California is in a Depression. Now the Left wants to get rid of Prop. 13 for commercial property—to pay for the Democrats/unions out of control spending.
How does this help the middle class working people?
“* End up losing 396,345 jobs over the first five years of a new split-roll property tax system. This would increase the current unemployment rate of 10.9 percent to 13.1 percent.
- The lost economic output would be $71.8 billion over five years. In other words, ending Prop 13 protections on commercial properties would result in losing about $14.4 billion in economic productivity per year to get about $3 to $8 billion annually in new property taxes. Stated differently, the private economy would shrink and government would grow.”
The Left is truly working hard to kill the economy and depopulate California. Our real unemployment in California is over 20%. The real deficit, for this year is over $35 billion. End the commercial protection with Prop. 13 and the value of California land and buildings tanks over night—forcing companies to pay loans or like Vallejo and Stockton, go bankrupt.
396,345 Jobs Lost if Property Tax Split
By WAYNE LUSVARDI, CalWatchdog, 3/19/12
The Davenport School of Public Policy at Pepperdine University is out with a blockbuster new study on the affects of the proposed elimination of caps on commercial property taxes provided for under Proposition 13. The study is titled, “An Analysis of Split Roll Property Tax Issues and Impacts.”
This is also called a “Split Roll” property tax because residential and commercial property taxation would be separated and the base assessed values would be taxed differently, although the tax rate would stay the same. Residential properties would keep their Prop. 13 property tax protections and such protections would be eliminated on commercial and industrial properties.
The study concludes that a split roll property tax would:
* End up losing 396,345 jobs over the first five years of a new split-roll property tax system. This would increase the current unemployment rate of 10.9 percent to 13.1 percent.
* The lost economic output would be $71.8 billion over five years. In other words, ending Prop 13 protections on commercial properties would result in losing about $14.4 billion in economic productivity per year to get about $3 to $8 billion annually in new property taxes. Stated differently, the private economy would shrink and government would grow.
* Government property tax revenues would be susceptible to greater instability – the ups and downs of tax revenues — as commercial and industrial property values are affected by the swings and cycles of the larger economy. This is especially so for retail commercial properties such as shopping centers.
Apartment Rents Up
* Apartment rents would have to be increased to comply with the increased commercial property tax rates. Renters — who comprise disproportionately more of those affected by the economic recession — would be hard hit with rent increases. Homeowners would still enjoy the protections of Prop. 13 on any increase in property taxes until their property re-sold. But then it would be the new buyers who would assume the higher tax burden. This could increase “tax flight.”
* Small commercial property owners who do not have “triple net” leases with their tenants would have to disproportionately absorb the property tax increase. Those large commercial landlords — shopping centers, malls and gas stations — could pass their property tax increase along to their tenants under a “triple net” lease. So, contrary to the stereotype created by tax advocates, “Big Commercial” landlords would be least affected and small commercial property owners would be clobbered.
This could result in “fire sales” of some small commercial properties. In 1978, before Prop. 13 was enacted, it was “widows” who had to sell their homes to pay property tax increases. In 2013, it might be small landlords renting to “Mom and Pop” stores and owners of duplexes who would be more susceptible to having to sell their properties to pay property tax increases.
This also likely would adversely affect the trustees/heirs of those commercial properties held in family trusts.
No Quick Reassessments
I would add one thing to the study: According to tax assessors, it would take about three years for local county assessors to hire and train new staff and begin to undertake the reassessment of commercial properties. So there is no “quick fix” for public school or county budgets dealing with prison realignment in a split-roll property tax. Commercial properties cannot be valued by mathematical computer formulas as can single family residential properties (such as using Zillow.com).
The Pepperdine study responded to criticisms of Prop. 13, such as May 2010 report by the California Tax Reform Association titled, “System Failure: California’s Loophole-Ridden Commercial Property Tax”. In that report, several high-profile commercial properties — such as Disneyland, high-end shopping malls and gas stations — were branded as being under-taxed due to vague “loopholes.”
But these alleged loopholes only apply to a small number of commercial property sales transactions of “internal sales” between partners, where commercial properties are owned by a partnership. Presently, the courts have rules these “loopholes” legal.
