Palo Alto became the latest California city on Monday to officially come out in favor of reforming Proposition 13, though some on the City Council argued that the resolution currently on the table isn't going far enough.
Members offered a variety of reasons for their respective positions prior to voting to endorse reforms to the 1978 state law, which caps property taxes at 1 percent of the property's assessed value and also ties taxes to a property's 1975 assessed value unless it has changed ownership.
Everyone agreed that commercial properties aren't paying their share of property taxes, a dynamic that places a greater burden on owners of residences. The reforms, while non-specific at this point, would proposeregularly occurring reassessments of non-residential properties.
A staff report from City Manager James Keene noted that before Proposition 13, 40 percent of local property tax revenues came from non-residential properties. Today, that figure stands at 28 percent, with residents and apartment owners paying the balance.
"I think the issue we're trying to deal with is just fairness – that inexorably, the share of property taxes being passed by commercial property owners is declining every year, in Palo Alto, in Santa Clara (County) and in California," Councilman Greg Schmid said on Monday.
Councilman Greg Scharff said the resolution should go further and include multi-family developments.
"It's a business. I don't see it as any different from other types of commercial," Scharff said.
He cited Equity Residential, the Chicago-based property owner that is now East Palo Alto's largest landowner.
"Are we going to give them a break?" Scharff said.
Councilman Larry Klein, a staunch and frequent critic of the law, agreed Proposition 13 was "manifestly unfair" and proposed it should be "blown up" in a Constitutional convention, rather than gradually reformed.
It's not fair, he said, that a young family who may wish to buy a house next to his would have to pay triple (if not more) the amount of property taxes that he pays. The proposition discourages young families from coming to Palo Alto, Klein said.
"It creates a lack of diversity in our community," Klein said.
Councilman Marc Berman had no problem with the council's resolution, which is general and doesn't back any particular reform proposal. While Klein argued that the resolution doesn't go far enough and offered only lukewarm support, Berman called the vote a "good first step."
Even Karen Holman, the lone dissenter in the 8-1 vote, said she is very much in favor of reforming Proposition 13. Her concern with the resolution on the table was based on possible "unintended consequences" for small businesses, which would see their property taxes shoot up under new reassessments.
"We've seen up and down the state and all over the country how downtowns have died, for lots of reasons," Holman said.
The resolution was drafted by the citizens group Evolve, which looks to direct more revenues toward education. It states that Proposition 13 allows commercial property owners "to avoid paying their fair share and has shifted the tax burden to residential property and away from business, including everyday homeowners and working families."
The resolution notes that reassessing non-residential property would generate at least $6 billion in additional revenue for California, according to data from the California Board of Education. Ian Fregosi, an organizer with Evolve, said the group feels it's unfair that "corporations are getting huge million dollar or billion dollar tax breaks, while our schools are 49th in the country in per pupil funding."
"We believe that our state should address the drastic budget cuts that local governments have endured by raising revenue, not making further cuts or by increasing the already high burden on individuals," Fregosi said. "We know the fairest way to provide desperately needed revenues is by reforming Proposition 13."
Other cities that have voiced support for reform of Proposition 13 include Berkeley, Brisbane, Burlingame, Oakland, Richmond and Santa Monica.
Comments
Leland Manor/Garland Drive
on May 14, 2014 at 4:04 pm
on May 14, 2014 at 4:04 pm
"The proposition discourages young families from coming to Palo Alto"
I don't know if you've looked at school enrollment numbers lately, but I don't see anyone but young families moving in! Every elementary school is stuffed well past capacity.
I hope the council members know what they're asking for and all of us don't get burned badly when the CA legislature upends Prop 13 entirely and our property taxes go through the roof.
Another Palo Alto neighborhood
on May 14, 2014 at 4:22 pm
on May 14, 2014 at 4:22 pm
Question. Is it just repealing Prop 13 properties and reassessing their value, or all residential properties. What happens for those of us who have owned homes for over 10 years but not under Prop 13, to be fair, our properties would have to be assessed and our taxes go up too. Not what I would want to see, so tweaking is necessary, so go carefully.
Palo Verde
on May 14, 2014 at 4:44 pm
on May 14, 2014 at 4:44 pm
If you bought ten years ago, then you've had 10 years of Prop 13 protection.
Fairmeadow
on May 14, 2014 at 4:46 pm
on May 14, 2014 at 4:46 pm
> What happens for those of us who have owned homes for over
> 10 years but not under Prop 13
This poster clearly does not understand Prop.13, or any aspect of property taxation, in general.
For starters--EVERY ONE IS PROTECTED BY PROP.13!
