Jerry Brown’s not-so-subtle warning that the failure of a budget deal will lead to a liberal-labor initiative attack on Proposition 13′s gaping corporate loophole had two immediate and interrelated impacts:
a) it sanctioned debate about amending the sacred cow tax cut;
b) it made Joel Fox’s head explode.
“I would expect there will be efforts to accelerate the reassessment of commercial property tax,” the governor said in San Francisco last week, comments recorded and duly recounted by the ubiquitous Anthony York.
While Brown characteristically left himself plenty of wiggle room to claim that he wasn’t endorsing such a move – perish the thought! – he sent a clear signal that if corporate types can’t pressure a couple of Grover-bot Republicans to back his budget play, they can expect a ballot box assault on the lucrative property tax dodge from which they’ve benefited since Howard Jarvis shot a moon.
It’s a safe bet that most voters don’t truly understand, or even know about, the full extent to which corporations and other commercial property owners for three decades have systematically shifted California’s property tax burden onto residential homeowners – and away from themselves.
What regular folks do know, however, is that they don’t like the idea when they learn a little about it: while 55 percent of Californians still say Prop. 13 is a good thing, 58 percent in a 2009 PPIC poll said they would favor taxing commercial property at current market rate by using a split roll assessment system.
Just think what they’d say if they knew how outrageous the current scheme actually is.
A must-read report: A little-noticed, but extremely important 2010 study by the California Tax Reform Association provides hard evidence of how much Prop. 13 has benefited those who own and operate commercial property – bank and other office buildings, shopping malls and industrial parks, for example – at the expense of homeowners.
Sure, the tax group is packed to the rafters with bleeding hearts, but their extremely detailed report on this matter is based squarely on the most neutral, bottom line information available from the Board of Equalization and assessors around the state.
And those numbers show that in 55 of 58 California’s counties, there has been a significant shift in the proportion of local property taxes paid over the past 30+ years, to the substantial detriment of those single family homeowners whom Prop. 13 absolutists just love to demagogue are the biggest beneficiaries of their iconic tax cut:
The data is consistent throughout the state: in virtually every county in the state, the share of the property tax borne by residential property has increased since the passage of Proposition 13 in 1978, while the share of the property tax borne by non-residential property has decreased.
Some examples: in Contra Costa County, the residential share of the property tax went from 48% to 73%. In Santa Clara County, the residential share went from 50% to 64%, despite massive industrial/commercial growth. In Los Angeles County, it went from 53% to 69%. In Orange County, it went from 59% to 72%.
And there is no counter-shift in any counties at any level of significance. We looked at the data from numerous angles but different approaches only led to marginal changes in the numbers and did not affect the trends. We also looked at whether employment growth—an indication of the commercial/industrial sector—outstripped residential population growth, as it did in many counties, but the burden still shifted away from non-residential property, as it did in San Francisco (56% to 67% despite limited population growth and substantial employment growth).
With regard to the question: how has the burden of the property tax changed in the last 30 years? The answer is: it has shifted markedly away from the commercial sector and towards the residential sector.
How the scams work: The report also discloses some of the legal sleights-of-hand commonly used to avoid triggering the “change of ownership” standard of Prop. 13 that automatically happens whenever some middle class schlub buys a house – but often seems miraculously not to occur when a shopping center gets shopped:
While we have long contended that the law is inapplicable to the complexity of commercial property ownership as well as loophole-ridden, we have made that contention specific: 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.
In particular, what we have found is a tax system which is inconsistently applied in many counties. We believe that there are many properties, particularly the banks and other commercial properties, which should have been reassessed but have not been, and found that some counties have assessed these properties while others have not.
Our legal analysis suggests why this inconsistency occurs: the law is a mess and impossible to enforce. We examined records and cases from the Board of Equalization which demonstrate incredible complexity used to avoid taxes, complexity which should have nothing to do with the assessors’ job, which is to determine property valuation (emphases ours).
All against all: Not surprisingly, the immediate response by Prop. 13 ideologues to Brown’s comments raising the specter of a statewide battle over the split roll issue was to sputter that the end of the world is near.
“A reckless threat against Prop. 13” our friend Fox, for example, thundered about Brown’s oh-so-mild comments.
To be sure, Fox’s concern about short-term sagging real estate values, cratered by the Wall Street greedhead recession, is legitimate, and his question about whether split roll advocates would include apartment houses in any initiative – are they residential or commercial property? – is a shrewd one.
But it speaks volumes that Fox doesn’t bother to acknowledge, let alone seek to counter, the plain facts of how much commercial property owners have benefited from Prop. 13 over the long-term – a 33-year period that has spanned several previous recessions.
Recklessly throwing around that argument, it must be noted, belies the truth that no one on the left, or anywhere else in the state, has the slightest intention of messing with Prop. 13′s protections of family homeowners.
Of course, it’s a helluva’ easier to toss out such canards than to defend with a straight face the sweetheart deal which corporate interests have enjoyed for decades thanks to the Spawn of Jarvis.
But that’s an argument they better get ready to make.