The taxman cometh

The sale of the Bank of America building proves downtown wasn't paying its fair share of taxes. What will the next assessor do about it?

By Matthew Hirsch

The job of assessor in San Francisco doesn't seem terribly exciting to many people, so next month's election for that office is barely on the public's radar. But the recent $1 billion sale of the Bank of America building could demonstrate why this race is so important.

In short, the sale shows that many big downtown property owners were paying far too little in property taxes – and the Assessor's Office was letting them get away with it.

For years now, large corporations in downtown San Francisco have argued that their properties are losing value, and they have pushed for tax cuts that have blown a big hole in the city budget.

Past assessors, including the incumbent, Phil Ting, have claimed they were powerless. Since no big properties had been sold in the city recently, there was no easy market comparison.

But now, the B of A building deal presents clear evidence that property values are higher than corporations have claimed.

There are three candidates running to be San Francisco's assessor, a job that consists largely of calculating real estate values so the city can collect property taxes but that in recent years has become synonymous with corruption. Ting, appointed by Mayor Gavin Newsom to replace Mabel Teng after Teng resigned under a cloud of ethics charges, is running against Sup. Gerardo Sandoval and Ron Chun, a tax lawyer and former employee of the Assessor's Office.

"Next to the mayor, this is probably the most important position in City Hall," former Board of Supervisors president Matt Gonzalez told the Bay Guardian.

And now that there's clear evidence downtown was gaming the system, what will the assessor candidates – and the next assessor – do about it?

Last November the folks who sold the Bank of America building claimed their hulking office tower – the second-highest point in the San Francisco skyline – was worth $600 million. That's about $200 million less than what the assessor thought it was worth – and a bit more than half of what it sold for last month.

Shorenstein Realty Investors, a recent B of A building owner, wasn't alone in claiming vastly low values for big properties – and many of those claims were successful. Of all the assessment appeals from the last year, commercial landlords succeeded in lowering property values from a combined $4.4 billion to $3.8 billion, according to a recent internal review of the Assessor's Office.

The $600 million difference translates into about $6.6 million lost from local coffers. If all commercial landlords got their way in assessment appeals last year, the tax base would have shrunk another $1 billion, or $11.1 million gone from local government services like street repair and health care for the poor.

Ting told us property owners don't generally appeal their assessments if they think they're going to lose. He said appeals spiked about three years ago, as the Assessor's Office was melting down.

Meanwhile, downtown players were also taking aim at another source of city revenue.

Five years ago, Shorenstein joined a lawsuit that sought to overturn San Francisco's business tax.

The business group included large property owners like the San Francisco Giants and Equity Office Properties, the nation's largest real estate investment trust. It also included well-known companies like the Gap, Pacific Gas and Electric Co., and Hearst Corp., which owns the San Francisco Chronicle.

Together this group came to be known in these pages as the "Filthy 52."

According to the Filthy 52, the San Francisco business tax discriminated against out-of-town companies because they had to pay tax on everything they sold here, a tax that's known as a gross-receipts tax. Some local businesses paid payroll tax only and were exempt from the gross-receipts tax.

Under legal threats and political pressure from the Filthy 52, the Board of Supervisors overturned the gross-receipts tax and voted to settle the business tax lawsuit at a cost of $85 million. Sandoval, the lead challenger in the assessor's race, voted against the settlement.

Sandoval said that by attacking the business tax, these companies contributed to the city's financial problems, in turn making it difficult to fight them over property tax assessments. "They're responsible for robbing the public's coffers and not paying their fair share. There's no doubt if we had that $85 million, we wouldn't need Proposition B [the street- and sidewalk-improvement bond]," he said.

And, our analysis shows, over the past two years, 9 of the Filthy 52 have asked for big tax reductions on 27 properties worth a combined $2 billion. Some appeals go back several years, many involving tens or even hundreds of millions of dollars.

Mark Norton, a founding member of San Franciscans for Tax Justice, said people need to start picketing companies that fight for big tax breaks from the assessment appeals board. And they need to pay attention to the assessor's race.

"A fight over property taxes is a fight over power," he said. "It's not just a fight over pennies or dollars."

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