Well, CTA didn’t take on Prop 13, but this isn’t a bad start:

On Sunday, delegates for the 325,000 member union voted to back initiatives to rescind corporate tax breaks (see initiatives #1412 and #1375), passed a year ago under cover of darkness, that eventually will cut state revenues by an estimated $1.7 billion. Backing up its vote with dollars, the CTA has committed $587,000 to gather 434,000 signatures needed to put it on the ballot. (Educated Guess)

In a time of economic chaos, why would we start with tax breaks for corporations?  Good on CTA for pushing on this issue. It should be a crowd-pleaser for the left, and it seems like it should stand a good shot of passing in November. For now anyway, CTA has taken the safe route.

At the same time, they had prepared initiatives to increase the property tax rate on commercial real estate and to allow real estate values of commercial real estate to float. In other words, they were trying to split the tax roles.  That measure would be much more expensive to pass, and the Cal Chamber and their cronies would fight that like a dog.  

This measure, on the other hand, is a populist measure. It’s hard to imagine the advertising campaign that you’d be able to say would surely defeat this one.  Possible to defeat, of course. But if we’re betting straight up, I’d put my money on Yes.

Keep a look out for the petitions, CTA should have no problem gathering the 700,000 or so signatures they’ll need to be safe for this one getting on the ballot.

Rumors ran rampant yesterday that state employees, pushed too far by yet another salary cut (totaling 20% over the course of the year), would potentially strike.

Doug Crooks, Director of Communications with the Service Employees International Union’s local 1000, which represents more than 95,000 state employees, declined to confirm the rumor but said any decision would be made by the employees through an authorization vote.

“In the first place, that decision hasn’t been made yet,” said Crooks about the plan to strike. “That decision hasn’t been made yet. We are definitely going to strongly oppose and do everything we can to prevent the governor from imposing a fourth furlough day. But check back with me Monday.”

“The bottom line is we negotiated with this governor in good faith and we agreed on a contract that would save $340 million dollars immediately, and if applied to all state employees it would save the state a billion dollars. That’s billion with a ‘B.’ And for the governor to undermine that contract now is beyond irresponsible. He’s made the state employee a pawn” in the state budget negotiations.

“Well actually, it’s a five percent cut on top of those three furlough days,” explained Alicia Trost, a spokesperson for Senate leader Darrell Steinberg. “It’s simply a scare tactic by the governor, yet another, and we feel the state workforce has already paid their fair share. What’s worse is that it would have a horrible effect on the economy if state workers were to lose up to 20 percent of their buying power.”

By the way, Mr. Stogie just lost a furlough case, with a judge tentatively ruling that he cannot furlough  the legal staff of the State Compensation Insurance Fund, which has emboldened the larger pool of workers in SEIU.  But more to the point, in the world of Arnold Antionette and the Yacht Party, workers making a median income getting 20% salary cuts while the largest corporations doing business in the state get a massive corporate tax break is considered “everyone paying their fair share.”

Speaking of which, Lenny Goldberg offers the text of an initiative to repeal the negotiated-in-secret corporate tax cuts and save the state $2.5 billion dollars a year.  Opponents typically respond with race-to-the-bottom rhetoric about businesses leaving the state, which isn’t true, by the way.

UPDATE: Here’s a study out TODAY from the PPIC confirming that the whole “the rich are leaving California” line is a flat-out lie.

Finally, a federal appeals court ruled that California cannot cut Medi-Cal reimbursements, in an opinion written by a George W. Bush appointee.  The familiar pattern of breaking the law to cut the budget often runs up against judicial review, and so the criminals in Sacramento – considering what they’re attempting, I don’t consider that hyperbole – will have to try something else to achieve their long-sought destruction of the social safety net.  

Dan Walters has an apology piece for Prop 13 this morning. Apology piece is being a bit generous, as it is more of a “LEAVE PROP 13 ALONE” kind of thing. He notes that its critics demand piece-meal reform because a complete repeal won’t pass.  Well, yes, Dan, we DFHs are pretty crazy that way, we aren’t into tilting at windmills and have a strange compulsion to go where victories are easiest. Shocking!

By the way, I don’t think you will find many liberals who would say that a complete repeal of Prop 13 would be a bad thing. I support a full repeal myself, anyway.

But once you get beyond tactics, Dan has fun with numbers, citing the large increase of property taxes since 1978. He notes that:

Since then, property taxes have risen 800 percent to more than $50 billion, according to data from the state Board of Equalization – far faster than other revenues, thanks to new construction and transfers.

