| Massive transition of property taxes from commercial to residential
by Brian Leubitz
First, as something of a preface, let's just posit that Prop 13 has been an overall disaster for the state. After all, this is a progressive blog. If you want details of how that is the case, well, just use that google box to the left. We have plenty of information about that. You could argue that it did put a reasonable check on property taxes, but it also tossed the baby right out with the bathwater by making the property tax system ripe for the gaming.
And that's what has happened. As Peter Schrag outlined today, corporations now use Prop 13 as one of the great California tax loopholes, if not the King of all loopholes:
It's been just a third of a century since the passage of Proposition 13 in June, 1978. In that time few of its offspring have caused more damage than the great loopholes allowing corporations to evade hundreds of millions in local property taxes that they'd owe in any fair and economically rational revenue system.
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In Santa Clara County, the booming Silicon Valley center of high tech, where the proportions were roughly even in 1978, residential property owners now pay about 65 percent of property taxes; commercial property pays 35 percent. In Los Angeles County, where residential property owners carried just over half the burden in 1975, they now pay nearly 70 percent of all property taxes. In Contra Costa County, it's gone from 48-52 in 1970 to 73-27.
To be clear, you can point to the dramatic outperformance of residential real estate as compared to commercial real estate for part of that. However, there is a lot more than that going on here. Since 1978, the house that you are living in has probably had several owners. Sure, some people stay in a house for 50 years, but for most people, you don't stay in a home forever. According to the super scientific opinion of one realtor, housing needs change every 5 to 7 years for most families. Meanwhile, commercial property will stay in the same hands for far longer.
Of course, there is that tricky question of ownership. As in, who owns that building if, as Schrag points out, typically more than 50% of the ownership of a publicly traded corporation turns over every three years. If that happened in residential real estate, you would trigger a new appraisal. That is not true with a corporation. So, if a skyscraper has been held by one big corporation since 1978, its appraisal is stuck at a figure tied to its 1978 valuation which likely has very little to do with its current value.
We need to fix this issue, and unfortunately, it will likely take action at the ballot. Asm. Tom Ammiano has been focused on this issue during his three years in office, and he hopes to bring it back in January. But a fix seems just as far now as it did years ago. If we are to really repair our state finances, we have to look at the totality of the system, not just dwell on small chunks. We can't cut our way out, our pension reform our way out, or even raise revenue enough to solve the problem.
Arnold Schwarzenegger was found of rhetorically putting everything on the table. But with his recent pension reform proposals, Gov. Brown is doing far more in terms of action than Arnold was ever willing to discuss. If we are to really discuss pension reform, we need to also discuss how we fix the other, more badly wounded, systems of state government. |
