Town Square

On Deadline blog: Impacts of Proposition 13 to be explored Feb. 10 at Silicon Valley conference

Original post made
by Jay Thorwaldson, editor emeritus,
on Jan 24, 2012

A third of a century ago California voters enthusiastically supported Proposition 13 as a way to cut taxes and curtail the costs of "runaway" government. The "tax revolt" followed years of property-tax increases, rapid growth in government and a mid-1970s recession.

Based on the successful "Jarvis-Gann Amendment" to the California Constitution, Prop. 13 was seen as a conservative rebellion against the let-government-do-everything approach. It was approved by just shy of a 2-to-1 vote in June 1978.

It still has many avid supporters for its Tea Party-like philosophy.

But it also has had a number of severe side effects, including some that even its sponsors might consider undesirable, if not disastrous for California's future. Maybe.

Those impacts include a devastating effect on California schools, from kindergarten through college -- although other complex factors were also involved in the demise of school funding. Those factors included state Supreme Court rulings requiring equalization of funding between richer and poorer school districts. The 1970s recession coupled with rapid growth of government services drove up home taxes to the point that some residents were threatened with loss of their homes.

The impact on schools was starkly documented by education-reformer John Merrow in his "First to Worst" film that debuted in early 2004 at the Carnegie Foundation for the Advancement of Teaching above Palo Alto. (An excellent summary is at Web Link .)

Merrow concluded that California schools slipped from the top tier nationally to near the bottom of funding because of Prop. 13 combined with the state-mandated equalization and other factors.

By severely limiting increases in property taxes for homes and businesses (until they are sold) Prop. 13 shifted the burden of funding government from business properties to homeowners -- because business properties are sold much less frequently than residential.

Prop. 13 also created extreme inequities between pre-1978 homeowners and post-1978 owners, with the latter paying many times higher property taxes. This created grumbling and complaints, but thus far there has been little or no organized protest -- certainly no politically effective protest. Politicians still consider the amendment a political "third rail" they dare not touch.

The current statewide funding crisis and the multiple crises in school districts, counties and cities have made effects of Prop. 13 catastrophically worse due to the crash of property values and related tax revenues.

Every tenth anniversary of Prop. 13 different "side effects" reports -- mostly advocacy documents -- have been produced by different groups, most recently in 2008. But that was before the impact of the national Great Recession that is still upon us.

So there hasn't really been a current, concise, politically neutral compilation of the impacts that people could use to understand the amendment's full implications in today's economic environment, whether or not they agree with Prop. 13's intent.

That is about to change. On Friday, Feb. 10, Joint Venture Silicon Valley will hold its annual "State of the Valley" conference at the McEnery Conference Center in downtown San Jose and Prop. 13 will be center stage.

A few days earlier Joint Venture is scheduled to unveil a special report on Prop. 13's side effects, prepared by Palo Alto-based economist Steve Levy. The commissioned report will be a centerpiece of the conference, along with the annual Silicon Valley Index, a detailed assessment of the Valley's economic health produced each year by Joint Venture.

The conference promises to be another full-house event with well over a thousand attendees. Music and food will mitigate the heaviness of the content.

The Prop. 13 report itself is under tight wraps until the media briefing preceding the conference -- considered necessary to avoid a "media war" of criticism that erupted when Joint Venture in 2010 released information early under an embargo to a certain date. But the Wall Street Journal published a story early, known in the trade as "breaking the embargo," of course. That triggered a harsh protest from the New York Times and a subsequent inter-newspaper debate about who knew, or did, what when.

That conference warned urgently that Silicon Valley was a "region at risk" because of international competition, especially from China and India.

"We choose something every year on which to focus, in addition to the Index," Joint Venture President and CEO Russell Hancock said of the special Prop. 13 report -- the first comprehensive assessment of the impacts since the current recession.

"The reason we're choosing the tax issue is that the public sector is holding us back" in terms of economic recovery, he said in a telephone interview -- echoing an emphasis of last year's conference.

"The tax system is out of date. It was created in the 19th century, and it doesn't track the driving forces of the economy -- being based on sales taxes and property taxes.

"That made sense when those were our major assets as a society," Hancock said.

