Proposition 13, the controversial 1978 ballot measure that drastically lowered property taxes statewide, has long been considered the untouchable “third rail” of California politics. Attempts to consider any revisions to it have been met with derision or have quickly died before gaining any significant momentum.
Sacramento lawmakers have been reticent to challenge the law— viewed by homeowners and conservatives as sacrosanct—for fear of political retribution or suffering a politically embarrassing loss.
Until now.
State Sen. Holly Mitchell (D- Culver City) has joined with her colleague Sen. Loni Hancock (D- Berkley) is proposing a revisit to Prop. 13 that would close a loophole for corporations that often pay no taxes after they sell their businesses because the law does not compel corporations to have their properties assessed annually reassessments of their properties. Under Constitutional Amendment A5, office buildings, industrial plants and other structures would be evaluated at their current market value. Homeowners and agricultural properties would be exempt.
Currently businesses cannot be reassessed at a new base year value unless it is sold or after the completion of new construction. Prop. 13 set the base year for reassessment at 1975 and restricts annual increases on real value properties.
The proposed reforms could generate $9 billion annually for local governments and schools, according to Hancock. “The responsibility for the things we all need and use is falling on our families. This is pure tax avoidance,” Hancock asserted.
At a West Los Angeles Democratic Club meeting on Sept. 17 in Culver City where she was the guest speaker, Mitchell said there had not been a real previous discussion about what she called “split roll” — taxing commercial properties according to their actual market value but maintain limits on residential homes.
Mitchell said the property tax law was one of her earliest memories of political engagement. “I remember my parents talking about it at the dinner table, my teachers talking about it in school and that the common denominator in my house was that we were protecting grandma’s house. But I don’t remember any conversations about corporations having the same protections for grandma,” she recalled. “This legislation is not about homeowners, renters or agriculture and it’s not about raising property taxes.”
According to Mitchell, early estimates reforming proportions of Prop. 13 could bring in billions of dollars to the Los Angeles County, which she said could be used to repair the county’s woefully deficient infrastructure.
“Ultimately, it’s our goal to reform our commercial tax system, and from our perspective to make it fair. We have investors and corporations that have used loopholes in the law to avoid paying what we feel is their fair share. Multi-billion dollar corporations actually have a competitive advantage over smaller startups simply based on when a property was purchased,” the state senator said. “In short, we have a few businesses that are benefiting from far lower taxes than their neighbors and competitors.”
The constitutional amendment faces a multitude of hurdles. A two-thirds majority vote in both the Assembly and the Senate would be needed in order for it to overturn Prop. 13, a daunting task even with Democrats in the majority in both houses. And anti-tax groups that have come to see Prop. 13 as its cornerstone will undoubtedly unite to oppose it.
Kevin Lachoff, a commercial real estate agent who specializes in retail, office and investment property sales and office leasing in Culver City, noted that as a low property tax city, Culver City has a user utility tax. Instituted in the 1960s the idea was to transfer tax collection onto utilities and the city consequently receives a smaller share of state revenue derived through property taxes.
Lachoff, the chairman of the Culver City Chamber of Commerce, said if the Legislature reconfigures Prop. 13’s commercial property reassessment, local businesses being forced to absorb higher property taxes and the utility tax would likely remain in place. “I don’t expect that anyone will come to the aid of businesses and say, ‘now that we’ve increased property taxes, we’ll abolish or lower the user utility tax,” said Lachoff, who repeatedly emphasized that he was “not fundamentally” opposed to Proposition 13 reform.”
Allen Wisniewski, a Culver City financial analyst, said there could be certain adverse consequences for some businesses. “In theory if the costs, in this case property taxes, rise for a business that business would try to recoup those costs through higher prices,” he said.
Chief Deputy Assessor Santos Kreimann said any new reforms that cause new assessments would make it “very challenging” for his office to institute with its current number of employees. His office would need to bring in several more assessors and ancillary personnel in order to properly conduct the new assessments that could result from Mitchell’s proposal.
“We’ve taken a look at what would happen regarding staffing. Right now, our preliminary estimates are we would have to hire at least 250 more employees in order to implement the constitutional amendment. And that is a challenge,” said Kreimann, whose office currently has approximately 1,400 employees.
In addition, according to the assessor’s office, putting the aforementioned changes in place would cost an additional $30 million on top of its current $170 million budget. “It’s going to be a very interesting challenge for us if this amendment is approved,” Kreimann reiterated. “[But] should the amendment go through, we will implement it with enthusiasm and urgency.”
Mitchell admitted that the constitutional amendment is— in her own words— “a trial balloon” but added that it was an important step in the process that I have a deep respect for.”
Wisniewski said there could likely be a “short term negative impact” on the state economy if the amendment is successful. “Longer term would depend how this extra revenue being collected is spent, and whether it is being used for beneficial government projects, or possibly to reduce other taxes,” he added.
“We’ve attempted to cover all of the major issues and challenges that came about from our discussions. Our goal is to restore fairness and common sense into the process,” Mitchell said.
This is perhaps Mitchell’s most ambitious legislative pursuit. Two prior bills that would have had far-reaching affects statewide— a ban on hydraulic fracturing and a proposal to stop law enforcement from seizing money and property of those who are not accused of a crime—failed and did not make it out of the Legislature.
Gary Walker contributed to this story.
