Palo Alto Weekly

News - March 19, 2010

Menlo mom wonders: Who wins with Prop 13?

Concerned about diminishing school funding, Jennifer Bestor examines effects of 1978 property tax measure

by Renee Batti

It's been called California's "third rail" as in, untouchable. When billionaire Warren Buffet was serving as candidate Arnold Schwarzenegger's economic adviser during the 2003 gubernatorial race, he touched it.

Proposition 13, Buffett said, was damaging the financial health of the state, and needed to be repealed or changed.

Zap. Under immediate fire over his adviser's comment, the soon-to-be-elected governor recovered by telling the world that he had admonished Buffett never to mention Proposition 13 again, or he would be forced to do 500 sit-ups.

Buffett appears to have reined himself in since that time, but questions about Proposition 13's fairness and financial consequences haven't gone away.

Menlo Park resident Jennifer Bestor had long heard many arguments for and against Proposition 13, which was passed in 1978 to control rapidly rising property taxes in the state. About three years ago, when she was the incoming treasurer of the parents' group at her son's school, Oak Knoll in Menlo Park, questions about the property-tax law's consequences, particularly on the state's schools, became more pressing.

As the budget news from Sacramento became increasingly dire, Bestor recalled an opinion piece she had read in the Palo Alto Weekly several years before: The writer "pointed to the increasing share of property tax paid by single-family homes in Santa Clara County and the decreasing portion paid by commercial landlords," Bestor recalls.

She asked herself: Does the same trend exist in San Mateo County? And if so, are commercial-property owners paying their fair share toward public services schools, parks, police and fire services, and public works?

Then one day, during a meeting at which Superintendent Ken Ranella of the Menlo Park City School District painted a bleak picture of the district's finances and likely program cuts, Bestor crossed a line.

"It was like a big dog picked me up by the scruff of the neck and shook me," she said.

"I told myself, I can't just wonder about this I have to figure it out."

Countless hours later hours spent in the county assessor's office, in county and city archives, and poring over assessment rolls she had purchased Bestor has come to the firm conclusion that, while Proposition 13 has generally worked for homeowners as voters had intended, "For commercial landlords, it's been an incredible windfall."

Commercial-property tax, she said, "has evolved in a way that not even the direst opponents of Prop. 13 envisioned."

Bestor, a talented writer as well as a dogged researcher, took a whimsical approach to spreading the word about her findings: She composed an open letter to Warren Buffett, which she sent last week, in which she offers: "Please let me know how I can help you with the sit-ups. We desperately need to get some energy from that third rail."

Bestor, who has an MBA from Stanford University and is a former high-tech executive, collected countywide tax statistics, but her most focused research was on properties in the Menlo Park City School District. She did a parcel-by-parcel examination of commercial properties on Santa Cruz Avenue and residential parcels in her own Allied Arts neighborhood.

Before she started her project, she said, "I wrote down all of my bad assumptions." The most erroneous among them: Commercial-property owners pay more of the property-tax burden than residents.

What she concluded after gathering data and crunching numbers from the assessor's office was startling: Although the countywide property-tax burden was almost equally shared between homeowners and commercial property owners in 1978, "By 2008, homeowners were paying two-thirds and commercial property owners one-third (of property taxes), despite the fact that the major development in the county over those 30 years was commercial property east of (Highway) 101."

The growing tax-burden imbalance reflects the fact that houses change hands far more frequently than commercial properties. Under Proposition 13, the tax rate is capped at 1 percent of a property's assessed value, and that value can be increased by no more than 2 percent annually. That formula is kept in place until the property is sold, at which time it is reassessed to determine its value at the current market rate.

In 1986, voters passed Proposition 58, which allows property to be passed from parent to child with no reassessment of the property.

Bestor's research of Menlo Park properties particularly of parcels on one commercial strip and one residential street sheds light on how the provisions of propositions 13 and 58 created the lopsided tax-burden equation.

Looking at Menlo Park's main downtown street, she found that of the 56 commercial parcels on Santa Cruz Avenue, 23 are at the 1978 assessment (plus 2 percent per year) level. Of those 23 parcels, only four are owned by the same people who owned them in 1978. Eleven have passed to a son or daughter, and in a number of cases are held in family trusts.

By contrast, of the 53 residential parcels in Bestor's neighborhood, 13 are owned by the same people who held them in 1978, and two are held by children of the 1978 owners, so are taxed at the 1978 level. The assessments of two other parcels were affected by other factors.

The other 36 parcels (including Bestor's) have been reassessed after changing hands, she said.

"My street is paying its way," Bestor said. For homeowners, she added, "I think that Prop. 13 did what people hoped it would do. It allowed people to stay in their homes and families to plan their financial futures."