"But the problem now is that housing valuations are in a slump, and we're not going to see any value increases (from property taxes) in the near future. A similar slump exists in the retail system, while much of our economy is in services."

Hancock said the intent of commissioning the third-of-a-century-later study of Prop. 13 impacts is constructive, not to trigger "an ideological debate."

"We're trying to find how to tax in a way that makes sense today. The spirit of this document we've produced is to produce a factual base." The report "very carefully lays out what all those side effects are."

"In the next year we will be involved in discussions on this issue, and may make recommendations at some point," Hancock said. "The spirit of the Feb. 10 gathering is that of an old-fashioned town-hall meeting, a forum.

"We will be discussing what the facts mean and how we address them."

The urgency of a year ago is still there.

“Silicon Valley’s economy is making slow but noticeable progress recovering from the major blow delivered by the recession, but unless we address the fundamental structural issues in our local governments we cannot sustain continued growth," Hancock warned in the 2011 Index.

The warning was underscored by Emmett D. Carson, president and CEO of the prestigious Silicon Valley Community Foundation.

“The trend in our cities and counties is clear: expenses are rising, revenue is declining and the building blocks that help create strong communities are crumbling,” Carson said in the report.

“Without new solutions to the public sector financial crisis that is spreading across the country, our region’s quality of life and economic health will continue to erode.

"We need to begin asking ourselves what kind of government we want, what we can afford and what we must leave behind in favor of a more sustainable future for ourselves and our children,” Carson said.

Big questions, still unanswered a year later -- and facing a highly polarized, deeply political year ahead, a virtual Perfect Storm.

NOTE: Former Weekly Editor Jay Thorwaldson can be e-mailed at jthorwaldson@paweekly.com with a cc: to jaythor@well.com.

Comments (34)

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Posted by Sean
a resident of Midtown
on Jan 24, 2012 at 4:07 pm

"A few days earlier Joint Venture is scheduled to unveil a special report on Prop. 13's side effects, prepared by Palo Alto-based economist Steve Levy. The commissioned report will be a centerpiece of the conference"

Jay, you are clearly in the bucket for Steve Levy, a tax-and-spender, of the highest order, with little challenge.

"Isn't it time to end the loopholes for commercial property owners, and make it fair for everyone?"

To the extent that commerical properties actually change ownership, I agree with you. However, such notions are usually just a camel's-nose-under-the-tent scheme to increase taxes. Prop 13 will not be changed, period, becasue many of us realize what that could mean.

Steve Levy is the last person that should be behind such an effort. He is a poison pill to his own effort. Ditto Jay T.

Posted by Alfred E Newman
a resident of Atherton
on Jan 24, 2012 at 4:55 pm

"To the extent that commerical properties actually change ownership, I agree with you."

That's EXACTLY the loophole that accounts for the lion's share of the swing from m 60/40 to 40/60.

And thanks! I will "get over it". Because it will happen. 15 years ago, this discussion never would happen, now folks see what's going on. It's about fairness.

One step at a time. First we see the effects. Then we talk. Then we act. The fact you engaged and offer no valid reason to not fix the loophole is in fact "the nose" you referred to. Since you have no valid argument to defend the loophole, you attack the gentlemen above.

When commerical properties exchange ownership, there should be no retroactive or prospective protection from current property tax rates. Same for a private residential property. No loopholes allowed.

For example, when Facebook buys the previous Sun property in Menlo Park, it should pay current rates. Just like a buyer of a new (to them) residence in MP.

However, if my parents worked hard throughout their lives, and owned a property in MP, and then willed it to me, as part of their estate, I should not have to pay increased property tax rates until I decide to sell the property. In this example, if I am forced to pay at the higher rate, I will either sell immediately, or I will jack up the rent on my parent's property (assuming that I don't decide to live in it). Similarly, if my parents willed their business property to me, I would be forced (if Prop 13 is changed) to sell out immediately, probably killing off the current business, with loss of jobs, and loss of market income for me and my family. There is also the possiblity that the old business will be shuttered for years...depending on the location and neighborhood, thus contributing to urban blight.

This notion that extraction of taxes from the property owners is the way to fix school finance issues is foolish. Rob Peter to pay Paul. Then Paul no longer has a job.

