San Francisco legislators are eager to reform Proposition 13 and related tax policies

It is easy to spark a lively debate in California with just six syllables: Proposition 13. Arguments over the voter-approved 1978 tax reform initiative have reverberated through the state capital for decades. Politicians — even the many who opposed it — have generally avoided the measure like unfavorable publicity.

But the political winds are shifting. Talk of Prop. 13 reform is all the rage, with several San Francisco state legislators taking up the cause.

Voters passed Prop. 13 as part of a movement that soon came to be called the “tax revolt.” The initiative rolled back property values to 1976 levels, capped value-based taxes on property at 1 percent of that and limited increases in the assessed value to no more than 2 percent each year — except upon a change in ownership or completion of new construction. Subsequent legislation, court rulings and ballot measures shored up and clarified Prop. 13’s language. Others expanded its impact by further limiting state and local governments’ abilities to tax businesses and properties.

After November’s election, Democrats hold a two-thirds majority in both the state Assembly and Senate. Such a supermajority has not occurred in California since 1933, when Republicans controlled the Legislature. This supermajority allows Democrats, if they are united, to raise taxes unilaterally by overcoming GOP opposition and overriding gubernatorial vetoes.

State Assemblyman Tom Ammiano and Sen. Mark Leno said Democrats will have to use their supermajority judiciously and with discretion, Ammiano said he doubted that legislators would do anything as bold as overriding a gubernatorial veto. But discretion does not appear to preclude Democrats from trying to reform Prop. 13 and its related legislation.

On Dec. 3, the first day of the new legislative session, state Sen. Mark Leno — whose newly reshaped district now spans San Francisco and portions of San Mateo County — introduced legislation seeking to lower the approval thresholds for school parcel taxes from two-thirds to just 55 percent. If the legislation passes, voters would be asked in 2014 whether to approve any such change to the California Constitution.

“I am very pleased to address this one aspect of Prop. 13, because it is just rock solid,” Leno said.

Voters already lowered the approval threshold for school bond measures when they approved Prop. 39 in 2000, the senator noted. Bonds have to be used for capital improvements, but parcel taxes can be used for operations, such as classroom funding.

Meanwhile, Ammiano plans to introduce legislation to close a loophole that allows companies to avoid reassessment when commercial properties change hands. A similar item he wrote died last session on the floor of the Legislature.

“When you change ownership and it is 50 percent plus one, then you get reassessed,” Ammiano said. “So what the big guys … have done, they have cleverly come up with ways so that it isn’t 50 percent plus one.” Ammiano said some businesses use a third-party investor or holding company to avoid reassessment.

<p>Howard Jarvis Taxpayers Association President Jon Coupal said his group, which grew out of the effort to pass Prop. 13, could possibly support Ammiano’s idea, depending on the details. He conceded that commercial properties might dodge the intent of the law as Ammiano suggests, but said the solution is better enforcement of existing laws, not a new law.

As for Leno’s proposal to lower the threshold for local taxes, Coupal called it a “flat-out assault on Prop. 13” that would substantially increase taxes for homeowners and businesses alike.

Lenny Goldberg, a longtime advocate of Prop. 13 reform and the executive director of the California Tax Reform Association, notes one way in which Ammiano’s and Leno’s proposals are similar.

“Neither of them technically is Prop. 13 at all,” Goldberg said.

Much of what people are talking about when they attack or defend Prop. 13 are really measures that followed the initial initiative. For instance, what Ammiano actually hopes to reform is a loophole legislators wrote into the law to implement Prop. 13. The Legislature was trying to define a change of ownership — a definition that wasn’t clear in Prop. 13, Goldberg said.

This lumping together of disparate tax measures that affect both homeowners and corporations creates a whole lot of baggage for clear-headed discussions about reforming California’s tax policy, Goldberg noted.

According to a Dec. 6 survey from the Public Policy Institute of California, 60 percent of likely voters say that Prop. 13 has been mostly good for the state. And yet, at the same time, 58 percent of likely voters say they support reforms designed to tax commercial properties more.

So though others have tried to reform the same issues, the current political situation — from the Democratic supermajority in California to the support for ending federal tax breaks for people earning more than $250,000 — may have created the opportunity that many Democrats have awaited for decades.

Of course, Democrats also are emboldened because last month California voters agreed with Gov. Jerry Brown that the state needs to increase taxes. Voters approved Proposition 30, which will raise the income tax for seven years for people making more than $250,000 per year. It also will raise the state sales tax for four years by quarter/ percent.

The tax increases were built into the state budget to fund programs including education. But what those tax increases won’t do, Ammiano noted, is backfill all the cuts that California has made in recent years to
education and other social programs.

“Messing with Prop. 13 for a long time was the third rail,” Ammiano said. “But because of changing economies and also cuts to education, when I go around the state, especially talking with the middle class and above, they’re ready for reform of Prop. 13 in some way that would not hurt seniors but that would be more appropriate for taxes coming from the commercial properties.”

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