However, the Pepperdine study indicated it won’t be high-profile commercial properties or partnership-owned commercial properties that would be most affected. Instead it would “Mom and Pop” stores renting space in Class B strip malls, older commercial buildings or owners of residential duplexes and small six-unit apartments.
Renters never really enjoyed the protections of Prop 13 because they were always at the mercy of their landlords – a renter could live in a home for 30 years and see the property reassessed every time his landlord sold to a new owner. (And rental property on average changes ownership more often than owner-occupied homes, probably due to landlords optimizing federal taxes.)
It has always been my understanding that the purpose of Prop 13 was to protect people from being taxed out of their homes through galloping assessments. Since renters are not protected, this claim cannot be fully true. (Did Prop 13′s drafters consider renters to not be people or did they simply lie?)
So why not do the right thing now and extend the full protections of Prop 13 to renters?
But renters never
May 6, 2012 at 8:27 pm
Mr. Frank — Have you actually read the Frates/Shires report? Or did you just fall so in love with their conclusions that you didn’t bother to check their analysis?
Read it. It’s economic gobbledy-goop. It’s a bunch of statistics multiplied together with no understanding whatsoever of the underlying structure of California property tax. (And it’s no wonder that the authors state, in the preface, that the ‘opinions, discussion and analysis contained in this report [are those] of the authors alone and do not necessarily reflect the views of Pepperdine University, the School of Public Policy, the Davenport Institute …” etc.)
Basing their entire analysis on the rough proportions created by the Board of Equalization to ensure that Railroad property does not enjoy a tax advantage compared to other California commercial property, they then proceed as if (a) that is an accurate statistic resulting from in-depth analysis (try asking the BoE whether it can be used for any purpose other than roughly keeping railroad rolling stock roughly valued at roughly the same as the general commercial property pool) and (b) every commercial property must be underassessed to the same extent.
Say, what? Anyone who’s spent any time in California knows that Prop 13 has (over 33 years) created wildly disparate assessments of individual properties based on when they were acquired.
Anyone who looks through Assessors’ Annual Reports for the various counties knows that around 50% of commercial properties have changed hands in the past 10-12 years and are therefore roughly valued at market. Why count them in the mix — except to inflate the effects?
And those same statistics suggest that a much smaller proportion, around 20%, are enjoying 80%+ of the Prop 13 commercial underassessment. So it is those properties — their tenants and their least agreements for which split-roll would make a difference.
Whereupon the nature of ‘triple-net leases’ becomes vitally important. Do you agree with the authors’ assumption that business tenants are so stupid as to sign a lease with a landlord that has been holding the property for 30+ years with no cap on tax increases? Remember, under Prop 13, all that property has to do is change hands for the assessment to revalue to market — so the landlord can die, or sell the property, or bring in his nephews, and — bang — it’s reassessable. This is the reason why most commercial leases (and particularly those in California with low tax rates) have a cap of 25% or less on triple-net increases.
It’s hard to imagine why researchers would ignore the element they identify as ‘critical’ — namely, who exactly would pay any increased tax — buy maybe they just were so in love with the Minnesota IMPLAN v. 2.0 modeling program that they forgot to check their assumptions.
Garbage in, garbage out.
March 25, 2012 at 10:09 am
As long as government continues to treat this as a lack of revenue, rather than what it is – an overspending problem, silly proposals like this will pour from Sacramento. How much more can the “rich” absorb? As the flight from California accelerates, desperation will be the attitude of the politicians.
March 20, 2012 at 11:02 am
A few years ago, property taxes were rising as property value decreased. The excuse I remember from then was that the system the government used to calculate property value lagged behind the calculation for taxes resulting in a tax rate that didn’t reflect current property value decreases. It seems now that was either wrong information,my memory is bad (entirely possible), or complete fabrication.
March 20, 2012 at 7:22 am
Yes, I am familiar with the “three-year moving average” method of assessing real property.
The idea behind it is that property values in most places are rising (or steady) most of the time, and seldom falling.
A three-year moving average has the effect of causing assessments to lag behind market values, which of course is a very good thing during the majority of years property values are not falling.
For example if a property was valued the past three years at $300K, $310K, and $320K, the current assessment will be $310K and not $320K.
On the other hand, if the value is declining, e.g. $320K, $310K, $300K, the assessment will be $310K which of course is higher than the current value.
May 6, 2012 at 8:39 pm