Ting: Split the Property Tax Rolls to Increase Fairness


philtingFew issues in California politics are as incendiary as Proposition 13, so when San Francisco Assessor Recorder Phil Ting said he wanted to make the case on Calbuzz for altering how the famous tax cut initiative handles commercial and residential assessments, we said go for it. Here’s his offering — one in an occasional series of discussions about reform in California.

By Phil Ting
Special to Calbuzz

Lately there’s been a lot of talk about the need for substantial change in dealing with California’s budget.  And while I am a strong proponent of improving efficiency and accountability in government, I also recognize that fundamental reform only comes when we confront the sacred cows of our political system.

Now is the time to reconsider the most sacred cow in California politics — Proposition 13 — the 30-year-old taxation scheme that has handicapped our state’s revenue stream and forced draconian cuts to some of our most vital state services.

Some people aren’t ready for this. Certain Proposition 13 defenders have argued against reform, noting that property tax revenues have risen 800 percent since the time of Proposition 13’s passage. But this figure is misleading: it fails to account for 30 years’ of inflation and a 63-percent growth in California’s population.

Using a similar metric, the cost of tuition at the University of California has risen by 1,000 percent in the same time period, from $720 to $8,020, according to the California Postsecondary Education Commission. It’s clear that when put into context, a rise in property tax dollars flowing to the state since the 1970s is hardly sound reasoning for dismissing a discussion about substantial reform.

A good reason to discuss reform is that when first passed, the proponents of Proposition 13 touted the protections it offered California homeowners. But today, the biggest beneficiaries of Proposition 13 are large companies and corporate landowners.

Proposition 13 actually opened up vast loopholes for corporate landowners to evade property taxes and shifted the tax burden to individual homeowners. This shift also brought about a dramatic decline in overall revenue stream from property taxation.

For example, 30 years ago in San Francisco, commercial property owners contributed 59 percent of property tax revenues and residential property owners contributed 41 percent. Today, we see a virtual flip: commercial property owners contributed just 43 percent of property taxes in 2008 while residential property owners contributed 57 percent.

As corporate property owners contribute less to revenue, dollars lost through Proposition 13’s tax loopholes handicap our ability as a state to educate our children, keep our streets safe and invest in important infrastructure projects.

To begin to address this problem, I have begun to organize a grassroots campaign of Californians who are behind a split roll system. Thousands have already been mobilized. Our group, “Close the Loophole” would split the property tax rolls — assigning unique tax levels to corporations and homeowners and leveling the property-tax playing field.

According to a recent analysis by the State Board of Equalization, taxing commercial properties at market rate would result in $7.5 billion dollars a year in additional revenue.  This reform would continue to keep homeowners in their homes but would also make corporate land owners pay their fair share and bring needed revenue into the state.

While instituting a split roll is not an immediate panacea for our state’s $26 billion deficit, it would certainly help close the gap. Californians are fed up with an education system that is one of the worst in the country, cities and counties that are struggling to provide even the most basic services and political gridlock in Sacramento that has forced our state to the brink of insolvency.

We deserve better. If we are serious about moving California out of this economic and political morass, we need to consider reforming all the sacred cows, including Proposition 13.

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There are 9 comments for this post

  1. avatar Silent Sleuth says:

    My guess is that you’ll crash straight into the “this will hurt small business” wall. I suspect your idea will get nowhere. Especially since everybody is pushing the tax the rich theme these days. Nice try tho.

  2. I love how he discounts irresponsible government in his first line: “And while I am a strong proponent of improving efficiency and accountability in government…” which really means “yes, we are inefficient with your money, but all that aside, we want more of it.” And touching Prop 13 is a really bad idea. The proof is in the pudding from the latest debacle. Dems would much rather just tax the hell out of us then stop wasting our money. If it was easier to increase taxes, we would continue to be taxed.

    How about a real Republican Governor like eMeg? Not the sissy current gov, who can’t say no to unions. Cut our state payrolls for administration, and cut our stinking taxes.

