Part of the Bay Area News Group

A new push for ‘split-roll’ property taxes

By Josh Richman
Thursday, December 6th, 2012 at 10:35 am in Assembly, polls, taxes, Tom Ammiano.

Hot on the heels of a poll showing support for altering Proposition 13 so commercial properties can be taxed at their current value, a Bay Area lawmaker says he’ll pursue exactly that.

The “split roll” property tax, in which all of Proposition 13’s protections for residential properties would remain but commercial properties would be regularly re-assessed, has been a goal of many Democrats for quite some time. But now, with a super-majority in both the Assembly and the state Senate as well as a Democratic governor, they may be in a position to actually do something about it.

A Public Policy Institute of California poll found majorities – 57 percent of adults, 58 percent of likely voters – favor such a plan; it’s supported by 66 percent of Democrats and 58 percent of independents, while Republicans are split (47 percent in favor, 48 percent opposed). The poll of 2,001 Californians was conducted Nov. 13-20; it has a 3.5-percentage-point margin of error for all adults and a 4-point margin of error for likely voters.

Tom AmmianoAssemblyman Tom Ammiano, D-San Francisco, announced this morning he’ll introduce commercial re-assessment legislation this session – not his first bite at this apple, but perhaps he’s feeling better about his chances.

“Prop. 13 is not the untouchable third-rail anymore. It’s more like the bad guy with the mustache who has tied California to the rails with the fiscal train wreck coming,” he said in his news release. “This year’s election, both at the federal and state level, shows that people recognize we have to improve revenue to maintain needed services. Reform of Prop. 13 is one possibility.”

Actually changing Proposition 13 would require another ballot measure, but Ammiano aims to reduce corporations’ ability to structure ownership to avoid having property reassessed when it changes hands. The change would not be a tax increase, he noted, but would increase needed revenues for education and other uses by taxing properties at their actual value, rather than leaving those values at artificially depressed levels.

“Corporations want to be treated as people when it suits them, as in the Citizens United case, but when it comes to paying their fair share of taxes, they are looking for a deal that real people – like you and your neighbor – can’t get,” he said.

[You can leave a response, or trackback from your own site.]

  • GV Haste

    A adjustment for commercial property may be called for, but Prop. 13 has been portrayed as the huge monster that has kept California government from having enough revenues. This was being said long before the current 5 year recession.

    The truth is, over the past 4 to 5 years, without Prop 13 in place, California would have been in a much deeper mess.
    Government, state and local agencies, always spend 99.9% of all their revenue. Often even more in the form of bonds and near term deficits.

    Now imagine if Prop 13 were not in place over the last 6 years as housing prices went into the dumper.
    Instead of only 20 or 25 percent of houses being reassessed, you would have had 100% of houses with new drastically lowered taxes.

    Not only that, but don’t forget that all during this real estate crash, 3 out of 4 houses actually had their tax bills go up 2% each year because of Prop 13.

    So remove that increase and replace it with property tax bills lower by 30% or more, and you’d have cities from Oakland, to San Jose, to Eastern Contra Costa Co. in far worse financial shape.

    Because you and I know, without a single doubt, that those cities would always have spent right up to the very limits prior to the crash.

    So, unmentioned in the press, is that Prop 13 has saved the rear ends of our cities during the past 5 years.

  • Elwood

    Tommy is the cutest Assemblyman!

  • RR, Senile Columnist

    Some early reactions to Assemblyman Tommy’s proposal:
    Rachel M: I wish I were an angry young man
    Rev. Al: say what?
    Barstow man in the street: Who dat?

  • John W

    Should be a real crowd pleaser in the business community.

    Tom’s been busy. He has also authored a “Homeless Bill of Rights” (a/k/a the sleep, panhandle and pee where you please bill).

  • Common Tater

    What makes you think that they will stop at raising rates ONLY on commercial properties? When they see how well that works at getting (stealing) other people’s money, it won’t be long before they raise residential rates.

    Watch and see…

  • John W

    It would have to go to the voters, right? I’m sure the same commercial property interests who provided the deep pockets to pass Prop. 13 (including the loophole for commercial property) would be out in force.

  • Maureen

    We have owned a small piece of commercial property for several years. The rent on this property is our only livelyhood. We are not a corporation. If the split roll goes through either our 2 renters pay more rent (who are already doing badly) or we lose our property to the state as we won’t be able to afford the taxes. In either case we all lose.

  • John W

    Maureen, if you have owned the property for only several years, you are probably already assessed at full market value, or close to it. So, split roll would not necessarily increase your taxes, depending on how they designed it.