Posted by common sense
a resident of Midtown
on Jan 24, 2012 at 8:52 pm

Jay,

You state:

"Prop. 13 also created extreme inequities between pre-1978 homeowners and post-1978 owners, with the latter paying many times higher property taxes"

Post-1978 owners benefit from Prop 13. In 2002, an average Midtown home would sell for $500,000. Today that home would sell for $1.3 million; the person who purchases that home would pay 2 times the property tax of the owner who purchased in 2002.

Early in the article you argue that prop 13 hurt school funding because of the owners who brought property earlier pay less than those who bought more recently. Later in your article you state

"The current statewide funding crisis and the multiple crises in school districts, counties and cities have made effects of Prop. 13 catastrophically worse due to the crash of property values and related tax revenues."

You need to do more research; property values peaked in the 2007 - 2008 timeframe (depending on the city); in some cities, the values dropped back to their 2002 level; in a city like Palo Alto, they values dropped back to their 2005 level. Therefore owners who bought before 2002 are STILL paying the same amount of property taxes. In Palo Alto, property values have recovered to their 2007 level.

You don't address the spending side of the equation. You do realize that the amount revenue generated by property taxes is much greater than in 1978, 1988, 1998, and even 2002. Where did all that extra revenue go to? Have you compared salaries and pension benefits of government workers over the years? How much went to class size reduction?

Further in your editoral you state "So there hasn't really been a current, concise, politically neutral compilation of the impacts that people could use to understand the amendment's full implications in today's economic environment, whether or not they agree with Prop. 13's intent.

That is about to change. On Friday, Feb. 10, Joint Venture Silicon Valley will hold its annual "State of the Valley" conference at the McEnery Conference Center in downtown San Jose and Prop. 13 will be center stage."

Many would not call Steve Levy a "politically neutral" person. In the past he has been anti-prop 13.

You should also mention the other view of education, documented in the excellent documentary "Waiting for Superman", which goes through the how teacher unions through their seniority system and work rules have had a detrimental effect on the education system.

Until the education system is reformed, it's not a matter of throwing more money at the problem - that would be the worse action to take. First reform, then look at the funding.

Posted by Bob
a resident of Community Center
on Jan 24, 2012 at 10:23 pm

Steve Levy is preparing and presenting the report on Prop 13??? WHOA!!!! Steve Levy is so anti-PROP THIRTEEN you can smell it a mile away. He's also one of the big proponents of in-fill housing, a big ABAG supporter, transit corridor housing (he's in the thnk-tank business of 'transit'), and a big leader of Cities 21.

If Prop 13 goes, you may find a mass exodus of everyone who bought homes prior to the mid-90's to 2000. Our senior population couldn't take the end of Prop 13. They'll suffer the most. The problem in California is over-population and a population that needs more social services, a population which is inundating our schools and social services, and causing more and more crush on that infrastruture" utilities, schools, transit. California does not have infinite resources.
It has good weather.

Posted by Prop-13-Is-Not-The-Problem
a resident of Another Palo Alto neighborhood
on Jan 25, 2012 at 10:02 am

> Those impacts include a devastating effect on California schools,
> from kindergarten through college -- although other complex factors
> were also involved in the demise of school funding

Really? Got any proof?

How many schools were closed down in the years after Prop.13 was passed?
How many education staff were terminated?
Has the per-student expenditures gone up, or down, since 1978?
Has the graduation rate gone up, or down, since 1978?
Have the standardized testing results gone up, or down, since 1978?
Has the SAT scores gone up, or down, since 1978.
..
And the list goes on, and on ..

The answer to all of these questions is that spending for schools has gone up (Prop.98 was passed to guarantee that). The performance of the schools has been more-of-less static. Unfortunately, the education "establishment" has done a very good job obscuring the "productivity" data, so it is very difficult to do more than tap a few data points, here and there. We do have good data since the adoption of the current standards. The CA DoEd makes this data available, on-line, for examination, and analysis.

Anyone who makes claims about "devastating effects on California schools" is either reading from a labor union-provided script, or incapable of engaging difficult problems with modern day analysis.

