A bit of fairness for Prop. 13

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EDITORIAL Behind the crisis in the San Francisco schools, behind the city's fiscal nightmare, behind the state's intractable budget deficit is one gigantic policy mistake that dates back to 1978. It's almost impossible to talk, even today, about repealing Proposition 13, the measure that limits property taxes. Millions of homeowners love their low taxes, and even the liberals among them are dubious about giving up their cherished perk.

But it's entirely possible — and absolutely necessary — to look at amending the measure to end the most blatant inequalities and make the state's property tax system a little more fair. AB 2492, a bill by Assembly Member Tom Ammiano, would do just that — and it deserves the support of every elected official, every community leader, and every voter who wants to save the state's basic services and prevent the once-vaunted California education system from falling into irreparable collapse.

Ammiano's bill starts with the basic premise that commercial and residential property should be taxed differently. There's a good reason for that: Prop. 13 allows tax reassessments only when property changes hands, and residential property turns over far more often than commercial property. So over the past 32 years, homeowners have been taking on more and more of the property-tax burden.

Then there's the popular scam big companies use to avoid higher assessments. The legal details are complicated, but the basic deal goes like this. A real estate investor or investment group sets up a corporation called, say, Big Building Inc. and buys a commercial office building. A few years later, when the property has doubled in value, the investors sell to a new group — by transferring 51 percent of the stock in Big Building Inc. There's a new owner of the property, of course — but on the assessment roles, it still reads "Big Building Inc." — and the owners say that means no ownership transfer and no new assessment.

San Francisco Assessor-Recorder Phil Ting has been complaining about this for years, and a few of these investors have been busted and forced to pay the proper taxes. But it's hard to keep track of every deal — and expensive to fight the legal battles every time some corporation sets up a convoluted structure to hide an ownership transfer.

Ammiano's bill would put an end to that. AB 2492 would make state law clear: Any time 50 percent or more of the ownership interest in a company changed hands, all of the real property that company owned would be deemed to have changed hands and could be reassessed.

In fact, the bill would create a rebuttable presumption that all property owned by any publicly-traded corporation would be assumed to have changed hands every Jan. 1. If the company wanted to prove that its stock holdings were substantially unchanged in the past 12 months, it could make that case; otherwise, the buildings get reassessed.

The impact on the state's finances would be massive, in the multiples of billions of dollars. Local governments would see their budget problems diminish; schools would get more money. And the property tax burden would start to shift back off of homeowners, who now pay far more than their fair share.

Ammiano told us that Speaker of the Assembly John Perez is supportive. Even so, passing even such an obvious, fair amendment to Prop. 13 will be a massive struggle. Mayor Gavin Newsom needs to make a strong public statement of support; so do the mayors of every other Bay Area city. School boards, city councils, county supervisors — this is going to be a battle royal, and they all need to be on board. With this reform, an oil severance tax and reinstating the vehicle license fee, California's budget problems could be nearly solved. What are we waiting for?

Comments

I'm waiting for you to realize that what you are really proposing is a huge increase in business taxes which would have one of two effects, or both.

First it would cause large price increases to be passed on to customers

Second it would drive out of the State many businesses who can only afford to be here with the current tax burden.

And in case you didn't realize, commercial property is in a big recession right now, so this is totally the worst time to be considering this.

The "rebuttable assumption" that properties change hands every year is a nonsense that could easily get this law legally bounced, even if it passed.

While the 50% requirement mooted simply means that we'd see a lot of transactions involving 49% of a property.

Finally, many buildings are owned by REIT's whose shares trade all the time. The normal activity on the NYSe is not a change of ownership in any meaningful and intelligible way.

Posted by Tom Foolery on May. 05, 2010 @ 6:13 am