EDITORIAL You want a quick way to cut a huge chunk out of the city's budget deficit? A way to save essential services without having to put a tax increase before the voters?
Just force the owners of large commercial properties to pay their property taxes.
It's an open secret in California that the biggest properties are bought and sold under a loophole in the Proposition 13 that prevents city's from reassessing them. It's a fairly easy scam, one that almost never happens with lower-priced residential property: Instead of selling, say, a large commercial office building, the owners simply incorporate the building as a limited liability corporation and then sell shares in the LLC. That doesn't count as a property transfer under Proposition 13, so the building is never reassessed.
That means a building that may have sold for $500 million still pays taxes on an earlier assessment, which is often far, far lower. That loophole alone is costing San Francisco millions of dollars a year, according to Assessor Phil Ting.
The California Tax Reform Association, in a May, 2010 report, notes that many of the biggest mergers, acquisitions, and property sales in the state over the past 30 years have taken place with legal tricks that keep property taxes artificially low.
Assembly Member Tom Ammiano has introduced a bill, AB 448, that would classify any substantive transfer of property, even if it's done through subsidiaries and corporate shells, as a sale and allow counties to reassess the property. It's a fairly mild step, far short of a split-roll measure that would treat commercial and residential property differently. In fact, Ting told us, 99 percent of all commercial sales (mostly smaller properties) don't use the loophole. It's just (once again) the 1 percent taking advantage of everyone else.
Los Angeles Mayor Antonio Villaraigosa has contacted Ammiano and asked to testify and help pass the bill. But at press time, Ammiano had heard nothing from San Francisco Mayor Ed Lee. (Lee's spokesperson, Christine Falvey, told us she didn't think the bill was still alive. It is.)
Lee needs to take a high-profile position in support of this bill — and he needs to encourage every other mayor in the state to do the same. The Board of Supervisors ought to pass a resolution of support — and push the County Supervisors Association of California to make this bill a top priority.
Making even a minor, eminently reasonable change in Prop. 13 is tough, and Ammiano's best chance is if local elected officials really push for this. It's crazy that Mayor Lee isn't leading the way.