And let's not forget Serrano-Priest, which moved school funding from local jurisdictions to the State. Serrano-Priest radically changes the way funding has to work, given how expensive "education" has become.

Posted by Prop-13-Is-Not-The-Problem
a resident of Another Palo Alto neighborhood
on Jan 25, 2012 at 12:08 pm

> loopholes the problem ..

No, loopholes not the problem.

It’s really frustrating have to deal with this issue—of the State Legislature’s inability to understand the financing issues of the state, which includes 30-50 year timelines for “infrastructure” refurbishment/replacement.

All issues with “government” involve “spending”, “taxes”, and “mission”. Before anyone starts tinkering with the taxation framework, they need to do a comprehensive review of spending, both yearly and for long-term needs. Those sorts of planning exercises have never been done, other than cursorily, if even to that level.

Fundamental questions like: what is the current value of assets, property, and future infrastructure management do not seem to have been asked. While this sort of study might involve a couple hundred people for a couple of years—the State clearly has the funds to spend on this sort of exercise. But there is little evidence that it has done so.

As to the matter of “loopholes” involving commercial property—

1) Commercial property taxes are really hidden taxes on consumers.

2) Commercial properties almost never make direct demands on the State, as “residents” do.

4) Renters living in older properties are currently not “paying their fair share”. This disparity between residential property owners and renters could be resolved by passing a “renters’ tax” that would increase renters’ participation in the cost/benefit of “government”.

5) There is only so much commercial property in the state. At some point, if the taxes grow to be too extreme, businesses will move, or downsize. This puts “residents” out-of-work.

While the old taxpayer/new taxpayer problem is clearly an issue—most of the “old" taxpayers will be soon gone. The one loophole that does need to be fixed is the ability to pass your Prop.13-assessed property on to a child. This is wrong, and needs to be fixed.

Posted by Alfred E Newman
a resident of Atherton
on Jan 25, 2012 at 1:53 pm

"While the old taxpayer/new taxpayer problem is clearly an issue—most of the “old" taxpayers will be soon gone. The one loophole that does need to be fixed is If that's a problem, why isn't it a problem when commercial tax payers exploit the same loophole, only with the way currently written, to a FAR GREATER EXTENT?!?!?!?!?

Posted by all for one
a resident of Crescent Park
on Jan 25, 2012 at 2:22 pm

Previously everyone paid the same percentage in residential property tax. Now the "late comers" are taking up more and more of the burden.
Why are you only up in arms about this disparity in commercial properties?
You're just trying to finesse the actual issue because you know you'll lose the argument.

On a national level, over 50,000 factories/manufacturing businesses have fled the US in the past decade (or so). Never-ending government spending and higher taxes ultimately force businesses (ie--commercial properties) to move along.

Posted by Alfred E Newman
a resident of Atherton
on Jan 25, 2012 at 4:00 pm

"Business properties turn over at some point. The Prop.13 "loophole" for pass-me-down assessments seems to go on forever." The business loophole is far more egregious.

"Commercial property taxes are really hidden taxes on consumers." Blah blah blah. Get rid of all business tax then? You damn well know they won't lower prices. They weren't relocating before Prop 13, they aren't relocating at a different rate now.

"On a national level, over 50,000 factories/manufacturing businesses have fled the US in the past decade (or so)." Document?

"Why are you only up in arms about this disparity in commercial properties? " Two reasons:
1. it's fixable by eliminating a loophole that only has one constituency (large commercial property owners.)
2. it's the main reason for the 60/40 to 40/60 disparity.

About 15%-20% of those people owning property in Palo Alto pay less than $1,500 a year in base taxes, since their base assessment was set in 1976, when homes were often assessed at less than $120K.

This old/new property owner disparity is clearly unfair, and those who opposed Prop.13 back in 1975/76 cited this future disparity as a reason to vote no. However, property taxes were passed by school boards and City Councils without voter approval, and many older folks were forced out of their homes. Prop.13 stopped that.

Posted by Prop-13-Is-Not-The-Problem
a resident of Another Palo Alto neighborhood
on Jan 25, 2012 at 4:45 pm

> "On a national level, over 50,000 factories/manufacturing businesses
> have fled the US in the past decade (or so)."

