California Business Roundtable

By San Diego Union-Tribune Editorial board 5 P.M. JUNE 13, 2015
State Sens. Holly Mitchell, D-Los Angeles, and Loni Hancock, D-Berkeley, and several liberal groups want state voters to make a fundamental change in Proposition 13. That’s the landmark measure approved in 1978 that limits property taxes to 1 percent of assessed value and limits the amount that assessments can be increased to 2 percent a year – unless the property changes hands, at which point it can be reassessed.

Mitchell’s and Hancock’s legislation, if adopted by two-thirds of the Legislature, would set a November 2016 public vote on whether there should be regular reassessments of all industrial and commercial properties.

The senators declared this to be a crucial step to closing a loophole that allegedly costs the state billions of dollars a year.

But the loophole is a problem with a relatively small number of properties. And the alleged fix would hammer tens of thousands of property owners who play by the rules and don’t game the system – and who employ millions of Californians.

The loophole in question stems from the difficulty of establishing a change of ownership when it comes to commercial properties that don’t have a single, easily identified owner.

In the sale of some properties held by real estate investment trusts, partnerships or other arrangements, paperwork has been manipulated to prevent the appearance of a sale of more than half of a property – the threshold for a reassessment.

It’s far from clear if this practice costs the state billions of dollars a year. The case that’s most often cited involved the sale of a Santa Monica hotel in which the loophole was used to save the new de facto owner $1.1 million in annual property taxes.

But it is a significant enough problem that last year, the California Business Roundtable and the Howard Jarvis Taxpayers Association came out in support of AB 2372, a measure that would have killed the loophole.

After passing the Assembly on a 57-9 vote – San Diego Democrats Toni Atkins and Lorena Gonzalez were among the supporters – the measure suffered a mysterious death in the Senate.

Howard Jarvis officials believe it was because of pressure applied by groups backing the Mitchell-Hancock plan. They want to have the loophole to attack instead of admitting their real goal is a punishing $9 billion property tax hike. No other theory makes any sense.

We hope this fake fix suffers the bipartisan defeat it deserves, and that the loophole is closed with a reform like AB 2372.

We also hope that at some point there are enough thoughtful people in state government that California can have the tax reform debate it’s long needed. State Controller Betty Yee last week added her name to the short list of state politicians calling for broadening the tax base by taxing some services and reducing the state’s reliance on income and capital-gains taxes paid by the rich.

Business groups and progressives alike resist such proposals. But having a broad-based tax system designed to encourage economic growth and job creation – as proposed by a state commission in 2009 – remains a great idea.

If Jerry Brown wants a defining accomplishment for his fourth and final term as governor, this reform is a worthy candidate.