Picking The Smart Proposition 13 Fight
Posted Jan. 26, 2013, 8:59 am
Tom Elias / Mirror Columnist
From the moment it became clear last fall that Democrats won supermajorities of slightly more than two-thirds in both houses of the California Legislature, Proposition 13 has been in the political crosshairs.
That’s a sea change for the landmark 1978 initiative that limits property taxes to 1 percent of the 1975 assessed value or 1 percent of the latest sales price, allowing yearly increases of no more than 2 percent to adjust for inflation.
No one has seriously proposed going back to the pre-13 system of taxing properties based on their current market value, which often saw levies double or triple over the space of less than five years in times when housing and land prices mushroomed.
The change most commonly proposed is the so-called “split roll,” which would see commercial and industrial property taxed at a higher rate than residential. So far, no one has settled on what that new rate might be.
Whatever rate the change advocates (they like to call themselves reformers, but one person’s reform can be another’s abomination) might settle upon, the mere consideration of a split roll will surely spark vocal outrage.
You can count on the Howard Jarvis Taxpayers Assn., namesake of Proposition 13’s prime author, to bombard homeowners with direct mail warning of a threat to raise their taxes by thousands of dollars per year. Split roll, of course, poses no such threat. But that won’t change the fury, which could dominate the November 2014 election campaign if this issue reaches the ballot.
Although the idea has been around for decades, the split roll concept never got serious consideration before because everyone in Sacramento knew it could only occur via another ballot proposition, and the Legislature would need a two-thirds vote of both houses just to put one on the ballot.
That’s a possibility now, with Democratic supermajorities in both houses, but only a slim one because Democrats are not nearly as lockstep a party as Republicans. Dissenting Democrats are rarely the targets of recall campaigns or serious primary election opposition, something that frequently befalls Republicans who deviate from the party’s steadfast no-new-taxes platform.
But there is a way to reform Proposition 13 without a ballot initiative and without any need for a two-thirds vote anywhere. That’s to change some of the assessment rules and definitions adopted by legislators (all now termed out or deceased) in 1979, just after 13’s passage.
Those rules allow some commercial and industrial properties and apartment buildings to escape reassessment when they are sold. While residential property taxes rise immediately upon sale because homes generally pass directly from one owner to another, things can be more complex with other types of property.
The 1978 rules do not consider a property to have changed hands so long as no one individual controls more than a 50 percent stake in it. This can allow limited partnerships, for one type of ownership, to save big money on their tax bills.
The same rules also apply to other types of partnership, like one infamous sale of a vineyard to the Gallo wine family, in which several persons got major new stakes, but no one controlled a majority. The rules are outlined on page 42 of the state’s handbook for assessors (http://www.boe.ca.gov/proptaxes/pdf/ah401.pdf).
Various estimates place the funds state and local governments could get by changing these assessment rules at anywhere from $5 billion to $12 billion yearly. A change, then, could produce about as much revenue as the tax increases in last fall’s Proposition 30 without any need for an expensive, contentious initiative campaign.
This would surely be a lot easier than trying to force a split roll on resisting businesses. When such assessment changes were first proposed almost 10 years ago by former Democratic state Sen. Martha Escutia, they were essentially hooted down by politicians afraid of political suicide.
But with split roll on the table, assessment rule changes may look a whole lot less threatening to business property owners.
So here’s a hint to the new Democratic supermajorities: Choose your fights wisely. Be incremental. When you can make a major improvement to the fairness of Proposition 13 with relatively little pain, why insist on getting into a war you might lose over something much tougher and more sweeping?