> Document--

The United States has lost approximately 42,400 factories since 2001:Web Link

Seems the Business Insider report on American deindustrialization claims about 42,000 factories, not 50,000 as suggested in the previous posting. However, at this rate, it will only be a year or two when the 50,000 mark is crossed.

Reasons for deindustrialization are more complex than increased government taxes. However, as the cost-of-business goes up, as it does with increased taxes, businesses have to consider moving, downsizing, or moving to another state/country.

Posted by Prop-13-Is-Not-The-Problem
a resident of Another Palo Alto neighborhood
on Jan 25, 2012 at 7:23 pm

There is one more little "gotcha" about Prop.13 that folks ought to fully understand before they decide it's "OK". That is, the yearly 2% automatic assessment is not linear, but geometric--meaning that it grows larger more quickly downstream than it does in the early years of home ownership.

While few of us perhaps believe that we are going to stay in one home for the next forty years, when we sign the agreement to purchase, places like Palo Alto have a lot of older people living in the same homes that lived in in the 1960s, when they moved to town. There are still a small number of WWII veterans who moved here in the late 1940s/early 1950s. Staying here until we die is something that all of us sooner, or later, are likely to consider.

However, with the geometric Prop.13 assessment multiplier, the assessment more than doubles over a 40-year period of ownership.

Since most new home sales are going for 1-3 million, that means that the $10,000 yearly base will jump to $20,000 by the time you are in your 70s/80s. For people buying in at 3 million, that assessment jumps to over $7 million when you are in your senior years. That $30,000 a year base property tax jumps to $70,000.

Ok .. so all of those people who are buying in with their stock options may not have a lot of trouble paying the $20+K-$30+K property taxes now .. but what about when you are 75-80? Gonna be able to write a check for 80+K every year (all of the parcel taxes, and other add-on taxes need to be considered)?

This means, in all likelihood, that older people are going to have to flee California, at least if they want to live in their own home in their retirement years.

So .. maybe there are a couple things that need to be thought thru, where Prop.13 is concerned.

Posted by all for one
a resident of Crescent Park
on Jan 26, 2012 at 8:52 am

"They still do. Prop 13 just held increased property assements, by the government, to 1-2% per year. "Late comers" are fully aware of the assessment, according to current market values, when they buy."

Posted by Alfred E Newman
a resident of Atherton
on Jan 26, 2012 at 11:16 am

Most everyone above is focusing on the residential property tax element of Prop 13. Personally, I see no politically viable way of changing the residential portion of the law, whether you favor it or not.

Biggest bang for the buck?

Eliminate the commercial property loopholes that keep those properties from being reassessed even when they change hands. Time to stop the loopholes that took the 60/40 split to 40/60, before they increase the burden on residential property owners farther, eventually to 30/70 and beyond.

re: "Reasons for deindustrialization are more complex than increased government taxes."

Bingo. Nor do you address fairness, or the lack of fairness that commercial loopholes allow.

Why should the commercial property tax percentage be constantly lessened, just to be picked up by the working families and residential property tax payers of our fair state?

Posted by all for one
a resident of Crescent Park
on Jan 26, 2012 at 12:09 pm

Why should residential constantly be lessened, just to be picked up by the working families who can't afford to "will" their properties to their dependents?

Sean stated it already: "However, if my parents worked hard throughout their lives, and owned a property in MP, and then willed it to me, as part of their estate, I should not have to pay increased property tax rates until I decide to sell the property."

You simply want others to pay but not have the same rules apply to you.

Posted by Prop-13-Is-Not-The-Problem
a resident of Another Palo Alto neighborhood
on Jan 26, 2012 at 1:22 pm

> Loopholes in Prop.13

The fact that the tax rates and assessments of commercial property being equal to residential property is not a “loop hole”. This was a very “up front” aspect of this taxing scheme, not hidden in a lot of “legalese”. It was fully understood by the voters at the time Prop.13 was put up for a vote.

