California Forum

Viewpoints: Prop. 13 loophole must be closed

It must be a cold day in hell. The cow jumped over the moon. And pigs are flying somewhere. No, the Legislature hasn’t resorted to catchy slogans to address problems facing our state. This is what one Republican lawmaker said after Assemblyman Tom Ammiano and I announced a bipartisan deal supported by business, labor and progressive groups to close an egregious loophole in Proposition 13 earlier this year.

Proposition 13 has been one of the most controversial issues in California since it was passed by voters in 1978. Progressives and conservatives have sniped at each other for decades over whether commercial property has been taxed too little, just enough or too much.

We were able to achieve a cease-fire by bringing together stakeholders to support a proposal that would close a particularly troubling loophole in Proposition 13. This loophole allows property owners to keep their current tax rate as long as no individual buyer buys more than 50 percent of the parcel of land. This means that the sale of some properties could be structured so that they did not trigger the reassessment intended by Proposition 13.

Homeowners and the average business can’t do that. If you buy a home, it gets reassessed and the taxes adjust based on its worth. If you buy a local pizza parlor, it’s the same thing. But when Michael Dell structured a multimillion-dollar deal in 2006 to buy the Fairmont Miramar hotel in Santa Monica, he was able to avoid a reassessment. That just isn’t fair.

Working together, Ammiano and I found a way to close that loophole – satisfying progressives – while not hurting property owners who are protected by Proposition 13. That is why a diverse group of organizations supported the proposal at its introduction, including the California Chamber of Commerce, the California Business Properties Association and the liberal California Tax Reform Association.

How did we do that? We took a longstanding proposal by Ammiano and modified it. The new bill says that as long as 90 percent ownership of a property changes hands, it’s considered a change in ownership and should be reassessed. It seems like common sense, but it would be the first reform of any kind made to Proposition 13 since it was passed 36 years ago.

Initial estimates showed that this proposal could generate up to an additional $100 million a year for state and local governments to use on education, public safety officers and street repairs. This will benefit all Californians.

The tax structure would be more equitable, easing the disproportionate burden on private homeowners. It’s something that even Howard Jarvis would back, because it preserves the original intent of Proposition 13: protecting property owners but reassessing at the time of sale.

Our proposal went further than any reform effort had since Proposition 13’s inception. Unfortunately, our proposal reached an all-too-frequent conclusion in Sacramento – special-interest groups that had long supported reforming Proposition 13 removed their support at the last minute for unrelated political reasons, and the bill died in the state Senate.

Ammiano has worked for his entire time in the Assembly on bringing about a fair reform that can benefit all of California. Unfortunately, he is termed out at the end of this year.

His work will not be in vain. This effort will continue in the next legislative session as we seek to bring about a fairer and more transparent tax code for Californians. I’m confident that we can once again bring together disparate interests to agree on reforming Proposition 13. Maybe then it will be time for pigs to fly in California.