Simple taxes on a property (such as a residence) is computed via the following formula:
Tax Due = (Tax-Rate x Assessed-Property-Value) - Exemptions.
All that Prop.13 does is to fix the tax rate at 1% for all properties, and to force a 2% yearly adjustment to the current assessed value until the property is sold, then it is reassessed to market value. Commercial properties are somewhat more complicated, but the general thrust of taxes on all properties is the same.
The initial assessment for properties was set as of 1976, although Prop.13 was put before the voters in 1978. Far too many people seem to be posting as if somehow they "missed the boat" because their property purchases are somewhat recent. While you did miss the boat for cheap properties in this town--you are protected just like the older property owners are from violent increases in your yearly property tax rate, or frequent reassessments of your property--which would doubtless drive your yearly tax bill into the sky.
Fairmeadow
on May 14, 2014 at 5:00 pm
on May 14, 2014 at 5:00 pm
> "It creates a lack of diversity in our community," Klein said.
Council Member Klein, as is often the case, us quite wrong in his beliefs ..
What is causing a lack of “diversity” is the escalation of housing prices. Using readily available housing price data, we can see just how wildly the housing prices have escalated since just 1999:
Year | Median Price
1999 | $743,000
2009 | $1,336,000
2019* | $2,661,000
* (estimated based on historical yearly price increase)
It doesn’t take much knowledge of how real estate changes hands to know that the down payments, and monthly mortgage payments, are probably a lot more than the property taxes. Of course, when the base assessments start at $10,000 per $1M of assessed value—it doesn’t take long to see a pretty hefty property tax bill, for which it's likely more folks aren’t likely receiving much back from the City in terms of services for their money.
Palo Verde
on May 14, 2014 at 6:24 pm
on May 14, 2014 at 6:24 pm
Note the Prop 13 one-percent property tax rate is just the starting point.
Nickels and dimes drive that number upwards over 18%.
Per million of assessed value, you can add
$388 county retirement levy
$ 35 Valley Medical Center 2008 bond
$314 PAUSD bond
$600 PAUSD 2008 bond
$177 Palo Alto City 2008 bond
$111 Foothill De Anza 1999 bond
$179 Foothill 2006 bond
$ 70 Water project
So that $10,000 base grows to $11,874
Then you can add the fixed-dollar-amount parcel taxes.
Downtown North
on May 14, 2014 at 6:39 pm
on May 14, 2014 at 6:39 pm
Be realistic, there is essentially zero chance that the homeowner property tax will change anytime soon. The changes that are being considering are to close loopholes in commercial property law. Corporations have been creating shell companies to shelter their real estate, which is well beyond the original intent of Prop 13.
another community
on May 14, 2014 at 6:55 pm
on May 14, 2014 at 6:55 pm
Thank you Wayne, for providing some insight as to just out of touch the opposition is. You're right, the true culprit is housing prices, and Prop 13 has meant that your generation has been sheilded from having to address them. You imply that just as you have been, the next generation will also be sheilded from violent increases in property taxes, as if most of my generation actually has the ability to buy a house... you do realize that the only folks who are able to buy houses these days in the Bay Area, and in most of the state, are already homeowners? I understand that its in your best interest to kick the can down the road, but try not to pretend you're doing anything other than selling out my generation.
Fairmeadow
on May 14, 2014 at 8:43 pm
on May 14, 2014 at 8:43 pm
> you do realize that the only folks who are able to buy houses
> these days in the Bay Area, and in most of the state, are
> already homeowners?
I suppose you are familiar with the terms: liars’s loans, no-equity-needed loans, and sub-prime mortgages. Certainly during 2000-2006 this was not true. Moreover, it’s not that hard to follow real estate news and see that Chinese money is chasing property all over the US, Canada and Europe. Maybe these people are homeowners in China, but the influx of this money is making your chances to purchase in the Bay Area harder.
> I understand that its in your best interest
> to kick the can down the road, but try not to
> pretend you're doing anything other than
> selling out my generation
I have no idea what you are talking about. Let me guess that you have confused a few key issues, and are not will to figure out what is what.
Let me point out that government entities have multiple revenue streams. General funds are fueled by income taxes, property taxes, sales taxes, death taxes, landing taxes, and hundreds of other taxes—too numerous to enumerate here. Additionally, the General (or Operating) Funds see revenue coming in from use fee, user fines, property leasing and earned interest from investments. (You could see this by reading the PA Operating Budget, Capital Budget and CAFR.) Additionally, revenue can be booked for targeted projects by selling bonds. Sadly, some government entities are now selling bonds to pay retirement obligations.
