Palo Alto officials may soon join their counterparts in Berkeley, Oakland and Burlingame tonight in taking a formal stance against Proposition 13, the 1978 measure that capped property taxes at 1 percent of assessed value.
The City Council is scheduled to consider Monday a resolution supporting reforms to Proposition 13, which they say unfairly shifts the tax burden from commercial properties to residential ones and forces California to rely on "more volatile revenue sources." The resolution pins much of the blame for California's "chronic budged crises" on the proposition and characterizes it as exacerbating economic downturns. Largely because of Proposition 13, the resolution states, the state had to collect revenue through avenues "like income taxes and sales taxes paid by working families that move in tandem with economic cycles, causing deficits and requiring cuts to vital services that grow our economy and thereby worsening economic downturns."
Though the resolution makes an abstract case for reform, it stops short of any particular proposal to change Proposition 13. In fact, the resolution specifically states that it "shall not constitute formal support of any particular ballot measure on this or a related subject until such ballot measure is separately reviewed and endorsed by the City Council."
Both the resolution and the accompanying report from City Manager James Keene focus the argument on reform toward shifting more of the tax burden to corporations and commercial landholders. Keene's report notes that before Proposition 13, 40 percent of local tax revenue came from non-residential commercial property. Today, the number stands at 28 percent, with home and apartment owners paying the remaining 72 percent, according to Keene.
An analysis by the California Board of Equalization found that regularly reassessing non-residential property would generate at least $6 billion in additional revenue for California. Under Proposition 13, assessed value is typically equal to purchase price, which is adjusted upward by 2 percent per year. A property is only reassessed when a property changes hands.
The Palo Alto City Council has often spoke out against Proposition 13, with councilmen Larry Klein and Greg Schmid often blaming it for a large portion of California's budget woes.
The question of whether commercial properties are paying their fair share for services has also recently emerged as a topic of debate. At last week's discussion of new development fees, the council's Finance Committee tentatively endorsed a formula that would require new non-residential developments to pay 40 percent of the desired revenue for public safety and government facilities, with new residential developments paying the remaining 60 percent.
Councilwoman Karen Holman, who dissented, argued that commercial properties should shoulder a greater share of the fees and suggested a 50-50 split between residential and non-residential developments.