The following is a short overview of Prop.13--
--------
Prop.13’s Changes To CA Tax Law (ca. 1978)--

Approved By Votes—No Businesses Allowed To Vote.
Set the property tax rates to 1% of assessed value for all properties in California.
Establishes equality of tax rates between residential and commercial properties.
Established a uniform mechanism for re-assessment:
---Set the yearly increase of assessed value to 2%.
---Allowed reassessment when property changes hands—setting
......assessed value to market value.
---Allowed reassessment when modification to property exceeds
......a certain amount.
---Established a 2/3rds super-majority vote needed for all
......taxation increases.

In addition—

--Local government no longer able to raise property-based taxes without a super-majority of the registered voters.
--Tax collectors no longer free to enter homes to determine value of personal property.
--Older home owners not likely to be driven from their homes by unreasonable tax increases.

Major Flaw—

When property prices increase, as they have in California (doubling every ten years or so), then the older taxpayers end up paying against assessments that reflect decades-old property prices. Younger property owners end up paying anywhere from 10 to 30 times the property taxes that older property owners do. This creates a very one-sided situation, if there are a goodly number of older property owners in a community—particularly if they are constantly demanding “more services”.

This disparity also exists between urban, and rural, property owners/residents/taxpayers, regardless of age. Urban properties are generally more expensive (by as much as 10 times). Depending on locale, rural workers can commute to urban areas for higher wages, and enjoy a property tax differential by living in rural locations.

Posted by Alfred E Newman
a resident of Atherton
on Jan 26, 2012 at 2:02 pm

"all for one" You cherry picked the statement out of context: why should residential pick up the burden for COMMERCIAL property owners to get the loopholes?

No one asked your question as you stated: "Why should residential constantly be lessened, just to be picked up by the working families who can't afford to "will" their properties to their dependents?" The question asked was: "Why should the commercial property tax percentage be constantly lessened, just to be picked up by the working families and residential property tax payers of our fair state?"

-----

Not-a-problem: Your statement "The fact that the tax rates and assessments of commercial property being equal to residential property is not a “loop hole”." No. They are not equal, when you account for commercial loopholes. You are disregarding commercial loopholes on reassessment that do not apply to residential, effectively transferring the burden onto residential, hence the 60/40 going to 40/60.

None have addressed that core question. I'm guessing you have no answer.

History has shown, due to loopholes available to commercial property owners (aka "corporate welfare") that the burden has shifted from 60% commercial/40% residential to 40%/60%... why is that fair to everyone?

It's not.

Close the loopholes enjoyed by the largest commercial property owners, return fairness to the system.

End corporate welfare that disproportionately benefits the largest landowners at the expense of most Californians.

Posted by all for one
a resident of Crescent Park
on Jan 26, 2012 at 3:16 pm

Alfred, I asked that question! And you haven't answered it.
You are attacking one beneficiary from prop 13 because you see them as an easy target whilst ignoring a group that is probably larger in aggregate.
The bottom line is you want someone else to pay as long as it doesn't affect you.

Posted by common sense
a resident of Midtown
on Jan 26, 2012 at 3:17 pm

Over the past 30+ years, there has been alot of residential development, much of it done in Silicon Valley by coverting commerical real estate to residential real estate. For example, the Ricky's Hyatt Hotel was coverted to 181 housing units, with a reassessed value of 300+ million. In these cases the commerical property tax roles are reduced, and the residential real estate tax base is increased.

Same thing happened with the Palo Alto Medical Foundation, when it was located near downtown, and most of it's land was converted to housing.

Same thing happened with the office buildings at East Meadow Circle,and got converted to 75 townhouses.

Posted by Mark Weiss
a resident of Barron Park
on Jan 26, 2012 at 3:18 pm

Thanks, JayThor, for reporting that there even is a conference.

Previously I thought of Joint Venture as just a lobbyist for Big Business such that I would question the objectivity on this topic.

It's amusing to me the vehemence of the Property dudes above and their back and forth.

I hope to make the conference; unless they are charging me $1,000 to attend or demand that I am a property owner to attend, like a poll tax.

Also reminds me that my very first story for the Gunn Oracle student paper, in 1980, the lead was: "Prop 13 cutbacks have silenced the familiar rumble of school buses at Gunn High."

"Repeal Prop 13"? them's fighting words.

who said "I have not yet begun to fight?"

