they are out of prison they should be able to vote. Vote yes.

Proposition 18 - Probably yes. Right now you have to be 18 to vote in California. This proposition would allow 17 year olds to vote in primaries and special elections if they will be 18 at the time of the next general election.  I am not sure about the judgment of many 17 year olds (although the judgment of lots of older people seems to be pretty questionable, too), but it is a pretty minor change, and to the extent it encourages younger people to vote that is a good thing. I would lean toward yes.

Proposition 19 and 20 - Coming later.

Proposition 21 - Probably no. This one will change state limits on local rent control ordinances.  If your city does not have rent control (and is unlikely to enact it), this does not directly affect you.

Under current state law (known as Costa-Hawkins), in cities with rent control there is “vacancy decontrol,” meaning that when a tenant moves out of a rent controlled unit, the landlord can raise the rent to the market rate. Costa-Hawkins prohibits cities from limiting rent increases when a tenant moves out and the unit becomes vacant. Under Proposition 21, a city could impose limits on how much a landlord could raise the rent on a vacant unit, with the condition that the landlord could raise the rent by up to 15% over three years.

To illustrate how this would work, assume you have a duplex in a rent-controlled jurisdiction, and you rent out one unit. Market rate on that unit is around $2500/month. Your tenants have been there for a number of years, and are paying rent of $1000/month. Under current law, when the tenants move out, you could raise the rent for the new tenants to $2500. Under Proposition 21, when the tenants moves out, you could only raise the rent for the new tenants to $1,150 over three years.

Proposition 21 makes some other changes as well; the most significant one is that Costa-Hawkins exempts buildings built after 1995 from rent control, while Proposition 21 would change it to a rolling 15-year period, with newer buildings exempt.

Adding rent control to vacant units would have a range of impacts, some intended, some not. The intended effect would be to try to maintain a larger number of rental units at more affordable below-market rates, and it might do that. On the other hand, it will have some other effects. First, small landlords who are on the fence about whether or not to rent out a vacant unit (like half of a duplex or a backyard cottage) will be more likely to not rent it out, taking rental units off the market. (This happens a lot in Berkeley, even under current law.) Second, landlords will never offer reduced rent to anyone (like a friend, a relative, or a fire victim) because the effect of that reduced rent will be carried forward to every other successive tenant. (Not that they are likely to do that now under rent control, except possibly for short-term tenants.)

Because in general rent control hits small landlords harder, and new construction is exempt from rent control, there has been a shift in rental housing from smaller, individually-owned older buildings to larger, corporate-developed apartment buildings. This is particularly true in the jurisdictions with high land costs that are most likely to have rent control. Proposition 21 will likely exacerbate that shift and result in more small buildings being taken off the market, with proportionally more rental housing being larger and not locally owned. I don’t know enough about the economics of apartment buildings to know whether Proposition 21 will be a disincentive to the construction of new rental housing or not, but it may increase the incentive to build new rental housing in non-rent controlled cities.

If you are a renter in a jurisdiction with rent control, you should probably vote for Proposition 21. If you are a landlord or property owner in a jurisdiction with rent control, you should probably vote against Proposition 21. If you are not in a city with rent control, it won’t directly affect you, but don’t be under the illusion that Proposition 21 or rent control will fix our housing affordability problem.

Rent control helps tenants in rent-controlled housing, can help rein in abusive landlords, and can slow gentrification, but neither rent control nor Proposition 21 will do anything significant to address the real problems caused by California’s high housing costs. We have a significant problem with housing affordability due to high property values and relatively low incomes, which needs a major social/governmental response (such as public housing or a universal basic income or the like), and a privatized band-aid approach like rent control won’t fix that, with or without Proposition 21. But approval of Proposition 21 would allow us to pretend for a little longer that we have actually done something significant about housing costs, when we really have not.

Disclosure: my wife owns a four-unit rental building in Berkeley, which has been quite the learning experience. If I didn’t live in Berkeley (or hadn’t read their rent control ordinance), I might feel differently, but if you don’t otherwise have a strong opinion, I would suggest voting no.

Propositions 22 through 25 - Coming later.