    I don’t like Prop. 13, because it punishes more recent property owners, both residential and commercial, in order to subsidize much lower taxes for long-term property owners. In the case of commercial property owners, it puts the more recent owners at a competitive disadvantage. It is also a disincentive to upgrade to a more expensive home or to build or acquire new commercial property. It’s just one more reason for an employer to avoid setting up shop in California. The stock of rental apartments in the Bay Area is horribly un-modern; because, who in their right mind wants to build a new apartment complex and be exposed to taxes that are several times higher than paid by competing rental property owners?

  • Maureen

    John we bought the property in 1979. Because this is land it is an unuual piece of property as there isn’t much land in our area. Not only will we become victims of the state but our renters will out of a place to rent for their needs (as there will be no other available) & will also go under. I know several other people in the same boat who are definately not wealthy people. Our propety taxes will probaly go up 4 or more times times to about $30,000/year. This is 1/2 the rent we collect. Our renters can’t affort to pay more. You do the math. The renters at trailer courts & apartment buildings will find their rent will increase for the most part. Read the Pepperdine University report which says minorities & female owned businesses will suffer the most from the imapct & that is just the beginning.

  • John W

    Maureen,

    I see your point. That would be a major bummer if you went from original Prop. 30 assessment to current market. Regardless of what Tom Ammiano has in mind, I doubt there is support in the legislature to do that kind of damage. These guys like to keep their jobs. Make some noise. I’m sure lots of people will.

    The big loop-hole for commercial property has to do with corporations that are sold to new owners as “stock sales.” According to something I read in today’s SF Chronicle, one version of Prop. 13 commercial property reform wouldn’t be split-roll. Instead, they would just change the statutory definition of “transfer,” so that when companies change hands as “stock sales” rather than “asset sales,” the new owners would not be able to escape the reassessment that happens when residential property is sold. That makes much more sense to me than subjecting commercial property to annual reassessment under split-roll or suddenly reassessing property in the manner you understandably fear.

    If you bought the property in 1979, you do have a sweet deal on property taxes. With the 2 percent cap on annual assessment change, your ad valorem taxes should now be less than double what they were 33 years ago. Wouldn’t you love it if all your other living expenses were less than twice what they were in 1979? The California consumer price index for all your other living expenses has gone up about about 300% since 1979. So, on an inflation-adjusted basis, you are actually paying less Prop. 13 ad valorem tax than you did in 1979.

    You say your taxes would probably increase about four-fold to $30k — indicating the current market value is about $3 million, with your current tax being roughly $7,500. To put that in perspective, the county-wide ad valorem portion of the property tax on my 1500 sq ft townhouse worth about $500k is $5,000 — not counting another $1200 in additional taxes for schools, sewer, San Ramon Lighting and Landscaping District, etc.

    If I were the Property Tax God, the Prop. 13 rate for everybody would be reduced from 1% to about .7% — but everybody would be taxed based on current market value, with some sort of cap to avoid runaway increases due to rapid real estate appreciation. But people in situations like yours would be given the option of deferring a portion of the tax until you sell the property and realize the gains from appreciation. The rationale for that is that the income-producing value of your property has not kept pace with the capital appreciation and cannot bear that kind of additional expense until you someday convert the capital appreciation into hard cash. But I am not the Property Tax God, so that’s not going to happen.

  • John W

    I meant Prop. 13, not Prop. 30. As Texas Governor Rick Perry would say, “oops.”

  • Bruce R. Peterson Lafayette

    I’m old enough to remember why prop. 13 passed. It was because property taxes doubled in one year. Firefightes screamed against it, but property owners prevailed. Yes, there are inequities. Some people pay ten times more property tax, than their neighbor with a larger home.
    If the length of ownership inequities disappear. Many of the people with the lower tax rate, would not be able to afford to pay the new rate and would have to sell. Think what would happen to property values, if so many people were suddenly taxed out of their home, because their property tax skyrocketed up to 1000% higher.

  • John W

    Bruce Peterson,

    No question, the taxes needed to be limited in some way to prevent people (and businesses) from being exposed to runaway increases in their annual tax bill. However, it would have been nice if this had been done in a more equitable fashion. There are various ways this could have been accomplished. Instead, the burden was shifted to future generations of prospective property owners (residential and commercial) who had no say in the matter. In my opinion, that was not only unfair but also has negative implications for both the real estate market and general economic growth.

