This Land Is Your Land and Your Land and Your Land: The Problem with Prop. 13 Allowing Businesses to Stop Time

The funniest scene in the movie Airplane! is the one no one stays to see.

Following the credits, the movie abruptly cuts to the hapless taxi passenger marooned by a runaway driver in the film's opening moments. The meter, still running, has reached stratospheric levels. The man glances at his wristwatch and barks, "Well, I'll give him another 20 minutes — but that's it!"

That man, in reality, was Howard Jarvis — the Republican lobbyist and politico who spearheaded California Proposition 13 and sparked a nationwide tax revolt. Prop. 13 has been the law of the land since 1978, and our state's meter is still running — in reverse. Funds for public service and education have been slashed; recent buyers are subsidizing the property taxes of neighbors paying at Carter administration levels; and, perhaps most disturbingly, residential property owners have shouldered a steadily growing portion of the tax burden as businesses exploit the law's gaping loopholes with rapacious ingenuity.

Under Prop. 13, property taxes are essentially frozen in place until real estate is transferred from one owner to another, which leads to a reassessment. Determining ownership — and when it changes — is vital. But determining just who the hell owns commercial properties tied up in limited liability corporations or trusts can be maddening.

And that's just how those corporate property-owners want it.

Enter Tom Ammiano. For six years, the San Francisco assemblyman has been engaged in the Sisyphean task of attempting to close one of Prop. 13's most exploitable corporate loopholes. But, last week, an Ammiano Prop. 13 bill passed out of committee, with bipartisan support — and the blessing of the state's Chamber of Commerce. It could be heard by the full Assembly this week. This is the legislative equivalent of a Washington Generals player taking off from the foul line and executing a thunderous dunk over the Harlem Globetrotters. People notice stuff like that. It creates a momentary buzz.

But the outcome of the game is not in question.

Lenny Goldberg is the fellow who conceived of Ammiano's bill and brought it to him six years ago. His hatred of Prop. 13 is palpable; it seeps through the telephone wires. At any moment, it seems likely the California Tax Reform Association director will get up, go to a nearby window, and bellow, "I'm as mad as hell and I'm not going to take this anymore!"

But that doesn't happen. That's not the way to have a discussion. And, if nothing else, AB 2372 is a discussion-starter. After six Sisyphean years, that is something.

Here's what all the shouting — or, rather, discussing — is about: Under current state law it is, counterintuitively, possible to sell off 100 percent of a property and not induce a reassessment. Among well-heeled entities retaining sharpie lawyers required to justify $800 hourly rates, this has not gone unnoticed. So, while a reassessment — and vastly higher tax bills — will be undertaken if any single person or entity ends up controlling 50 percent of a property or the company that owns it, selling to a consortium of buyers doesn't establish a "change in control."

That's how, in 2002, E&J Gallo managed to avoid a reassessment when purchasing 1,765 acres of Napa and Sonoma vineyards from Louis M. Martini: A dozen Gallos each purchased a minority interest in the sprawling property. Closer to home, that's how The Perini Corporation slowly sold off every last share in the massive Golden Gateway Center along Embarcadero without triggering a reassessment.

If Ammiano has his way, the definition of a "change of ownership" will itself be changed: If 90 percent or more of a property is sold or transferred over a three-year period, regardless of how much any one entity controls, that'll do it.

"Some people say this happens rarely," says Goldberg of these sorts of transactions. But he paws through the deeds in Los Angeles and Bay Area counties: "It happens all the time." His organization's literature comes equipped with illustrations diagramming the complex corporate entities formed to evade Prop. 13; these resemble nothing so much as the charts explaining the interlocking alliances that triggered World War I.

There is, Goldberg acknowledges, just one problem with this legislation.

It won't work.

Several years ago, San Jose attorney Bernie Vogel III penned the intriguingly titled article "How to Permanently Reduce Your Property Taxes." That sounds like the sort of text befitting an Internet pop-up ad, but Vogel is the real deal. Rejiggering a company's corporate structure and inducing a property reassessment can go both ways; Vogel managed to cut a Santa Clara property's assessed value from $80 million to $38 million by triggering its reassessment during down times. While the market has rebounded, that client's property taxes remain low.

When the gist of Ammiano's proposal was explained to him, Vogel zeroed in on its weak point in a matter of seconds. If the operative percentage of a property needing to be sold or transferred to mandate a change of ownership is 90 percent — why not sell or transfer 89 percent? If the operative time period is three years — why not drag out a deal to three years and one day?

"That's the thing about these bills," he says. "With proper planning and patience, you can work around them."

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1 comments
mblaircheney
mblaircheney topcommenter

A 'Fair & Balanced' assessment of the long term effects of Proposition 13, and the scams that have followed it.

Rich property owners were the true beneficiaries of Prop. 13, as they were it's proponents and largest politically funding donors. The right hand definitely knew what the left hand was doing… taking money out of average homeowner taxpayer pockets and putting it into their own… while claiming they were righting a wrong… not...




 
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