Businesses Breathe Easier After Voters Reject Key Propositions

Businesses in Los Angeles County breathed a sigh of relief last week as ballot measures that would have imposed higher costs or stricter regulations either were rejected outright or appeared headed for defeat.

Measures to allow cities to impose tougher rent control laws, regulate dialysis clinics and eliminate bail all went down to defeat.

A sweeping initiative that would have increased taxes on commercial property owners was trailing as of late last week.

And a measure placed on the ballot by San Francisco-based rideshare and delivery platform companies Uber Technologies Inc., Lyft Inc. and DoorDash Inc. to allow them to continue classifying drivers as independent contractors passed overwhelmingly.

“Businesses are definitely breathing a sigh relief as voters generally maintained the status quo,” said Fernando Guerra, director of the Thomas and Dorothy Leavey Center for the Study of Los Angeles at Loyola Marymount University in Westchester.

Guerra said businesses did an excellent job of building defensive coalitions to block most of these ballot measures. And, he said, they were helped in several cases by splits among union or progressive proponents that limited the backers’ ability to wage effective campaigns.

Opposition to Proposition 15

One of the most closely watched races, for Proposition 15, which would raise taxes on commercial real estate, was trailing but still undecided as of Nov. 5.

Sandy Sigal, chief executive of retail property owner NewMark Merrill Cos., called the proposition “misguided.”

Think about how insulting of a proposition this is and what they were asking of people,” Sigal said. “In a year where the average owner of real estate is lucky if they can pay their mortgage and (some) needed help doing that, someone thought it was a good idea to increase our property taxes two, three, four times, which would then be passed along to tenants, to other small business owners who either would have to raise prices on consumers who also are suffering or just go out of business, which would lead to a whole bunch of unemployment.

John Loper, an associate professor of real estate at USC, said Proposition 15 would be “a very large tax increase, especially for a lot of businesses that had been in a building that had been owned by someone for a long time.”

He said family-owned properties in the same family for generations would have seen very large tax increases, and in many cases the increase would be passed on to tenants, including retail tenants that are struggling right now.

In many cases, the language in commercial and industrial tenant lease agreements will allow higher property taxes to be passed on to tenants. In other cases, the higher taxes would be reflected in new leases or lease renewals.

“A large increase in property taxes could have really hurt a lot of small businesses,” Loper said.

Proposition 21, which was overwhelmingly rejected by voters, would have allowed local governments to implement rent control policies on buildings older than 15 years.
Loper said the measure would have had “long-term effects when it comes to housing.” He added that the proposition would have been “more encompassing” than rent control regulations passed by the state last year.

Loper added that landlords’ inability to raise rents could decrease the value of the real estate, reduce the amount of money spent on remodeling and even push some investors out of California and into states without strict rent control laws.

A sound defeat

Proposition 23, which would have required a dialysis clinic to have a physician on the premises at all times, was handily defeated, 64% to 36%.

The dialysis industry vigorously opposed the measure. The three largest players in the category — Denver-based DaVita Inc.; Fresenius Medical Care North America, a unit of Germany-based Fresenius SE & Co.; and Plano, Texas-based U.S. Renal Care Inc. — collectively contributed more than $100 million to defeat the proposition.

Locally owned dialysis clinic chains were also opposed to Proposition 23, saying the measure would impose additional costs and possibly force them to close clinics.

Rideshare and delivery-based app platform companies, meanwhile, contributed at least $203 million to the effort to pass Proposition 22, making it the most expensive initiative in state history.

The measure allows these app-based companies to keep their drivers classified as independent contractors. A state Supreme Court ruling, followed by a state law known as AB 5, had required these firms to classify their drivers as full-time employees who were eligible for workers compensation and other benefits.

Proposition 22 also requires these app-based companies to offer drivers at least 120% of the state minimum wage as well as health care subsidies and at least $1 million in vehicle insurance.

Voters overwhelmingly approved the measure, 58.4% to 41.6% as of Nov. 5.

Bailed out

The state’s bail industry also emerged victorious in a referendum that would have eliminated the state’s bail system. As of Nov. 5, that margin was 55.4% opposed to 44.6% in favor.

Proposition 25 used the verbatim language of SB 10, a measure passed by the Legislature in 2018 that scrapped the state’s bail system and replaced it with a system based on defendant risk assessments.

Taking in the results of all these measures targeting businesses and specific industries, one local economist said the results showed more centrist tendencies among voters.

“The electorate is more business-friendly than the Legislature and unions and other progressive interests,” said Christopher Thornberg, founding partner of Westchester-based Beacon Economics. “These results delivered a pretty resounding ‘no’ to the Legislature.”

From the Los Angeles Business Journal. Click here for the full article