Another year, another state budget impasse. This time, the difference between Democratic and Republican spending plans is down to a “mere” $1.5 billion or so, much less than the $8 billion that divided the two sides a year ago.
But with the nominal June 30 deadline for passage here, neither Governor Arnold Schwarzenegger nor the Legislature appears ready to acknowledge the obvious solution staring them in the face: a revision of 1979 definitions that determine what constitutes a change of property ownership in this state.
The definitions are crucial because changes of ownership automatically trigger large property tax increases. But no one dares touch them.
Democrats made it clear this spring they want to raise taxes on the richest Californians to solve the budget gap, but they hesitate, fearing the wrath of the voters. Schwarzenegger would rather perform manipulations like transferring responsibility for funding teacher pensions from the state to school districts – all the while saying he’s giving the schools more money than ever.
Then there are the tinkering ideas. In January, Republican Schwarzenegger indicated he would tap the state’s highway fund for about $1.3 billion and use it elsewhere. Fatter-than-anticipated state receipts let him stage show business-style events celebrating the fact he won’t try to take it after all.
Meanwhile, Democratic Assembly Speaker Fabian Nuñez, aware of the huge new bite gasoline prices are taking out of middle-class hides, tentatively proposed an 11-cent cut in the gas tax, the levy that provides most money in the highway fund. He would take up for that with a higher sales tax. This he calls “broadening our tax base for transportation while giving much-needed tax relief when it comes to purchasing fuel.”
But he hasn’t said much about this since Schwarzenegger started his campaign for the November special election by lambasting Democrats for their attempts to raise taxes.
None of this would be needed, though, if Schwarzenegger, Nuñez and their allies had the courage to cut through the chaff and act on the obvious solution.
What’s plainly needed is closure of the largest tax loophole this or any other state has likely ever seen: the rule that lets property taxes remain stable on thousands of business and commercial properties which change hands every year.
This could be done without ever changing anything that’s actually in Proposition 13, the landmark 1978 initiative that bases taxes for all real estate on 1 percent of either the latest purchase price or its 1975 assessed value. Proposition 13’s authors, the late Howard Jarvis and Paul Gann, plainly meant for that principle to apply to all land and buildings, residential or commercial.
But legislators in 1979 passed a separate law setting legal definitions for changes of property ownership. Since then, when business or commercial property changes hands and the new buyer is a partnership where no one individual holds more than 50 percent control, the tax has been stable.
Meanwhile, property prices around the state have climbed by a factor of 10 or more.
Most critics of Proposition 13 complain that the measure often puts neighbors in identical houses in starkly different financial circumstances, with one neighbor often paying between five and 10 times more tax than the others. That may be unjust, but at least new owners know what’s coming when they plunk their money down.
Meanwhile, the far greater injustice occurs when apartment houses, office buildings, retail malls and other properties change ownership without seeing their taxes rise. This creates today’s constant pressure on state and local government to either cut services or raise other taxes.
Fixing the loophole could produce anywhere from $3 billion to $12 billion per year, depending on whose estimate you believe. It would most likely be enough to end the “structural” budget problems Schwarzenegger and many other politicians often gripe about.
But rather than fix an obvious inequity, Schwarzenegger charges on the stump that Proposition 13 is threatened, and that if it goes, many homeowners will be forced out. Yet, no one in decades has seriously proposed changing anything in Proposition 13, or touching any rule affecting even one single homeowner.
Schwarzenegger knows this, even as he claims his opponents threaten Proposition 13. Both he and Nuñez know an easy and fair solution to the structural budget problem is out there, too, something that would neither change Proposition 13 nor create the “split roll” dreaded so long by business, where non-residential property would be taxed more than homes.Hey, Arnold, do this and at long last you won’t just be blowing smoke, but can really blow up some of those boxes you love to talk about – this is the way to go down in history as a true reformer.