  3. avatar jskdn says:

    ” This reform would continue to keep homeowners in their homes but would also make corporate land owners pay their fair share and bring needed revenue into the state.”

    This isn’t about making fair the shares of taxes. Correcting the unfair shares of taxes would entail lowering those of homeowners by the amount increase on commercial property. No this, as is always the case, is simply about getting more money for government.

    The fundamental and far greater unfairness is the much more significant disparities in the share of taxes paid between individual taxpayers, be they homeowners, businesses, or corporations, than it is between the classes of taxpayers. The problem is time of purchase assessment provision of Prop 13. Limiting taxes from the unending avariciousness of the government is necessary, but the benefits of that protection should accrue across all taxpayers. In fact removing the assessment provision of Prop 13 without increasing the amount of total tax revenue collected from what would occur with no changes cures the smaller problem of commercial classes’ too low share as part of the fix of greater problem it stems from.

    Of course San Francisco itself is a huge benefactor of the unfairness of the legislation that came in the wake of Prop 13 as I explained in comments to this Calbuzz post: http://www.calbuzz.com/2009/07/press-clips-merc-up-chron-down-politicker-out-to-lunch/ Ting’s proposal would dump even more huge amounts of money in the government of San Francisco than it is already getting, which is more of the base 1% property tax than almost anyplace in the state.

  4. avatar mmunson says:

    Add the Gann Limit to Ting’s proposed imitative and i will sign the petition. We should have fiscal restraint, the left will say feed me feed me, feed the government, but if the government takes in too much money it should go rightfully back to the tax payers.

  5. avatar patwater says:

    I always that if you thought about this a bit more than the “corporations should pay their fair share” level that you’d come to the opposite conclusion. In the long run, corporations demand for property is extremely elastic. So raising their property taxes encourage business to locate elsewhere and will have a large deadweight loss. That’s just basic economic theory. Individual’s demand for housing is much less elastic. Thus, raising taxes on them won’t have the same negative economic effects. People simply want to live in California, despite our dysfunction–just witness the insane property values that we had a could of years ago. In addition, it would have the added benefit of deincentivizing sprawl by making home ownership more expensive–generally considered to be an environmental good.

    So if anything, I think we should be raising property taxes on homeowners and not corporations. Though I have a feeling this won’t be as popular.

  6. avatar tegrat says:

    We could also reform the way we finance our healthcare. Senate Bill 810 proposes a financing system which, when last analyzed by the Lewin Group, would save the state $10 billion a year and provide every resident with guaranteed comprehensive, and affordable quality healthcare. The anitquated way in which we finance healthcare is yet another sacred cow that needs to be aggressively reformed.

  7. As Mike Stoker, 35th assy candidate says, “we don’t have a tax revenue problem, we have a spending problem.” Seriously folks, we should be talking about cutting taxes for everyone, and cutting spending on administration.

    The state makes it extremely difficult for businesses and even counties to do business with bizarre or outdated rules for reimbursement for expenses.

    Elementary, middle and high school administration is like 10 % of their budget. Can we cut that to 3 percent?

    How about getting college academics off their perch and tell them they have to actually TEACH instead of having non-tenured people do the work while they continue research. I’m not saying stop your research, just cut back 10 percent and teach. That alone would pull us out of our education budget crisis. Where is the academic heart? Self-enrichment or student education? Note: classes cut, enrollment cut back. It’s absurd because when they cut enrollment they are also cutting revenue.

  8. avatar Michael Jaffe says:

    The voters of California have sent a strong message to the legislature that we are fed up with their economic governance. In this climate, the possibility that these same voters would now give these same legislators yet more money is absurd. Voter skepticism will have to be overcome before legislators get a nickel more in taxes – at least from me.

  9. avatar Philip says:

    Commercial landlords will not pay this huge tax increase, commercial tenants will. I’m sure restaurants, stores, and music clubs will be delighted to pay their ‘fair share”, and that this will have no effect at all on the gargantuan profits they continue to reap at the expense of the poor.

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