Santa Barbara Happenings - February 2021

New Property Tax Changes to the Parent-Child Exclusion and for Homeowners Over 55 Years Old

Narrowly passed in the November 2020 election, Proposition 19 narrows some of the property tax limitations established through Proposition 13 and Proposition 58, namely the Parent-Child Exclusion, and expands the allowances under Propositions 60 and 90 for the Transfer of Base Year Value for Persons Age 55 and over.

Proposition 13 (the Tax Limitations Initiative), enacted in 1978, has controlled property taxes for residential and commercial properties by making assessments based on their 1976 value and restricting annual increases of over 2%, aside from when ownership changes. Proposition 58 allows transfers of certain properties to be excluded from reassessment when that property is transferred between parents and children. Currently, under Proposition 58, transfer of a parent’s primary residence to a child can be exempt from reassessment regardless of the current market value of the transferred property. For properties other than a parent’s primary residence, the first $1 million transferred from parents to children would be eligible for exclusion from reassessment.

Beginning February 16, 2021, California residents who receive real property from their parents will be taxed based on the full fair market value of the property, unless it is the primary residence of the parent and it is used by the child as their primary residence after transfer. If used as the child’s primary residence, up to the first $1 million will be eligible for exclusion from reassessment. Note: If the property is transferred to more than one child, all children would have to live together in the home as their primary residence to receive the $1 million exclusion. For uses other than a primary residence (e.g. rental housing, vacation home, or commercial property), there will no longer be an exclusion. Since the average cost of a home in Santa Barbara County is approximately $1.25 million, most parent-child transfers will now, in part at least, be taxed on their reassessed market value. This will likely lead to the sale of many of the inherited properties.

For homeowners over 55 years old, Proposition 19 broadens the opportunities for transferring their current property tax basis to new properties. Under Proposition 19, homeowners over 55 can transfer their tax basis up three times to any county within California, regardless of the value of the new home. If the value exceeds what the current property is sold for, the taxable value is adjusted to account for the difference (previous taxable value plus difference between home sold and home bought). Previously, eligible homeowners were only able to move within the same county once and maintain their tax basis. This change goes into effect April 1, 2021.

Proposition 19 highlights the dangers of mixed legislation. Most voters would probably agree that the relief offered to homeowners 55 and older is a good thing. However, combining it with the change to the Parent-Child Exclusion will have negative effects particularly on lower-and middle-income families, many of whom will be forced to sell the most valuable asset in their parents’ estate due to the dramatic increase most of them will see in annual property taxes on their family homes.

Santa Barbara Restaurants Push Back Against Outdoor Dining Ban

On December 3, 2020, Governor Newsom issued a regional Stay-at-Home/Lockdown Order. The Order divides the state into 5 regions: Northern California, Greater Sacramento, Bay Area, San Joaquin Valley, and Southern California. When a Region’s ICU capacity drops below 15%, the region must follow the guidelines of the new Stay-at-Home Order, including but not limited to, the closure of all in-person restaurant dining.

Unfortunately, the State grouped Santa Barbara, San Luis Obispo, and Ventura Counties into the “Southern California” Region, making their reopening dependent upon Los Angeles, San Diego, and Orange Counties. The Southern California Region alone includes more than 1/3 of the state’s population.

Since the initial closure of indoor dining in July, 2020, Santa Barbara restaurant owners have spent tremendous amounts of money converting any available outdoor space into “COVID-safe” outdoor dining by creating parklets and adding plexiglass and heaters. The Santa Barbara City Council had even embraced outdoor dining by closing parts of State Street to vehicle traffic and allowing restaurants to place tables and chairs on the sidewalk and street in front of their businesses.

As expected, some Santa Barbara local restaurants cannot survive on takeout and delivery services alone. With no end in sight for the regional Stay-at-Home/Lockdown Order, some restaurants have been challenging the Order and calling for local government action. As of now, the Santa Barbara City Council and Santa Barbara Board of Supervisors have sent letters to Governor Newsom asking him to separate Santa Barbara, Ventura, and San Luis Obispo counties into a smaller Central Coast Region. At the time of this writing, neither letter neither has received a response from the Governor.

Local Schools Fail to Teach Financial Literacy

In a report on the economic well-being of the United States, the U.S Federal Reserve found that nearly a quarter of all American adults have no retirement savings. This issue can at lease partially be attributed to the lack of financial literacy among average working-class Americans.

The American school system, including ours in Santa Barbara County, is overlooking a huge part of what should be included in high school curriculum. While teaching Math, History, English, and Science are all valuable, schools also need to be teaching skills that are directly applicable to finance, such as investing, using credit cards, and debt. Colleges are also lacking this practical instruction. UCSB currently requires students to take a series of general education classes with options varying from Greek Mythology to basic Physics, but nothing requires students to learn about the financial market.

A report by Montana State University found that financial education decreased the likelihood of holding credit card balances. Florida has already made the change to require finance classes as part of their curriculum. With added COVID-19 related financial distress, it is especially important to introduce financial curriculum into schools. If no changes are made to how Americans plan for retirement, a significant portion of middle-class older workers are likely to become poor elders.

Social Media Giants Use Ultimate Control Over Free Speech

In January, Twitter, Facebook, and Instagram suspended then President Trump from using their social media platforms. This historic move by tech giants to censor a then President of the United States raises important questions regarding tech regulation and the future implications for free speech, like who elected them to censor content all of us should have access to?

One clear question is whether big tech companies should be treated as publishers rather than companies. If so, the tech giants would be more accountable for the content available on their platforms, but they would have duties other publishers have.

Currently, Section 230(c)(1) of the 1996 Telecommunications Act protects internet companies from liability for restricting access to content. If instead of acting as a “public square” in the market place of ideas, they act like publishers by selecting and rejecting content, it is appropriate to apply publishing standards to them.

Regardless of whether or not the suspension continues, these decisions by big tech giant revealed the ability of big tech to censor information and restrict what you and I get to see and read. This line of conduct is bad when done by government and inexcusable when done by privately held corporations.

Solvang City Council makes Efforts to Improve Tourism

The Solvang City Council voted unanimously to approve a 6-year renewal of the Santa Ynez Valley Tourism Improvement District. To gain approval, the District needed support from over 50% of hotel managers/owners. About 93% of hotel managers/owners supported the extension, as did the County of Santa Barbara and the City of Buellton.

The Tourism Improvement District charges an annual assessment of $3 per hotel room per night and puts the revenue towards marketing the six unique communities: Solvang, Buellton, Santa Ynez, Los Olivos, Ballard, and Los Alamos. The District also provides educational classes on tourism and customer service to hotel managers and industry employees to keep them competitive in the Central Coast.

It is expected Solvang could generate $900,000 in revenue in the first year and may increase the assessment from $3 to $3.50 per room per night in 2024. Santa Barbara, Goleta, Santa Maria, Lompoc, and San Luis Obispo County all have tourism improvement districts as well.

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