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Bloomberg.com Attack on Prop 13 is Not "News"

Oct 20, 2011

By Joel Fox

Editor of Fox & Hounds and President of the Small Business Action Committee

Fox & Hounds Daily

In a one-sided report offered as a “news” article on Bloomberg.com, writer Christopher Palmeri blames California’s budget ills on Proposition 13, the 1978 property tax reform.

The agenda of the article is clear: if only government could raise taxes California would not have its problems. Palmeri quotes Robert Stout, the former finance director from the bankrupted city of Vallejo, “I’ve worked for cities in Florida, New York, and Connecticut. We were always able to raise taxes.”

That was the problem that brought about Proposition 13 in the first place. Governments raised taxes with abandon, crushing the taxpayer. Those states are not the best examples in a property tax limitation debate. I recall property tax revolts in New York and Florida over the last few years. The governor of New York recently supported a property tax cap.

We see plenty of blame for California’s woes heaped on Prop 13’s shoulders in the Bloomberg piece, but strangely, no credit given to Prop 13 for overflowing budgets during the boom times in the beginning and middle of the last decade, years after Prop 13 became law.

The article gives little voice to the defenders of Proposition 13 but plenty of space to its critics. As a result, we don’t see a word about the dramatic increases in government spending over the last number of decades, which set the stage for demands for more taxes.

No mention in the article about pensions systems that are eating away at local government funding.

Los Angeles City retirement costs, which take up more than 10% of the budget, are projected to take one-third of the budget by 2015. A grand jury in San Diego said pensions could require half the general fund by 2025. A San Francisco Grand Jury a year ago reported that pension and health care costs would increase from $413 million in the fiscal year to nearly $1 billion in just five years and “threaten to move resources from other needs of the City.”

Inevitably, Palmeri gets around to looking at business property taxes and quoting advocates of change to raise taxes on commercial property. Ironically, he cites a case that says the owner of Dell Computers tried to fashion a deal to avoid a change in ownership of a property and escape increased property taxes. Then he tells us this scheme was overturned and that the new taxes are being paid.

It seems the system works.

No one advocates playing games to avoid taxes. However, the solution promoted by those who want a split roll property tax, in which commercial property is taxed differently than residential property, to make sure no transaction falls through the cracks is to raise all business property taxes.

The consequences of such an action on jobs and the economy are completely ignored.

Naturally, the pro-tax increase supporters grabbed the Palmeri piece and ran it up the flagpole. Sara Flocks, of the California Labor Federation, wrote a piece in the California Progress Report based on the Bloomberg.com article in support of a split roll.

The usual arguments are there—that there has been a property tax shift from homeowners to residents and that local governments have been starved for money.

Commercial property valuation is closer to full market value than residential property is today. Homeowners, served by Prop 13’s protections, don’t seem to be complaining about the system. Under Prop 13, property taxes are the most reliable tax for government. Even in economic down times the property tax did not take the hits that sales and income taxes did.

Before the Great Recession, for decades property taxes as a whole were increasing about 7-percent each year in Los Angeles County. Similar increases occurred in most counties. Governments, organizations and individuals could do quite nicely with a 7-percent yearly increase.

Flock concludes: “A good first step is to reform the commercial property side of Prop 13.”

That tells you all you have to know about the property tax reform agenda: first stick it to businesses, next “reform” Prop 13 for homeowners. The goal is made clear – raise taxes. Take away taxpayer certainty and give it back to government so government can raise taxes whenever it wants to pay for the spending it wants. That is the bottom line issue of this debate that you will not find in the Bloomberg article.

Find the article here.

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