Of course, he doesn’t note whether this is in inflation adjusted dollars or not, so I’ll assume it isn’t.  So, knock off a big chunk right there.  Further than that, this is a more meaningless statistic. Yes, property taxes have gone up a lot, because there is a lot more valuable property in California today than there was 30 years ago. THere are more homes, more office buildings, lots more strip malls, and even a few more gas stations. So, yes the property taxes have gone up substantially because there are many new properties.  In other words, this is a completely irrelevant statistic.

A more useful statistic would be the share of the income tax of state revenue. It’s way up (PDF). But instead of useful statistics, we get talking points from the California Taxpayers’ Association. The fact is that if we split the rolls for commercial properties and merely taxed them at their current assessment, the state would get an additional $7 Billion in revenue for the next fiscal year. Not raising the tax rate, nothing that new properties do not face, just taxing properties based upon what they are actually worth today. It is a move that would actually increase fairness and the business climate for new businesses.

But guess what, you know what has really risen in the past 30 years in California? Well, that would be people. People in California who need schools, who need police, who need firefighters, who need streets and who need all sorts of services the state provides. With many properties taxed like it’s 1978, they do not provide for their fair share of services.

While Mr. Walters really enjoys the status quo and pinning blame on the “Capitol political culture that’s utterly incapable of acting responsibly”, he ignores the facts that the system does not allow for anybody to behave responsibly. Let the majority govern, and see if the public supports it. Instead, the supermajority binds the hands of the legislators.

There are other columnists, though, who see Prop 13 for what it is. Like David Lazarus, who said we cannot afford Prop 13 Capitol political culture that’s utterly incapable of acting responsibly. Lazarus said back in 2008, referring to Lenny Goldberg:

What he means is that Proposition 13 allows the state to reach deep into the pockets of people and businesses that buy property at market value. But it does precious little to get a piece of the action from those with long-held properties that have soared in value over the years.

Prop 13 is not only a bad governing principle, it is a bad economic rule.  Whether or not Mr. Walters chooses to ignore reality, the fact is that Prop 13 needs to go.

I wanted to add a little more about this “loophole” I discussed earlier.  For starters, let’s look at how residential properties are transferred. It’s a relatively simple transaction, leaving the banks out of it, as the mortgage is a deal between the purchaser and the bank, it really is a two parties, simple transfer. The purchaser pays the seller for the parcel. It’s easy to see that there was a transfer there.

But commercial properties are far more difficult.  There are several scenarios where it becomes difficult to answer what seems like an easy question: Was the property transferred?  The transfer triggers a reassesment, and usually higher revenue for that county. Let’s consider a couple of those situations, but these are not the only tough questions on when to reassess:



1) Purchase of a Corporate (or other legal) Entity

Here, the question is what was sold? Did the acquiring company merely purchase stock? Or should the property be considered as having sold since there is a new owner? Take the sale of the Equity Office Group.  I used to work in one of the Equity Office buildings in fact.  In 2007, the Company was sold to the Blackstone Group, a private equity firm. Yet, Equity Office (EO) was a vast company, and sold for $39 Billion.  So, was the purchase of EO a transfer of the properties in California? Did Blackstone simply purchase stock in EO, or did they purchase a bunch of properties? If so, what is the value of the properties? How do they attribute money for each of the buildings that EO owns?

This question is still open for debate. Blackstone made some of this a bit easier by selling off some of the properties, but a complete resolution on these kinds of cases is really tough for the affected assessors.



2) Partial Transfers

There are a few partial sales in residential property, but it is far more common in commercial property.  Real estate investment trusts (REITs) allow several owners to own a building or a group of properties. What if one of the large participants in the REITs leave? You might have a new majority owner of the property, yet is there a transfer?

These cases end up in court frequently, and often the owners of teh property can vastly change without triggering a transfer and a reassessment of the property. Homeowners generally can’t avoid these reassessments, and besides the fact that commercial properties sell less often, this slight of hand is why commercial properties pay so much less today in comparison to residential properties.

The Facts Speak for Themselves

Phil Ting is fond of citing a statistic:

30 years ago in San Francisco, commercial property owners contributed the majority of property taxes, 59%, and residential property owners contributed 41%. Today, we see the reverse: commercial property owners contributed just 43% of property taxes in 2008 while residential property owners contributed 57%. (SF Chronicle 5/21/09)

That statistic should be somewhat shocking to voters who were around to remember the 1978 vote.  Looking back at the information from that vote, you’ll see the advertising and ballot argument focused on keeping poor granny in her house. Yet Prop 13 was always a project of the corporations and the landlords.  Howard Jarvis was whiling away his time as the lobbyist for Los Angeles Apartment Owners Association, incidentally where the Yes on Prop 13 HQ was located, when he emerged from obscurity. The Apartment Owners funded Prop 13, and commercial property owners will be sure to protect it from attack.

