The massive size of the state's and most local governments' current budget deficits has forced politicians to consider something that would have been unthinkable a few short years ago: modification of Proposition 13.
Approved overwhelmingly by California voters in 1978, Proposition 13 limits property taxes to 1 percent of a property's assessed value. And once someone owns a piece of property, the valuation for purposes of tax assessment cannot increase by more than 2 percent per year.
So even though property values in California skyrocketed in recent years, because of Proposition 13 property taxes remained relatively low. Taxes are allowed to rise to match a property's actual market value only when the property is sold or substantially remodeled.
Under Proposition 13, owners of two identical properties sitting side by side, one sold recently and one held by the same owner for many years, pay substantially different property taxes.
The disparate tax assessments are particularly troubling in the business arena. Consider this hypothetical but common scenario:
The owner of Karen's Coffee Shop, who's been in business since Proposition 13 passed, pays property taxes based on the shop's 1978 assessed valuation. Meanwhile, the owner of Mary's Coffee Shop, which opened across the street just last year, pays substantially higher property taxes based on 2008 values. That kind of property tax system puts Mary's Coffee Shop at a severe competitive disadvantage. That's unfair.
Faced with the need to make draconian cuts because of the current budget crisis, elected leaders are eyeing a so-called split-roll property tax system seriously as a way both to increase revenues and to make the property tax system, at least as it relates to commercial property, more fair.
San Francisco County Assessor Phillip Ting filed papers with the Secretary of State's Office last week to create the Close the Proposition 13 Loophole committee.
Eventually, Ting told The Bee's Jim Sanders, he wants to put a measure on the ballot to create a split roll, which would increase tax rates on commercial property.
Under the various split-roll schemes that Ting envisions, homeowners would retain their Proposition 13 tax rates, but commercial properties would be taxed at a higher rate, or their property values would be allowed to rise more than the 2 percent per year permitted now, or they would be reassessed more often.
Business interests who are critical of a split roll say it would lead to more businesses leaving California and more job losses. Those claims need to be carefully evaluated.
Of course, any modification of Proposition 13 will take time. A split roll cannot solve the state's or local governments' immediate fiscal crises. A measure must go on the ballot and be approved by the voters. That could take months, even years.
The state could be out of the cash it needs to pay all its bills by the end of June. Gov. Arnold Schwarzenegger and legislators are scrambling to solve the short-term problem.
Still, somebody needs to begin looking for long-term solutions. A split roll is something that needs to be considered. It may make sense, both in terms of increasing revenues and simple fairness.
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