On the other hand, commercial-property owners who are assessed at 1978 levels are not paying their way, she said. "Does it really make sense to subsidize family trusts, major real-estate corporations and developers, who make smaller and smaller contributions (proportionally) to public services each year?"

In her letter to Warren Buffet, Bestor cited a downtown Menlo Park example to underscore the inequity: "The Trader Joe's property the 'new' market in town contributes just $7,471 of general tax towards our local services (for two-thirds of an acre of prime commercial property) compared with Draeger's up the street at $66,585. It isn't Trader Joe's, of course, that's paying the tax if they'd bought the property when they moved in, that parcel would be contributing 500 percent-plus more.

"Trader Joe's leases it from a family trust, descendants of the 1978 owner ... with an address on a leafy street in Cape Cod. Since landlords charge what the market will bear, it's fair to guess that the property-tax savings are accruing to those folks in Massachusetts while the costs are borne by school kids and residents of Menlo Park."

The consequences of the "windfall" to many commercial property owners go beyond the diminishing revenue to schools and other public services, she said. Business people who operate out of property they purchased in the last decade or so are at a disadvantage in the marketplace because their tax burdens are much higher than competitors paying a 1978-level property tax.

Another citation in Bestor's letter: "The nondescript little gas station on El Camino near my house pays $30,148 a year in property tax for the privilege of selling me less expensive gasoline than the two Shell stations ($14,214; $17,214), the Union 76 ($15,920), and the Chevron ($20,388) down the street."

Meanwhile, all property owners, no matter what their tax burden is, benefit equally from the public services paid for through taxes, Bestor said. If a building catches fire, or a business is being robbed, publicly funded emergency workers will rush to the scene as quickly for a property owner paying $7,000 a year as they will for one paying $66,000.

Also, she noted, business owners benefit from an educated workforce, making quality schools important for a strong business community.

So what is to be done? Bestor suggests capping Proposition 13 benefits for commercial property owners at 20 years. "Every 20 years, non-residential property is reassessed at market value, then gets to enjoy another 20 years of tax relief," she wrote.

She also suggests a system whereby properties can be reassessed gradually so as not to overburden assessors' offices and a process for appealing reassessments.

Bestor also is attempting to launch local fundraising efforts that would focus on commercial property owners who benefit from lower tax levels. "I have the feeling these people are ready to be asked," she said.

"They need strong schools and a vibrant residential community just as much as anyone else does."

Recently, she met with a leader of the Menlo Park-Atherton Education Foundation and with a member of School-Force, the Belmont-Redwood Shores Education Foundation, to discuss such an effort. It's too early to know whether the idea will catch fire, but it's safe to predict that Bestor will do what she can to spark the flame.

Renee Batti is news editor of The Almanac, the Weekly's sister paper. She can be e-mailed at rbatti@almanacnews.com.

Comments

Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 17, 2010 at 4:26 pm

Good work, Jennifer.


Posted by Norm, a resident of Midtown
on Mar 17, 2010 at 4:37 pm

Norm is a registered user.

Well.........

We know the corporations whose legal staff had to grope about for citations as to why ownership of assest - except real estate - improved their stock price, but property tax bill, paid out some over time bucks that count in to factoring golden paracutes which crimped the bottom line with investors..............but enhanced the lament for bail assistance.

Or perhaps I am just a tad cynical...............................


Posted by Norm, a resident of Midtown
on Mar 17, 2010 at 4:47 pm

Norm is a registered user.

OOOPS-Forgot to say tax bills reflect ownship of the dirt, not how the dirt is occupied.


Posted by Nayeli, a resident of Midtown
on Mar 17, 2010 at 5:40 pm

Question: Does anyone know how property values EXPLODED in the years following Prop 13?

I have read commentary that blamed local jurisdictions in regard to property values in order to make up the difference lost from Prop 13. In other words, property was inappropriately inflated by appraisers in order to collect more money from home and land owners.

Is there any truth to this?

I live in Midtown, and I cannot believe the supposed "value" of this property! $1+ Million for a "middle class" home that would cost less than a fourth of that in urban areas in many other states? Yikes!


Posted by common sense, a resident of Midtown
on Mar 17, 2010 at 7:06 pm

Roughly 46% of property taxes in Menlo Park goes to the school district. So, how many kids live on these commericial properties that go to Menlo Schools? Zero. So why is it "unfair" - what is the logic?


Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 17, 2010 at 7:40 pm

The point of good schools is not just about educating the kids of those who happen to be parents, but it is about educating the next generation of responsible adults who will be leading the commerce, government and everything else that we value for the next 50 or so years. An educated community will profit the businesses situated in the community, provide clientele for the businesses in that community and provide future employees for those businesses.

