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Recall prompts review of Prop. 13

4 min read

LOS ANGELES (AP) – Like sunny weather and clogged freeways, tax-cutting Proposition 13 has become a fact of life in California – and as sacrosanct as the automobile and the patio grill. For the past 25 years, the tax rollback has been politically untouchable. A generation of politicians felt compelled to declare they would not mess with it.

But now, in this strangest of political seasons in the Golden State, there is talk of changing Prop. 13, and it has generated both wrath and praise.

Billionaire investor Warren Buffett, recruited to advise Republican Arnold Schwarzenegger’s campaign to unseat Gov. Gray Davis in the recall election in October, stirred a fierce backlash when he told The Wall Street Journal that Prop. 13 might need to be revised.

Why, he asked, should he pay some $12,000 more in property taxes on his Omaha, Neb., home than he does on his $4 million home in Laguna Beach?

Schwarzenegger quickly backed away from Buffett’s remarks, joking that he would make the investment guru perform 500 sit-ups if he mentioned Prop. 13 again.

“It’s not simply a proposition. It’s embedded in the culture of the state,” said Sherry Bebitch Jeffe, a political analyst at the University of Southern California.

The 1978 initiative was prompted by an inflationary cycle that sent home prices and property taxes soaring. Approved by 4.2 million voters, it rolled back tax rates to 1975 levels, capped them at 1 percent of a property’s value and guaranteed that assessed values would rise no more than 2 percent a year. It was copied, at least in part, by 22 states.

Even today, most political observers agree that the provisions relating to homeowners are untouchable. But now, with the state struggling to dig out from a deficit hole that was once $38 billion deep, support is growing in some quarters for reforming Prop. 13’s commercial property provisions.

In June, a poll by the California Public Policy Institute found that 57 percent of those surveyed were in favor of lifting limits on commercial property taxes.

Lt. Gov. Cruz Bustamante, the only major Democrat on the ballot to succeed Davis if voters oust him, has offered a state budget plan that recommends voters amend Prop. 13 to make owners of commercial real estate pay a bigger share of property taxes. He said such a change could generate up to $2.9 billion a year.

Because of what critics say are loopholes that allow businesses to escape higher taxation, homeowners are now shouldering a larger share of the property tax burden than they did in 1978.

“The voters didn’t intend for homeowners under Proposition 13 to pay an increasing share of the property tax bill while the owners of skyscrapers pay less,” Bustamante said recently.

Independent candidate Arianna Huffington has also proposed revising Prop. 13 to increase taxes on corporations and wealthy homeowners, while retaining protections for middle-class and senior citizen homeowners.

Under Prop. 13, the taxes on a piece of property are based primarily on the property’s most recent sale price. In making no distinction between homes and commercial property, Prop. 13 overlooked a key factor: Homes change hands more frequently than factories or office buildings, leading to faster tax increases for homes than for businesses.

In Anaheim, for example, the Walt Disney Co. pays on average of 5 cents a square foot for some of the Disneyland property it has owned since the 1950s. By contrast, a person who just bought a home at the median Orange County price of $428,000 pays $1.71 a square foot in property taxes.

A proposed constitutional amendment before the Legislature, supported by Bustamante, would require commercial property to be reassessed annually instead of waiting until a property is sold.

Critics also say the law is so riddled with loopholes that businesses can mask changes in ownership and avoid higher taxes. A measure proposed in the Legislature would crack down on those practices.

Business owners are torn over reforms. While Prop. 13 perpetuates inequities, it also guarantees a predictable property tax bill year after year.

“Businesses understand that with Proposition 13, they have the protection of property taxes not going up astronomically,” said Fred Main, senior vice president of the California Chamber of Commerce.

Others say reforms are necessary to create incentives for businesses to invest and create new jobs.

“It’s a massive disadvantage,” said Doug Huberman of RVM Associates, a landowner in Pasadena. “It really does create a wedge between the haves and the have-nots – an advantage for those who have (property) longer than those who have had for shorter periods of time.”

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