PPIC Poll shows support for some Prop 13 Reforms

by Brian Leubitz

There’s good news and bad news in yesterday’s PPIC poll. The bad news first, Prop 13, or at least that branding, is still popular. When asked if they felt whether Prop 13 has mostly been a good thing or a bad thing for California, a strong majority said “good thing.” 60% of Californians generally, and even 55% of Democrats say that Prop 13 has been good for the state.

Yet, that doesn’t really tell the whole story. When it comes to the particulars of our messed up taxation system, Californians are very amenable to change. Take the 2/3 vote that is required by voters on local special taxes. When asked whether they would support the threshold going back to 55%,  54% of Californians said they would support it.

Fortunately for us, we at least have a start on that.

Today we officially introduced SCA 3, which would remove roadblocks to local approval of school parcel taxes. twitter.com/MarkLeno/statu…

— Mark Leno (@MarkLeno) December 3, 2012

So, this doesn’t even go so far as the PPIC poll tells us that voters are willing to go. It is a modest reform that would allow community colleges and K12 school districts put parcel taxes on the local ballot with only a 55% threshold. That would simply put taxes at parity with bonds, as voters already made that change in the early part of the last decade.  

With the pending supermajority, we will have the opportunity to put many measures on the ballot. Perhaps we should be thinking bigger, about totally overhauling our the taxation system. Surely we can’t be giving the voters measure after measure with tweaks.

But Prop 30 bought us a bit of time. We have five years to come up with a sustainable revenue system. A system that can see us through the booms and the busts. Whatever that may be, starting with a simple change in 2014 seems a good place to start.  And if we can’t pass Senator Leno’s measure, we have to question what use the supermajority is at all.  So, let’s get SCA 3 passed quickly and move on from there.

I close with a passage from Federalist 58 on the subject of thresholds:

As connected with the objection against the number of representatives, may properly be here noticed, that which has been suggested against the number made competent for legislative business. It has been said that more than a majority ought to have been required for a quorum; and in particular cases, if not in all, more than a majority of a quorum for a decision. That some advantages might have resulted from such a precaution, cannot be denied. It might have been an additional shield to some particular interests, and another obstacle generally to hasty and partial measures. But these considerations are outweighed by the inconveniences in the opposite scale. In all cases where justice or the general good might require new laws to be passed, or active measures to be pursued, the fundamental principle of free government would be reversed. It would be no longer the majority that would rule: the power would be transferred to the minority. Were the defensive privilege limited to particular cases, an interested minority might take advantage of it to screen themselves from equitable sacrifices to the general weal, or, in particular emergencies, to extort unreasonable indulgences. Lastly, it would facilitate and foster the baneful practice of secessions; a practice which has shown itself even in States where a majority only is required; a practice subversive of all the principles of order and regular government; a practice which leads more directly to public convulsions, and the ruin of popular governments, than any other which has yet been displayed among us.

by Sara Flocks, California Labor Federation

“Proposition 13 set up an unfair and dysfunctional two- tiered system of property taxes. It choked off a source of revenue, and the lack of that revenue has brought California to the edge.” –Kevin Starr, historian and California State Librarian Emeritus

Many Californians would agree with Kevin Starr that our state is teetering on the edge of disaster. Unemployment remains the second highest in the nation, 32 percent of all mortgaged homeowners are underwater, public schools have been cut to the bone and public universities are unaffordable for the middle class.

Big business and their Republican allies have repeated the laundry list of why California’s economy is struggling so many times that it is practically written in stone—Taxes, Regulations, Public Employees. These are the unholy trinity that supposedly crashed California’s economy and threatens to smother any business growth in the future.

The facts, however, contradict the well-worn talking points of big business. The Council on State Taxation, a business-friendly group led by CEOs of major corporations, found that California has a moderate tax burden, taking less in taxes from business than many other states, including the sweethearts of the right, Texas and Florida. 

Many experts look at regulations as job creators, in addition to the benefits to public health and worker safety. Roger Noll, co-director of the Program on Regulatory Policy at the Stanford Institute for Economic Policy Research breaks down the GOP’s obsession with regulations:

The effect of regulation on jobs has nothing to do with the mess we’re in. The current rhetoric about regulation killing jobs is nothing more than not letting a good crisis go to waste.