I was turned out of a house in Palo Alto when my landlord wanted to cash out his huge capital gain and fold it into a (fake) 1381 (I think) reverse swap. It actually only works for like properties meaning if the thing he was selling was his primary residence (not!) and the thing he was buying would be too -- he said he would retire there someday. And this was a former Navy officer? How do you go from serving your country to cheating the IRS, during war time? That's the mindset of the Property Dudes. Their Feudalists or worse.

The human race would have been extinct 500,000 years ago if these people were more popular.

Posted by Alfred E Newman
a resident of Atherton
on Jan 26, 2012 at 3:29 pm

"not-the-problem" says:

"There are no loop holes that have been identified in Prop.13, where commercial property is concerned."

Hilarious! May I apply your followup? "Simply saying that there is does not amount up to anything more than misinformation, or ignorance." Seriously, just because you say a bald faced fabrication ("there are no loopholes...") doesn't make it so (despite George Constanza's "it's not a lie if you believe it" assertion.)

The loopholes have been identified, you just haven't paid attention or are in denial.

Prop 13 was written with loopholes that allow businesses numerous ways to transfer property without subjecting it to reassessment.

How about just ONE property up in The City, to the tune of hundreds of MILLIONS:

"That's the case even when the line between cunning and devious is breached. In San Francisco, a pair of Fortune 500 companies fraudulently cloaked a change of ownership of One Market Plaza, one of the city's largest office buildings — to prevent a reappraisal that would have upped the structure's value from some $113 million to around $400 million. These firms were caught and made to pay — astoundingly, in retrospect — but not in a manner inspiring hope for nabbing future purveyors of fraud. The scheme was sniffed out not by proactive city employees but private attorneys. Even once the machinations were laid bare, the city repeatedly attempted to go easy on the guilty parties. The case plodded through court for nearly 18 years, spinning such a convoluted web of litigation that, at one point, the city sued itself." Web Link

-----

Again, you ignore the complete reversal in who's paying property taxes to run this state, from 60/40 to 40/60.

Posted by all for one
a resident of Crescent Park
on Jan 27, 2012 at 8:05 am

"Again, you ignore the complete reversal in who's paying property taxes to run this state, from 60/40 to 40/60."

No, this is expected and no worse than the complete reversal from all paying the same to the late comers picking up the load.
As long as the system favors those who hold for longer there will be winners and losers. The system is inherently unfair and will only to continue to get worse while it is possible to "will" a property without a change in assessment.

Welcome to the Perfect Storm! A good, lively debate to help set the stage for the Feb. 10 conference.

And, Mark, the famous "begun to fight" quotation is attributed to John Paul Jones, who commanded an American force of ships in a close-fought battle off the English coast, against a stronger force. The phrase was purportedly in response to a query from the British commander, and became a stirring inspiration to America and its fledgling Navy.

It is unclear whether Jones actually said those words, attributed to him by another officer. What he really replied (according to one report) was, "I have not yet thought of it, but I am determined to make you strike."

That is not the most stirring phraseology. Shows the value of having a good PR person. -jay

Posted by Prop-13-Is-Not-The-Problem
a resident of Another Palo Alto neighborhood
on Jan 27, 2012 at 2:17 pm

> Tax loopholes

While the term “tax loophole” is not likely to be found in any of the tax codes for the State, or Federal government—it none-the-less appears in political discussions. Here’s one quick point-of-view about what this term means:

A tax loophole is an exploitation of a tax law which can reduce or eliminate the tax liabilities of the filer. Quite often the original wording of a tax break is used to justify the use of a tax loophole. Several years ago, for example, a substantial tax break was offered to small companies who invested in SUVs and other heavy vehicles for their transportation fleets. Because the tax law allowed for 50% personal use, small business owners could upgrade their own personal vehicles to SUVs and still receive a tax credit. This exemplifies a tax loophole -- the original intent is not illegal, but the definition can be exploited for personal gain.

Few legislators would ever define a tax code change as a 'tax loophole.' After the changes have been adopted, savvy tax code experts and tax lawyers may discover flaws in the wording of the new law. Sometimes an obvious or potentially costly tax loophole is duly reported to lawmakers and the law is rewritten to close the loop. Other times the tax loophole may exist for years until a federal overseer or IRS agent discovers the mistake or exploitation.