Up until a reasonably short time ago, most small local government budgets were pretty small, and capital projects were funded by bonds. Unfortunately, as easy money has swelled the economy, many governments have become employment engines—offering a large number of reasonably unskilled people jobs that are secure, and don’t require much in terms of productivity. Money from General Funds was used to pay ever-increasing salaries, and benefits. The infrastructure work that might have been paid for from General Funds was therefore not available—requiring bonds, or a deferral of the project.
Prop.13 did impose a reasonable 2/3rds majority of the voters (but no quorum was required). Otherwise, Cities were free to pass as many bond authorizations as they could—just as before Prop.13 was passed. (The Mitchell Park boondoggle is an example of that so of promise/mismanagement that comes from poorly managed cities—which I suspect is quite a few).
As I said, I don’t know what you are talking about—and don’t want to put words in your mouth. Your generation can pass all the 30-year, 40-year and 50-year bond issues that you want—keeping in mind that you will be paying them off.
I don’t believe that “my generation” has sold out “your generation”. But I’m interested in a detailed explanation of your thoughts on the matter.
South of Midtown
on May 14, 2014 at 10:13 pm
on May 14, 2014 at 10:13 pm
Thank you, Robert. Well said.
Downtown North
on May 15, 2014 at 11:50 am
on May 15, 2014 at 11:50 am
I have no problem with Proposition 13 in it's current form, with one exception. And I am one of those who just purchased a home this year! I like the current system that provides predictability of my taxes. Without proposition 13, our property values would be subject to whims of the tax assessor! I don't mind that I pay more than my neighbors. Everyone knows the deal going in, and I believe the certainty provided by Proposition 13 is one of the few reasons that people still put up with the high income taxes, high sales taxes, and in general hostile business climate that California offers when compared to most other states.
Now, the one exception: most commercial property (and some multi-family residential and even a few single-family residential) is held in the name of a limited liability company. Developers often have a different LLC for each property. When it comes time to sell the property, instead they sell the LLC. Because there is no change in ownership of the property (the same LLC remains as the deeded owner), the property is not reassessed.
This is clearly a loophole that could not have been intended (or perhaps it was intended, as we live in the USA, a place where you can have the best laws that money can buy), and I am certain that there is some cure for it, though I don't have a specific proposal. I think we should just fix this one thing and keep the rest of Prop 13 intact.
Barron Park
on May 15, 2014 at 12:17 pm
on May 15, 2014 at 12:17 pm
Isn't this about re-assessing non-residential properties, not residential. Possibly a clause to not-reassess small business' property values less than $5 million per property to cover properties that are located in business sections of towns, so rents aren't jacked up on rentals for retail.
We've lived in our home since 1972 and would have to leave area, or further go into our reverse mortgage to pay for increased taxes.
Another Palo Alto neighborhood
on May 15, 2014 at 12:21 pm
on May 15, 2014 at 12:21 pm
Be careful what you wish for. It is true I probably don't understand Prop 13, but I do know that my Property Tax bill goes up every year and I have little or no control on what I pay, including bonds, parcel taxes and items such as seismic upgrades for a hospital in south Santa Clara county.
Margaret Thatcher's attempt to revamp the system in Britain to a new poll tax based on the number of people living in a home brought down her leadership. The repercussions are still ringing on that one even though the present system is also unpopular.
The point is that the money has to be raised through a tax of some description and the quest for doing it in a fair and equitable system will always be contentious. Your pov will depend on what side of the fence you are standing and the bottom line on your tax bill compared to that of those you choose to compare yourself with.
Stanford
on May 15, 2014 at 1:35 pm
on May 15, 2014 at 1:35 pm
How about taxing all the Churches and places of "worship" that already get Tax Exemption and Faith-Based funding without regulation... supposedly to do charity. What do they do? How many homeless people do they say they feed? Count how many tax-exempt church property and personel we have on the peninsula??
I think the Religious business should be scrutinized!!
College Terrace
on May 15, 2014 at 2:14 pm
on May 15, 2014 at 2:14 pm
Shirley, you have got it right. It's closing the big business loopholes in prop 13. Unfortunately, many commenters are doing an 'red herring' argument to say that palo alto want's everyone's taxes to go sky high. Sigh.
another community
on May 15, 2014 at 2:33 pm
on May 15, 2014 at 2:33 pm
Wayne, you said it yourself; the root of all this is the escalation of housing prices which translated to an escalation in property taxes. Prop 13 was passed in 1978 and stopped the escalation on the tax side, but what has been done since 1978 to slow the escalation of housing prices? What has been done to make the affordability situation worse? Things have been getting progressively worse since about that time, I don't think the blame can be put solely on overseas money.