He goes on to state that regulations may affect job distribution, but not the total number of jobs, eliminating the possibility that California’s landmark environmental laws crashed the global economy causing the current recession. 

As for public employees, it requires leaps of logic to understand how laying off thousands of teachers, nurses, home health aides, crossing guards, librarians and public works crews makes the state a better place to do business. California already has the 4th fewest state employees per capita as any other state—even Texas has more state workers per capita than we do! And more than a third (37 percent) of those public employees are at UC or CSU—I doubt laying off professors, economists and business school personnel will please the business community too much. 

That begs the question, then, why is California on the edge? Putting aside the deregulation of Wall Street and their subsequent destruction of the global economy through risky and irresponsible gambling, why is California in such a dismal economic state?

A reporter recently put that question to state historian Kevin Starr.  He traced the beginning of California’s decline to 1978, the year Proposition 13 passed. Prop 13 capped property taxes, limited local governments’ ability to raise revenue and imposed a two-thirds majority to raise revenue.

Prop 13 has had profound negative consequences for California on all levels. Local government is starved of revenue and dependent on the state to keep schools open and local employees on the job. In turn, the budget crunch forces deep cuts to UC, CSU and every public program that impacts the lives of Californians. At the same time, elected officials can’t vote to raise revenue without a supermajority, giving the minority of anti-tax Republicans disproportionate veto power. 

While Prop 13 was seen as a populist measure, corporations have been the true winners. Across the state, the burden of property taxes has shifted radically from corporations to homeowners. A recent report by the California Tax Reform Association (CTRA) cites numbers for all counties showing how homeowners have taken on a significant burden of funding public services, while corporations have shirked paying their fair share.

The report goes on to outline how corporate property owners can exploit a loophole in the law to avoid paying what they really owe in property taxes. The law requires a 50 percent “change of ownership” to trigger reassessment, which corporations conveniently avoid in many transactions. The Bloomberg article describes a number of billion dollar commercial property owners that have avoided paying millions in taxes, including the owners of the luxury hotel the Fairmount Miramar. 

The CTRA summarizes the extent of the problem in their report “System Failure:”

We have found major changes of ownership in major properties which have gone without reassessment. The ones we examined are predominantly those of private equity buyouts, corporate purchases of companies, and bank mergers which have avoided reassessment….We believe that there are many properties, particularly the banks and other commercial properties, which should have been reassessed but have not been….

Not only has Prop 13 starved state and local budgets, caused mass layoffs and created a huge loophole for corporations to shirk paying taxes, but it has also put many new business that WANT to locate in California at a disadvantage. Because of the cap on property at the time it was purchased, property owners, including businesses, pay incredibly different tax rates. So a new business that wants to move into California may locate and have to compete with another business that pays millions of dollars LESS in property taxes than the new business. Some reward for job creation, right? Move to California, create jobs and WHAM pay more than your competitor just because they bought property before Prop 13? That sounds like something free-market business types would oppose!

So what will it take to pull California back from the edge? What can we do to stop our state from falling into an abyss of unemployment, foreclosure, budget cuts and misery? A good first step is to reform the commercial property side of Prop 13. By closing loopholes on “change of ownership” definitions and allowing more reassessment and a higher cap, the state could raise significant amounts of revenue. That would be a good first step to stop the budget hemorrhaging and put California on the road to recovery.

You don’t have to dig too hard in the Calitics archives to find our disdain for Prop 13. Or for that matter, I doubt many astute observers of politics would be surprised at the position repeated here many times.  However, it has been so sacrosanct for so long, that few have dared to touch it.  Sure, there have been a few haphazard attempts to tweak it, or even “split the rolls” by allowing reassessment of commercial property.  The one that comes to mind first is Phil Ting’s recent Close the Loophole campaign.

But nothing really took off.  We’ve been stuck with Prop 13 for an entire generation with no real signs of movement. It’s strangled our schools, left us with a wildly variable tax base, and led to many a budget crisis over the years.  