If Prop 13 is to be reformed, it must come from homeowners and renters that are being slagged with higher taxes. It should come from those who use services, like our K-12 education system, higher education, and the state parks. It needs to come from a well-informed populace that sees Prop 13 for what it is: A Corporate Power Grab.

This discussion is not to say that the “loophole” is necessarily the biggest issue relating to split roll.  It isn’t, it is just one way that the corporations have found to use the system that Prop 13 put in place to avoid paying their fair share.

Calbuzz continues shilling for the California Commission on the 21st Century, or as I’ve called it the Latvia option, the plan to craete a flat income tax and massively transfer wealth upward from the middle class to the ultra-rich.  Apparently,there are two packages on the table, which I’ll label CRAP and CRAAAAAP.

The first package to be considered has these key elements:

• Flattening the progressive, steeply-stepped state income tax rate system to a structure with essentially one rate of about six percent.

• Eliminating the state sales tax (local sales tax levies that have been approved for special purposes like transportation would remain in effect).

• Eliminating the corporation tax.

• Imposing the business receipts tax. It would be assessed on nearly every business in the state as a percentage of its gross revenue – minus the cost of goods and services that it purchases from other companies.

• Charging a “carbon tax” on gasoline, diesel and jet fuel, calculated at the refinery at $20 per ton of carbon emissions. This would amount to about 18 cents-per-gallon of gas.

The second scenario would flatten the income tax structure, but not include the receipts tax.

It’s comical to hear Calbuzz call our state income tax “steeply stepped.”  There are NO tax brackets between $47,500 and $1,000,000.  That’s a ridiculous statement.  Progressives may appreciate the carbon tax, but clearly this proposal – especially if the business receipts tax gets excised, which considering the influence of Big Business on the process is almost assured – would make the overall tax structure in California MASSIVELY regressive, probably canceling out the progressivity of the federal tax structure.

We already have a totally regressive tax system in California when you look at the effective tax rate – what people actually pay.  The lowest 1/5 pay 11.7% of their income in taxes to the state, while the richest 1/5 pay 7.1%.  And recent budget deals have only made the system more regressive.  Now we’re planning to completely shift the tax burden to the poor and the middle class.

For example, one option would – among other things – establish a 6 percent “flat tax” that would apply to taxpayers whether they had incomes of $10,000 or $10 million. Under this scenario, the share of taxes paid by middle-income Californians – those with incomes between $20,000 and $50,000 – would more than double, while the share paid by taxpayers with incomes of $200,000 or more would drop by almost one-third. Flattening personal income tax rates also would increase the share of income that California’s low- and middle-income households would pay in taxes – exacerbating an already regressive tax structure […]

By increasing the share of taxes paid by low- and middle-income Californians, the tax packages under consideration would widen after-tax income gaps. Yet the level of inequality in California is already large and growing larger. The average taxpayer in the top 1 percent had an adjusted gross income (AGI) – income reported for tax purposes – of $1,832,123 in 2007 – 50.7 times that of the average middle-income taxpayer ($36,115). California’s income gap has been widening for years. The latest Franchise Tax Board data show that one-quarter (25.2 percent) of total AGI went to the wealthiest 1 percent of taxpayers in 2007, nearly twice the share (13.8 percent) in 1993, which is the earliest year for which data are available. In contrast, taxpayers with incomes in the middle of the distribution had just 10.0 percent of AGI in 2007, down from 13.0 percent in 1993. This means that the top 1 percent of taxpayers received approximately 25 times their proportionate share of AGI in 2007, while middle-income taxpayers received half their share. These disproportionate gains translate into a substantial concentration of income at the very top of the distribution. If the share of income going to the wealthiest 1 percent of taxpayers had remained the same since 1993, the bottom 99 percent of taxpayers would have an additional $123 billion in income – equal to $8,388 for each taxpayer.

To the extent that ordinary Californians are overtaxed, it’s because the system is completely unfair and designed to support the rich getting richer.  And Calbuzz thinks that’s dandy, calling it a “major accomplishment” for the Governor, which of course it is – for his wealthy pals and contributors.

The May 19 election’s intent from the voters is obscure, although I agree with the leading pollsters in the state that “no new taxes” was certainly not the message.  But I want to know what majority you can find out there that, as a result of the election, endorsed eliminating the corporate tax rate and delivering a Steve Forbes-style flat tax that has destroyed almost all of Eastern Europe.  You can’t.  This is a shocking power grab and people had better wake up to it.

As a postscript on Latvia, I noticed yesterday that their health minister quit in the face of having to accept severe budget cuts imposed by the IMF as a condition of providing loans.  Food for thought.