In other words, we all benefit from the education of children in our community. From property values, rental values, intellectual neighbors, etc. on the plus side to lack of crime, unemployment and lack of upkeep of property, our schools really do matter to everyone - not just those with children.


Posted by Anon, a resident of Another Palo Alto neighborhood
on Mar 17, 2010 at 7:55 pm

Some time ago, a large corporation in financial difficulty (Macy's perhaps? This was maybe 10 years ago-- I forget) decided that Prop 13 was not in its interest- so, it challenged it. Some time later, the lawsuit was dropped. There was pressure on (Macy's??) to drop it, but, we'll probably never know the reason. At the time, it was widely speculated that Prop 13 would inevitably be found unconstitutional if appropriate legal resources were brought to bear. Hard to say since it didn't happen.

Bottom line? (Big) Money talks. And, that was BEFORE the recent Supreme Court decision; before "too big to fail". It has been a long, long time since small businesses and individuals had the same political clout as big business.


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 17, 2010 at 8:20 pm

I was just told that this story was posted here in Palo Alto. OMG. I am sorry that I will not really be able to track it here -- just responding to the Almanac website is exhausting. So, if you have specific Menlo Park questions you'd like answered ... please pop over!

But, while I'm here, ... Nayeli, after Prop 13 was passed in 1978, property parcels were rolled back to their 1975 basis, if purchased before 1975; to their sale price if purchased after 1975; and otherwise have changed basis only when sold (or, until 1986, when transfered to an heir). They were allowed to appreciate 2% a year, if the market went up 2%. Thus, my first house (bought in Barron Park in 1977), was assessed at $77Kx1.02x1.02 in 1979 and the assessment continued to increase 2% until I left in 1986, when it was worth about $235K.

The property market was, as you can see, quite hot then -- though, of course, $235K (or $77K) seems ridiculously cheap now (even for a 2BR1BA cottage). So I can imagine that, even if property was fairly appraised, it may have seemed draconian. But it would only have been reappraised if a transfer of ownership took place outside an arm's length transaction.

Common Sense, join us over on the Almanac site. You will see everyone who doesn't use something pointing out that they still have to pay for it. That said, we have yet to have a commercial landlord complaining about paying taxes toward schools. There seems to be some vague feeling that affluent families who shop at Trader Joe's, Village Stationers, Keplers bookstore, Draegers, La Cirque, Flegel's, etc. are drawn to Menlo for the schools. (And, yes, we realize they aren't quite as good as yours. It mortifies us.)


Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 17, 2010 at 8:30 pm

Here is a link to the Almanac thread

Web Link


Posted by casey, a resident of Midtown
on Mar 17, 2010 at 11:31 pm

casey is a registered user.

Prop. 13 will finally die when residential homeowners finally wake up and figure out they've been scammed. This property tax game only works so long as homeowners are willing to pay their disproportionate share. The way around this, of course, is to not own your house directly. Form an LLC or some other business entity to hold your house. And, when it's time to sell the house, you sell the entity instead of the underlying house. That way the property tax breaks continue to accrue to the new owner.


Posted by rational, a resident of Greenmeadow
on Mar 18, 2010 at 6:18 am

The more I age, the more I see how true it is that without knowing history, we are doomed to repeat it.

Those of you not awake and cognizant by the 60s, meaning to say, not ADULTS in the 60s and 70s, have no clue how Prop 13 came about, nor why.

I recommend you learn a bit before commenting. The world is a little older than you are.

Think about it folks..if you are 30, buying a house...and you know you know the "worst case" payments you are going to have to make for the rest of your life, you can choose to buy a more expensive house than you would choose if you weren't sure if your taxes were going to double every 10 years.

That is why housing prices exploded..there was security of knowledge for those who were buying.

Insert uncertainty for planning back into the market, and you will plummet property values again. Which will rise again as older folks "price out" and move out, and sell to the younger generation. But, think about it..you are 30..will you buy a house you fear you can't afford in 20 years? So, how much will housing prices really come back?

Do the math... would you rather collect 1.3% of a $1,000,000, or 2% of $500,000? Multiply the numbers out across all California real estate, and ask yourself which way causes the most money to come in.

I know we are not a nation of mathematicians, or even logic, any more ( witness the recent attestation by our President, to the applause and cheers of his entire audience of 200, that insurance rates would go down 3000% and get them all a raise in pay if we pass Obamacare..whatever that will end up being)..but simply even putting yourself into the position of making the wisest long term decision for yourself, and then assuming that most folks are as smart as you are...now add it up. What would be the net effect of repealing Prop 13?


We need to learn to extrapolate from our own rational self-interest behaviors, to the millions of us who also act out of rational self-interest, and draw logical conclusions.