But Jerry Brown understands that it is the third rail. After all, some point the finger to his administration’s slow reaction to the growing anti-tax movement in the 1970s.  And it was Brown who proclaimed himself a “born again tax cutter” after it passed.  So he’s not going to challenge it directly.  But, you know, those mean unions, they aren’t down with the big landlords like he is.  They are really something of a wild card that he can’t really control:

Gov. Jerry Brown hinted Thursday that if the budget talks with Republicans break down, the initiative fight that would follow would not be limited to Brown’s plans to raise sales, vehicle and income taxes. He said he expects labor groups to pursue changes to Proposition 13, tweaking the current caps on commercial property taxes, if no bipartisan deal can be reached.

“I would expect there will be efforts to accelerate the reassessment of commercial property tax,” Brown said. (LA Times)

Of course, such a campaign would be bloody and expensive.  It certainly won’t be taken up lightly.  That being said, if you want stability, and you want tax equity, Prop 13 is the big target on the board.

We’ve all heard the classic stories about the one-light towns out there that keep the books balanced by keeping the police busy writing tickets.

We don’t usually think of these rural towns as models of a transparent and progressive administration. That’s why we shouldn’t adopt these kinds of “gotcha” revenue-generating tactics here in San Francisco by turning our entire city into a parking trap.

Unfortunately, just this past week the San Francisco’s Municipal Transit Authority announced its plans to instruct our already hard-working traffic officers to increase the number of parking tickets they issue. The revenue from parking tickets – which MTA had projected to be right around $99 million – has fallen short. So now they are setting higher quotas to raise additional revenue.

We certainly do need more revenue in San Francisco. And one of the city agencies that needs additional funding the most is the Municipal Railway. But we need to make sure this new revenue is generated in a way that is fair to all and in a fashion that takes into account a person’s ability to pay.

What’s wrong with the new MTA parking ticket quotas is that they are the exact opposite – they are essentially a tax lottery, with the unlucky paying more than the lucky. They are unfair, with taxpayers fortunate enough to own garages (usually the wealthier homeowners) less affected than those who do not (usually the less-wealthy renters). And at their core, they are regressive, with the very poor paying just as much as the very rich.

As Assessor-Recorder in San Francisco, my job is to make sure we have a fair property tax system. And I have not been shy about taking on some powerful players – like big banks and other politically connected institutions when I thought they were not paying what they owed. Along with a number of others I have also helped form Close the Loophole – a statewide organization dedicated to reforming Proposition 13 so that commercial property owners start to pay their fair share.

These new revenue sources have several important things in common – they take into account the ability to pay and they are assessed in a predictable fashion. Property taxes, assessed fairly, are progressive in the truest sense because the more expensive the property the higher the revenue generated. And when a person buys or transfers property, they can predict what taxes they owe.

San Francisco has been seeing a healthy debate recently about progressive values. Let’s extend this debate to discussing the many problems with regressive and random revenue generation.

We already have some of the nation’s most expensive tickets. And pity to the person who has his or her car towed – the fees can quickly soar to $500 and above. I have been deeply involved in the movement to fight unfair foreclosures, and I know that $500 for many families is the difference between staying in their homes and eviction.

What has crept into this debate is some sense that people are to “blame” for driving and if they get tickets, then they simply should give up their cars or be more careful.

Certainly, we do not want to tolerate violations of our parking laws. And we do want to continue to pursue a city policy that draws people out of their cars with better public transit, smarter planning and walkable and bikeable streets. But enforcement should be based on safety – not new revenue. And, we need to understand that given the state of our Municipal Railway right now, some people simply must drive.

The parent with two kids at two different schools is going to have trouble on a bicycle. People with mobility issues sometimes need to drive. And most of us know others who have no other real choice – like the janitor who reports to work at 7:00PM. These San Franciscans deserve a tax system that is fair and progressive – not a random lottery that targets them to raise revenue.

Let’s certainly raise more revenue. But let’s do it in a way that reflects our progressive values – with a progressive tax system.

You can make the difference in two clicks. First, sign my petition to tell City Hall to tear up the unfair ticket plan. And second, join the movement I have been leading for nearly two years called Close the Loophole and let’s fix what’s broken in Proposition 13 and bring real solutions to San Francisco.

Phil Ting

San Francisco Assessor-Recorder