There may be other definitions, but this one will do. Notice that for a “loophole” to exist, there needs to be wording that allows “savvy taxpayers” to take advantage of the language in some portion of the tax code. The example of a business being offered a tax break to buy SUVs is a great example, since no doubt such an inducement came from lobbying from some special interest group—such as an SUV manufacturer, or a labor union. Either way, the tax “break” reduction requires that the filer:

1) Invest in something that the government feels is worthy of investment
2) Typically spend more money than the tax itself would have generate (hence “driving the economy”)
3) Follow all obligations pursuant to claiming the “exemption”, or “break”.

The key issues here are:

1) “Tax Loopholes” are legal.
2) “Tax Loopholes” have been created by “government”.

Another key concept buried inside “loophole” is tax “reduction” or “evasion”. This idea must necessarily extend to “exemptions”. If the thinking is that anyone who uses the tax code to reduce his/her/its tax liability (via a “loophole”) than this thinking has to be extended to every exemption found in the code. Additionally, those creating/approving the code into law also need to be seen as contributors of this “wrong doing”.

While exemptions are generally thought to be “open” and “loopholes” are thought to be “buried”, either way—the use of the tax code to reduce ones taxes has to be seen in the same light.

> 60/40

“Mr. Newman” (icon of Mad Magazine), seems hung up on this ratio. The only rational response to Mr. Newman is: “so what?” This particular ratio happened to be in place at the time that Prop.13 became law. It easily could have been 10/90 90/10 or 100/0. This ratio was not “lock in stone” in the State Constitution, the Federal Constitution, or the Holy Bible. It just happened to be what is was in the mid-1970s. If Prop.13 had not become law, that number would not likely be the same today, as it was then.

What’s missing from “Mr. Newman’s” “Occupy” logic are a number of fundamentals about government financing. Trying to talk to each of this is impossible in this venue, but here are a couple to “cogitate” on:

1) Most people don’t want to pay very much of their income in taxes.
2) Most people would probably be more than happy to pay no taxes, given the chance.
3) Most people don’t really understand how to calculate government “benefits”.
4) Most people believe that “the rich” should pay more in taxes than they do, if only to punish them for their success.
5) Government spending rarely considers future revenue into account when “programs” are created.
6) Government Expenditures ultimately need to be paid for from taxes, fees, fines, state-owned rentals/leases, etc.
7) Short-term deficits can be made up via loans (bonds), but the cost is very expensive.
8) Taxation can be distributed equally, or in a discriminatory fashion.
9) Taxes are passed on to consumers/clients, not absorbed by commercial entities.
10) Most legislators (State and Federal) don’t understand the tax code, and don’t read the legislation enabling the tax setting/collecting agencies.

It’s hard to identify any of these points as the “most important”, but clearly this issue of corporation vs personal/residential taxing will be up for discussion any time Prop.13 comes up for review.

"Paying Your Fair Share"

Let’s do a little thought experiment about “paying your fair share”. If taxes were allocated equally among all workers here in CA, this would be roughly $1.7T/14M (2011 data) would come to about $12K per worker. That would be the State’s tax bill. Of course, county and local spending would have to be generated, so we’d need to add in several thousand dollars more, in order to cover those costs.

While people making more than $160K income would probably not see a problem here (at the current 10% personal income rate). This approach would be very easy to compute, and there would be no exemptions.

However, for people making less than $160K—they obviously don’t have the income to pay their “fair share” of the taxes.

So .. who should pay?

Rather than wallowing in some mindless ranting about a “60/40” split in property taxes, what’s needed is a complete revamp of the whole tax code. People not paying taxes now are not going to be happy when it turns out that they are now having to pay a lot more—since their “fair share” is at least $16+K a year.

Posted by all for one
a resident of Crescent Park
on Jan 28, 2012 at 1:58 pm

The use of property tax for this purpose was similar to adhering to the "gold standard" before prop 13.
Sales tax doesn't work. You need to tax the people that live here, not just what is sold. A local income tax would be more appropriate.