    Consider another, hypothetical example. Suppose they had decided to freeze or nearly freeze income taxes for anybody living and working in California in 1978, regardless of how much their income grew over time. But anybody taking a job in California thereafter would have to pay based on their income (plus extra to make up for the taxes that the “pioneers” were being held harmless from. Would that have been conducive to economic growth in the state?

  • Elwood

    Don’t blame me!

    I voted no.

  • John W

    Elwood, Was that when you were a non-recovering “dimmiecrat?”

  • Wendy Lack

    Not sure about the current proposal, but past “split-roll” proposals have defined investment property (including residential rentals) as commercial. This impacts many homeowners who have residential property they hold and lease out. Would be a huge hit on average families that rent out “the old house grandma lived in ’til she died.”

    @Bruce Peterson: Yes I, too, recall people getting taxed out their homes in the 1970′s. It’s a fact higher taxes accompany higher spending levels — the debt piles up even as spending accelerates.

    Absent Prop 13, California’s fiscal situation would be far worse today.

    Prop 13 is an obstacle to those who favor bigger government and higher taxes — it gets in the way of those pursuits.

    The split roll would be a net negative for California’s economy and would result in higher government spending and more debt. Not a good outcome.

  • John W

    Re Wendy Lack,

    I’m against split roll if it means that “commercial” property would be treated differently from owner-occupied residential property and exposed to annual reassessment. However, commercial property is already treated differently from owner-occupied residential in the sense that property owned by corporations can change hands many times through stock transactions without ever being subject to reassessment. Also, we already have a “fragmented roll” system of sorts in that no two properties of comparable market value are taxed the same.

    I don’t think Prop. 13 has done diddly-squat to control the overall tax burden in California, to control spending, to control indebtedness, or to benefit the economy. The trajectory on all those metrics since Prop. 13 was passed would suggest just the opposite is true. And I would argue that Prop. 13 has been harmful in all those categories.

  • Elwood

    My thinking when I voted no on Prop. 13 in 1978 was “How many times does the Chevron refinery change hands?”

    Time has borne me out on this one. As homes change hands they are reassessed but large properties either don’t change hands that often and/or it’s done in a way to avoid reassessment.

    Consequently, a greater proportion of the tax burden has shifted to the homeowner.

  • John W

    Elwood, that was a very keen insight on your part. The observation about the Chevron refinery also applies to Disneyland. Many people realize that now, as hindsight is always 20/20. But I doubt many voters realized that in 1978.

    Another unintended consequence is that it concentrated power of the purse strings, especially for school financing, in Sacramento. Even the Howard Jarvis folks acknowledge that was not a good thing.

    If Prop. 13 were changed in a way that treated rental housing as “commercial,” they would need to make special allowances for people whose properties are subject to rent control.

  • Publius

    Disney, Chevron and people with rental properties pay enough taxes. The Dems in Sacramento spend too much time devising ways to increase government revenue. Californians are burdened with the highest taxes in the union. Here are a few examples of what the Democratic liberal agenda has done to this once golden state. With a Democratic Super Majority I predict it will get worse. Why pay more for a government that has failed?

    Year 2000-12.2 million jobs in the private sector
    Year 2012-11.9 million jobs in the private sector
    We are losing Jobs!

    1/3rd of national welfare recipients live in the Golden State.

    Over 10% unemployment. 2nd highest in the nation.

    2011; On reading and Math tests California 8th graders outscored Mississippi and DC to take the 48th spot overall.

    Over the past 10 years an average of 225,000 people per year left California to live in other states.

    Dead last in S&P credit rating.

    High Speed Rail, just signed a union only contract. Suprise!Excluding 80% of the bidders will raise the price.

    Pension abuse so bad that it would make a mobster blush!

    Lack of Revenue is not the problem. I would even venture to say that spending is not the problem. A Bad Corrupted Government that has catered to ideology and special interest is the true culprit. We have to stop feeding the beast, or one day we will all be consumed by its avaricious appetite.

  • John W

    Re: #20 Publius Says

    Most of what you say is true and became so AFTER the passage of Prop. 13. Which goes to prove that Prop. 13 limited neither overall taxes nor spending. It did shift a lot of stuff around.

    It’s easier for things like pension abuse and HSR to occur when voters who could do something about it lack the motivation to do so; because, thanks to Prop. 13, they have no skin in the game and do not face any direct consequences from that abuse.

  • Pingback: Democrats: Split Rolls or Parcel Taxes—“We will tax you to Texas”

  • Pingback: Split-Roll Property Tax Would Hit Small Businesses Hard — California Political Review