Charleston Gardens
on May 15, 2014 at 4:17 pm
on May 15, 2014 at 4:17 pm
"before Proposition 13, 40 percent of local property tax revenues came from non-residential properties. Today, that figure stands at 28 percent, with residents and apartment owners paying the balance."
because
" Because there is no change in ownership of the property (the same LLC remains as the deeded owner), the property is not reassessed.:
Statewide, pre-prop 13, the tax burden was 60% commercial / 40% residential; after prop 13 came along, it's now 40%commercial / 60% residential. And the burden is falling for commercial property owners.
Prop 13 was written by, and for, commercial interests. They just threw in the residential benefits (limited compared to the commercial benefits) as a giveaway to get it passed.
Now businesses are complaining because the infrastructure they depend on is crumbling.
Can't imagine why. 60/40 to 40/60.
They win. You and your kids lose.
Barron Park
on May 15, 2014 at 5:38 pm
on May 15, 2014 at 5:38 pm
The proposed proposition 13 fixes are for commercial property only.
(1) Why? Because Prop. 13, passed to protect homeowners, shifted the tax burden to homeowners. Homeowners pay 60% - 85% of the property taxes, statewide, county by county.
Because of Prop.13, homeowners now subsidize commercial interests. IBM in San Jose pays $200/acre a year in property taxes, on 200 acres. Facebook in Palo Alto pays $1,324/acre a year. Compare that to a PA homeowner property tax bill. (See "High-Tech, Low Tax" March 2012 report, CA Tax Reform Assn).
(2) Why? Because Prop.13 is anti - new business. New businesses have a tough time competing against older businesses paying Pre-Prop. 13 values. 2 dry cleaners in Menlo Park, on the same block: one pays $900 a year, the other $23,000 a year in property taxes, yet they have to charge the same to dry clean a shirt.
Most states re-assess commercial property every 1 - 5 years.
Midtown
on May 15, 2014 at 8:19 pm
on May 15, 2014 at 8:19 pm
What I find missing in the city council's logic, is that if commercial properties pay more than how are residential properties going to pay LESS?
Unless residential properties are going to pay LESS, then all this is an effort by politicians and city management to get MORE money to spend on their pet projects and special interest groups. In effect, they are pitting one group against another, in a divisive way to get more money, and tricking the electorate by all this talk of "fairness".
So Sad.
East Palo Alto
on May 15, 2014 at 10:23 pm
on May 15, 2014 at 10:23 pm
Prop 13 is an unfair law that disproportionately benefits some segments of society, and forces new home buyers to shoulder more of the burden in taxation. Revoking Prop 13 would be the right thing to do, but given the politics, probably will never happen. It is a bad law - rich people who bought houses 20 years ago should pay the same taxes as someone new to the neighborhood. It is a matter of fairness, and it is very much against American core values.
Palo Verde
on May 15, 2014 at 10:56 pm
on May 15, 2014 at 10:56 pm
Mark, if someone new to the neighborhood is willing to pay a million dollars in taxes, then does everybody have to pay a million? Nobody is forcing new home buyers to buy. And nobody should be forcing old home buyers to sell.
another community
on Jun 22, 2014 at 3:10 am
on Jun 22, 2014 at 3:10 am
Here's an excellent piece on how commercial property ownership is regularly obfuscated in order to avoid triggering a reassessment:
Web Link
Palo Verde
on Jun 22, 2014 at 3:28 am
on Jun 22, 2014 at 3:28 am
That link was 4000 words difficult to follow. Don't know what audience the author intended.
Embarcadero Oaks/Leland
on Jun 22, 2014 at 4:27 am
on Jun 22, 2014 at 4:27 am
The article primarily describes the problem that inept government employees don't bother to look at various structures of change of ownership activities, or create processes for systematically triggering reassessment as a result of these ownership changes.
It does describe a loophole in prop 13 whereby a purchase by a group, none of which buy more than 50% of the property, does not trigger a reinvestment.
It indicates that there is a way to trigger a reassessment without losing practical ownership, thereby allowing permanent property tax reduction as a result of temporary lower property values.
Basically, it argues that the implementation of prop 13 has weaknesses.
The piece is in between an editorial and an article, and it's web display at the beginning is bad.
Embarcadero Oaks/Leland
on Jun 22, 2014 at 4:39 am
on Jun 22, 2014 at 4:39 am
"rich people who bought houses 20 years ago should pay the same taxes as someone new to the neighborhood" is a common objection to prop 13.
But should poor people who bought 20 years ago be forced to leave because rich people are willing to pay so much for neighborhood properties?
You know someone buying now is rich. But not that someone buying then was then or is now rich.
Old Palo Alto
on Jun 22, 2014 at 9:12 am
on Jun 22, 2014 at 9:12 am
[Post removed.]