Stop the tax cuts

THE BIG DOWNTOWN hotels have spent a huge amount of money and political effort trying to stop homeless people from standing on the streets asking passers-by for spare change. The big business groups – the San Francisco Chamber of Commerce, the Committee on Jobs, the Building Owners and Managers Association, and others – complain constantly about the city employee unions asking for raises and the activist groups demanding money for city services.

But when you really analyze San Francisco's gaping budget deficit, it turns out a large chunk of it – probably the single largest piece – is simply corporate panhandling. As Steven T. Jones and Tali Woodward report on pages 16 and 18, some of the biggest, richest property owners in town are demanding huge property tax reductions, worth a total of roughly $100 million.

Assessor Mabel Teng has already called on those wealthy businesses to hold off voluntarily on the tax-cut demands, but (not surprisingly) the property owners have refused. Mayor Gavin Newsom has so far failed to back her up – and the way he and the San Francisco Board of Supervisors respond to this shameless downtown greed will define the debate over the city's next budget and in many ways determine whether Newsom has the backbone to be a real reform mayor.

The tax-cut demands come thanks to Proposition 13, the notorious 1978 tax-cutting measure that has brutally damaged schools, public health, transportation and so many other basic government services in the state. The law strictly caps the amount cities can raise property taxes each year, no matter how much real estate rises in value or demands on the public sector grow. So in boom years, when commercial landlords are getting phenomenally wealthy off high rents and speculators are making a killing selling office buildings at inflated prices, the city can't raise taxes and reap some of the windfall. But in bad years, when property values fall, Prop. 13 allows building owners to demand unlimited reductions in their property assessments – which translate into big tax cuts at a time when the city can least afford them.

Under former assessor Doris Ward, many of those tax appeals were routinely granted or settled on terms favorable to the property owners. Now Teng, who was once a loyal Brown machine ally and a friend of downtown, has pleasantly surprised us by fighting back and sending almost every big appeal to the Assessment Appeals Board.

Although the property owners can, and do, employ teams of high-priced lawyers and appraisers to make their cases, and they can, and do, accurately claim that property values have markedly dropped in the post-dot-com recession, some of the claims are just absurd. The Transamerica building, for example, is a real estate trophy, a landmark structure that Transamerica used for years as the centerpiece of a big national advertising campaign. The fact that commercial rents have fallen in the past few years doesn't mean the actual value of that 600,000-square-foot building is a mere $94 million, less than half of what the Assessor's Office thinks it's worth. Nor has the value of the Bank of America building, another landmark owned by the Shorenstein Co., the city's biggest commercial landlord, dropped by 50 percent, from $967 million to $474 million. Those properties have immense intrinsic value as investments in a San Francisco real estate market that sometimes dips but in the long term never really falls.

But there's more to the issue than arguments over the precise value of a big building. These property owners made a fortune in the boom years, while benefiting from artificially low property taxes. Now that there's a slight decline in the commercial real estate market, they want big tax cuts. It's a fundamentally unfair claim – and the mayor and the supervisors need to join Teng in publicly denouncing every one of these tin cup-holding millionaire beggars and pointing out that they, as much as anyone, are responsible for the nasty service cuts the city will have to make to balance the books this year. The supervisors and the mayor should also provide the Assessor's Office with the staff and resources it needs to fight these battles.

The supervisors also need to take the lead in developing other new revenue sources that force big business to pay its fair share of local taxes. The most obvious approach: change the city's main business tax to a tax on both payroll and gross receipts that's assessed on a progressive basis. The biggest companies and biggest employers should pay a higher percentage than the struggling small merchants, who have been hit hardest by the recession (and who often don't own the property where they do business and thus don't even get the Prop. 13 tax breaks). Sup. Fiona Ma, who headed up a special committee looking at new revenue options, totally dropped the ball and is now recommending no new taxes. That's ridiculous. The Budget Committee needs to put new taxes on the top of its agenda and force Newsom to respond.

Meanwhile, on the state level, a proposition by actor Rob Reiner would raise the cap on annual commercial assessments by half a percentage point, which would bring in billions to fund universal preschool. It's a good idea and deserves support. But the state legislature should also review a new study by Lenny Goldberg's California Tax Reform Association that reveals how big businesses have reaped most of the Prop. 13 windfall and recommends annual reassessments of all commercial property.

The companies that would pay additional taxes if Prop. 13 were amended, or if the city were to deny their appeals, aren't paupers. They have benefited handsomely from low taxes over the years, and it's time they paid some of it back.