Red Flag: Bank-Breaking Prop 19 Tax Costs
By Antonio Ray Harvey
California Black Media
Malia M. Cohen, the only African American member of the California Board of Equalization (BOE), has some critical concerns about the cost homeowners will have to bear because of Proposition 19, a constitutional amendment that took effect on Dec. 16, 2020.
Cohen, who represents 10 million Californians in 23 counties on the board, is concerned with how Prop 19 will affect Black and other minority homeowners across California. The BOE is the commission responsible for implementing the law.
“The challenge is that it was voted upon and the election has been certified. So, it’s the law,” Cohen said during a virtual media news briefing with reporters from across the state on Jan. 29 organized by California Black Media.
In her commentary, Cohen discussed the ways the law will impact all property owners.
“It not only affects our respective Black communities,” she told the reporters. “It affects all homeowners and property owners in the state of California. When people wake up there is going to be a massive coalition (to fight it) — possibly an uprising. People need to know what the real deal is.”
Cohen said, at appearances she is planning similar to the news briefing she had with CBM, residents of California will begin to hear about “the first steps” they can take to become educated about how Prop.19 will hit their bottom lines. This is something she feels was not adequately explained to voters when the referendum was placed on the ballot last November.
On Nov. 3, 2020, California voters approved Prop. 19, the “Home Protection for Seniors, Severely Disabled, Families, and Victims of Wildfire or Natural Disasters Act.”
Although Prop 19 was enacted in December, Cohen warns that a critical part of the legislation will take effect on Feb 16. Until that date, the state currently allows tax breaks for parent-child transfers. When parents give or sell real property to their children (or perhaps, grandchildren), that heir continues to pay property taxes at the same rate assessed on the home value as the parent.
After Feb. 16, Prop. 19 will eradicate the parent-child exclusion. Then, parents would still be able to transfer their house to a child, and the child may keep the parent’s assessed value. But the Prop. 19 law has added one critical condition: the child must move into the residence and make the property his or her own primary residence. If not, the property will be reassessed at what the current tax cost is for the home at that time.
Cohen discussed the immediate property tax implications and how it might impede property owners’ intentions to create generational wealth by transferring their personal residence and other property they own to their children as part of their estate planning.
BOE Tax Counsel Richard Moon also participated in the briefing.
“What is required that a child moving into the home must file a homeowner exemption and that needs to be done within a year of the transfer date,” Moon said. “The child has one year to move into the family home and maintain that family home in order to keep the exclusion. But if they move out after three years, the property would be assessed at that point.”
Rates of Black homeownership in California and across the country are still far below that of Whites and other minorities. Critics of the law say the fact that Prop. 19 could set up even more barriers to African Americans owning homes – and straddle struggling families with additional financial burdens – is problematic.
About 2.2 million Black people reside in California, around 5.5% of the state’s population. According to the U.S. Census Bureau, the rate of White American homeownership sails over 73%, while that of African Americans stands at 41%, Black Enterprise magazine reported in 2019.
According to data compiled by Lending Tree, the country’s leading online home loan marketplace, Los Angeles is one of the cities with the highest percentage of Black homeowners. Utah’s Salt Lake City, Texas’ San Antonio, Oregon’s Portland, and Northern California’s San Jose are also included on that list.
African Americans primarily generate wealth through homeownership and home inheritances, according to data included in the Urban Institute’s “2019 Black Homeownership Gap: Research Trends and Why Growing Gap Matters” report.
“Homeownership is currently the largest single source of wealth-building” among the Black population, the study stated. Between 2005 and 2008, over 240,000 African Americans lost their homes to foreclosure according to the Center for Responsible Lending.
“The financial crisis triggered a massive destruction of wealth for African Americans,” Alanna McCargo, co-director of the Urban Institute’s Housing Finance Policy Center told the Washington Post in 2019. “Wealth is inextricably linked to housing, and that wealth gap is evident in figures for Black-owned property in this country.”
The law, as it is written, would exclude from the term “purchase” and the phrase “change in ownership” for purposes of determining the “full cash value” of property in the purchase or transfer of a family home or family farm, for example.
Hardy Brown, Publisher Emeritus of the Black Voice News in Riverside – the oldest African American-owned newspaper in that city — says some of the spirit of Prop 19 may have been positive. The state intended to provide financial cover for the mostly White Californians living in fire and flood prone parts of the state in the event disaster happens. But what it ends up doing, he argues, is decimate the wealth of Blacks and other minorities.
“It doesn’t help,” says Brown. “It might make a quick buck for campaign contributors or help the state to be a good neighbor to some people, but severely harms others in the process. What it really ends up doing is putting another law on the necks of Black people in the state of California. It will choke the breath right out of us.”
Under its constitutional mandate, the BOE oversees the assessment practices of the state’s 58 county assessors, who are charged with establishing values for approximately 13.6 million properties each year.
“We are not talking about $25 million palaces in Malibu. We are talking about humble homes. Middle-class homes,” Cohen said. “I live in the Bay View community (of San Francisco). We’re talking about Baldwin Hills of Los Angeles or Encanto in San Diego and other communities throughout California. Homes that were purchased for $100,000 decades ago that now have a market value of over $1 million. These homes were paid for through hard work and could be potentially lost.”