Mercury News editorial: Tax reform -- including Prop. 13 -- must be part of California's budget fix

August 22, 2011

merclogo.png.pngAccording to a 2010 study by the California Tax Reform Association, the share of property taxes paid by homeowners has climbed in nearly every county since Proposition 13 passed in 1978. In Santa Clara County, the residential share jumped from 50 percent to 64 percent, even as industrial and commercial growth spiked.

The association's study found numerous examples of private equity buyouts, corporate purchases and bank mergers that were structured to avoid reassessment, which is only triggered when 50 percent of a property is purchased by a single owner. So if a business is sold to four people, its assessed value stays low -- as do its property taxes, a luxury homeowners don't get. Closing this nonsensical loophole could bring some $2 billion a year for schools, public health and safety, and provide room to lower residential taxes. Read more.

August 22, 2011

Mercury News Editorial

Los Angeles Mayor Antonio Villaraigosa set tongues wagging last week with a speech widely viewed as a sign he might challenge Gov. Jerry Brown in 2014, assuming Brown runs. The content of the speech -- a call for progressives to reclaim the debate about the role of government and taxes -- was just as important as the political subtext.

Villaraigosa took aim at the silly Republican adage "We don't have a revenue problem, we have a spending problem." (As every adult should know, the two can coexist.) And while we don't agree with all the mayor's prescriptions, what's clear is that tax reform, including a re-examination of corporate property tax rules in Proposition 13, must be part of any budget solution.

California has done some serious whacking in recent years; the general fund has shrunk nearly 17 percent from its peak of $103 billion in 2007-08, to a projected $86 billion next year. More savings are possible -- particularly through pension reform -- but not much more.

Deeper cuts to education, preventive health care and public safety would do unfathomable damage to the state's economy and residents, especially our children. New revenue has to be part of the discussion about closing the long-term deficit.

Villaraigosa called for repealing the cap on commercial property tax increases that's part of Proposition 13. The law was intended to protect homeowners from property tax spikes but is now a corporate giveaway.

According to a 2010 study by the California Tax Reform Association, the share of property taxes paid by homeowners has climbed in nearly every county since Proposition 13 passed in 1978. In Santa Clara County, the residential share jumped from 50 percent to 64 percent, even as industrial and commercial growth spiked.

Villaraigosa, however, has the wrong prescription -- in part because it's a political nonstarter. A more realistic, though still difficult, approach would close the loophole that allows some businesses to change hands without being reassessed.

The association's study found numerous examples of private equity buyouts, corporate purchases and bank mergers that were structured to avoid reassessment, which is only triggered when 50 percent of a property is purchased by a single owner. So if a business is sold to four people, its assessed value stays low -- as do its property taxes, a luxury homeowners don't get. Closing this nonsensical loophole could bring some $2 billion a year for schools, public health and safety, and provide room to lower residential taxes.

Villaraigosa also called for broader tax reform, including possibly eliminating the corporate income tax and lowering income tax rates. He suggested extending the sales tax to services to bring the tax code into the 21st century.

So while this speech has been interpreted as a possible challenge to Brown for the governor's office, we see it as a challenge of another kind: to incorporate a discussion of tax reform into Brown's nascent push for new revenue. Various studies and commissions have provided a multitude of possible solutions. Brown should take a hard look.