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.