SF Assessor Phil Ting’s “Close the Loophole” event last night was a pretty big success.  Turnout was exceptional with an overflow crowd at the SF LGBT Center’s Ceremonial Room.  It’s clear that a lot of people are very, very frustrated with Prop 13. If you missed it, and would like to get more involved, here is the Close The Loophole website and here is the Facebook Page.

Phil Ting spoke for a relatively short time, maybe 15 minutes or so.  He briefly explained where his focus lay, the split roll.  Basically, the split roll would pull commercial properties out of Prop 13, and change the system for assessing and taxing those properties.  Because of the way commercial properties are transferred, in small percentages at a time or by selling a whole company, etc., they can be transferred without being reassessed. Thus, the “loophole” to which Phil Ting refers in his Close the Loophole campaign. All in all, a splitting of the rolls would in the current fiscal year bring in about $7.5 Billion for local governments.  It would not resolve the budget crisis in one chunk, but that money spent wisely could have helped us mitigate the crisis.

The key to this meeting however, was building a working group to begin the process towards moving past talk and into action. Let us not hold any illusions, messing with Prop 13 will not be an easy task.  Business organizations will spend millions of dollars to defeat a split roll initiative, with some political folks suggesting that the No campaign for a split roll campaign measure could raise over $100 million.  It’s tough to beat such a large and spendy No campaign, very hard indeed. The only way that happens is to a) have a substantial budget of our own and b) build a grassroots wave of support.

So, after Mr. Ting spoke, the group broke up into work groups to discuss important features of the campaign. I joined the fundraising group, and we went over ideas of whom to reach out to and how we could raise the kind of money that we would need to pass this measure.  A coalition group had some good ideas of natural allies and an online organizing group worked on building support through the Politics 2.0 toolset.  A policy group also went through ideas, both on the split roll and a further ideas that could be included in a package of reform.

After getting back together to share ideas from the work group, the group committed to reconvening in September. But, we’ll need to have more groups like this across the state. So, let’s work on getting similar events set up elsewhere. If you have access to a meeting space, and would like to host an event, let’s get that going.  Feel free to post something here, or shoot me an email. I’ll do my best to help you organize an event.

In an interesting article in the Chronicle this morning, Carolyn Said points out that there is now a looming inventory of unsold inventory in foreclosed homes:

A vast “shadow inventory” of foreclosed homes that banks are holding off the market could wreak havoc with the already battered real estate sector, industry observers say.

***

“We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market,” said Rick Sharga, vice president of RealtyTrac, which compiles nationwide statistics on foreclosures. “California probably represents 80,000 of those homes. It could be disastrous if the banks suddenly flooded the market with those distressed properties. You’d have further depreciation and carnage.”(SF Chronicle 4/8/09)

In recent months we’ve seen some upswing in the absolute number of houses being sold, but the mean and median prices have continue to fall? Why, people are just snapping up homes at firesale foreclosure prices.  Banks cannot afford to hold onto these homes, they need the cash now.  They price them accordingly.  This makes it difficult for anybody else to sell a home, and non-foreclosures are just sitting on the market.  Take a gander at some of the housing sites, say Redfin, and do a search. You’ll find that the homes have either been sitting on the market for months, or they are foreclosures or short sales (the bank lets the owners sell the houses without the foreclosure process).

As more of this “shadow inventory” gets put on the market, prices will face increasing downward stress.  This means, among other things, continued downward slides in property taxes as some newer owners may look to get the values readjusted.  Oh, and the general overall impact on the economy ain’t such a good thing either.

But, if you are looking for a house and can get a mortgage, it’s a great time to buy.

I have an idea that I’ve been kicking around for years — I don’t think it was entirely my idea, originally, but I’ve honestly forgotten where I first got it from — that perhaps could cut the Gordian knot of the California budget process.  I suspect it would have to be passed through an initiative process (because of the supermajority thing in the leg), and the actual numbers to balance the budget would need to be filled in by some very talented finance folks.

If you’re curious, read the full post.  And let me know what you think.

I posted about this in comments on a (somewhat wingnutty) diary about Prop 86.  I am probably going to vote for the tobacco tax, but I have to admit that I dislike our habit, in California, of tying specific revenue streams to specific programs.

JSW points out (rightly) that the reason we do this (and indeed, the reason I’ll vote for 86) is that we can’t let the perfect be the enemy of the good.  A sane tax structure is not on the table, in California, because of Prop 13 and the huge supermajority requirement to do anything serious to reform the tax code.

So.  How about we abolish property taxes entirely?  That would make Prop 13 a dead letter.  We can replace the revenue stream with a zoning-based land tax (a low per-sqft rate on residences, a small credit for maintaining inspected public green space, and a higher rate for commercial and industrial space) plus a fairly steep real-estate capital-gains tax (to discourage speculation and capture the state’s share of the increase in value of the state’s land — land increases in value because of the society around it, not because of anything inherent to the soil! — which previously was captured through periodic assessment for property taxes).

This change would need to be phased in (having the property tax base rate continuing to rise at the Prop 13 rate, but with a falling multiplier discounting it away, while the new taxes were phased in at the same linear rate, and with the multipliers for the two tax systems always adding up to 100%).  This perhaps should be done over as much as 30 years (the life of a typical mortgage).  The point is to avoid creating windfall profits and losses, like Prop 13 did — it gave a huge benefit to older people who already owned homes, and disadvantaged younger people who wanted to buy later.  It continues to operate as a punishment to families that want to move, or that are first-time home-buyers.  If you’ve bought a house in CA since the early ’80s, you’re a victim of Prop 13, not a beneficiary.  Possibly you could do the phase-in somewhat faster, maybe as little as ten years.  In any ten-year period, there’s very likely to be a period where advantageous refinancing is available (due to standard cycles in interest rates), and that probably will help people deal with any change in expectations about the cash flows associated with real estate ownership.  In any case, as I said to begin with, there are details to nail down.

I haven’t ever applied any sort of rigorous legal or financial analysis to this.  But I figure, maybe it’s time I try to get it in front of people who actually know more about the tax code.  Any takers?