Posted by It's a scam, a resident of Barron Park
on Mar 18, 2010 at 7:04 am

Yes, it's been clear for some time that Prop. 13 can be used to scam the community, and commercial prop owners are the primary scammers. In second are those who pay little tax because they received the property from their parents or grandparents.

But...

"My street is paying its way..." As a whole, sure. But there are some people more than paying their way (newer owners) and some living on the backs of their neighbors (owned for a longer period).


Posted by Elena, a resident of Midtown
on Mar 18, 2010 at 8:48 am

I wish we had more Jennifers! Such a well positioned study!!!! It is a touchy topic and she deals with it very diplomatically, arguing not for across-the-board abolition of Prop 13 benefits, but only as it relates to commerical properties and inheritance, i.e. passing these benefits down generations... If anyone puts it on the ballot I will vote for it!!!


Posted by Nayeli, a resident of Midtown
on Mar 18, 2010 at 11:16 am

Hi Jennifer Bestor,

Thanks for the info. Since I am not a long time resident of California, I am still learning my way around the State's complicated and extensive system of taxation.

According to the Census Bureau, California collects more taxes than any other state (more than three times the amount collected by Texas, the second largest state) and ranks amongst the highest in per capita tax collection. This is not counting other forms of taxation (such as tolls and CRVs) that the State collects.

However, I noticed that California ranks in the middle (amongst the other 50 states) in regard to per capita property taxes. I imagine that Prop 13 could be the reason for this. Still, it must be working for some reason or another. California collects more property taxes per capita than Hawaii, Oregon and Washington.

What would happen if Prop 13 was NOT passed?


Posted by Resident, a resident of Another Palo Alto neighborhood
on Mar 18, 2010 at 11:45 am

I am not against the idea of protecting the homes of the elderly while they are living in them, but it gets a little out of proportion when real life scenarios show the pitfalls.




I live in Palo Alto in an area where the homes are 50 years old. One neighbour, who is the original buyer of the home raised her 4 children in the 50s and 60s and lived in her home until about 5 years ago when she moved into a nursing home. Her 4bed/2 bath eichler was given a facelift and rented out to a young family, the eldest of which was in preschool at the time and has since started elementary school and they still have a toddler. This family have been told by the children of the original owner that the likelihood is that they will be able to stay as long as they want in the home as the rental income is paying for the nursing home at present and when the mother eventually passes on, the children have no plans to sell the home but will keep it on as a rental.




This house could well be housing Palo Alto families with schoolchildren for a long time and the property taxes will be minimal. The grown up children know they are on to a good thing and as long as PAUSD schools are as good as they are reputed to be.




There must be a huge number of rental properties where the same is happening. The renters are probably paying market rate rents, but the owners are the ones who are reaping the financial benefits - and they don't even live in Palo Alto.


Posted by Jack, a resident of Midtown
on Mar 18, 2010 at 12:09 pm

Prop 13 is not going away. It is one of the few tools that citizens have to oppose even more overtaxation.

Almost all properties pay more taxes, each year. There has been no actual cut in taxes, as some claim. It provides a stable and predictable projection into the future for property owners. Families are not forced to sell Mom and Dad's home, in order to pay a sudden hike in taxes. Howard Jarvis must still be smiling, because he did such a wise thing for us.

Schools have been busy digging a deeper hole for themselves, with 20 students/class limits and boutique programs. That is their problem, and they are quite capable of fixing their own problems.


Posted by Paul, a resident of Downtown North
on Mar 18, 2010 at 3:37 pm

"Schools have been busy digging a deeper hole for themselves, with 20 students/class limits ..."

Wrong. Schools are busily being dug into a hole by cynical politicians. Class size reduction was a mid-90s piece of political grandstanding by Republican governor Pete Wilson. It cost the schools bundles of money to implement it, but gained Wilson a temporary halo as a champion of education and therefore served its prime purpose. As Jack demonstrates, that halo was temporary indeed, but we are still paying for it.


Posted by Jack, a resident of Midtown
on Mar 18, 2010 at 4:28 pm

Paul,

I don't disagree with some of what you say. The 20 kids/class thing was complete political theatre. However, it was probably even more popular among liberal Democrats than conservative Republicans. The teachers' union loved it. Either way, it can and should be repealed.

Prop 13 is here to stay, for quite some number of decades. Schools need to reform now.


Posted by rational, a resident of Greenmeadow
on Mar 18, 2010 at 4:37 pm

I lost all trust in Buffet when he helped elect Obama on the premise that more bailouts would be "good for the economy"...then found out later that he MEANT more bailouts of banks would put more money into his pocket..as a partial bank owner of several banks.

Sorry..anything he says is suspect. Time for him to retire from commenting.

I now assume that anything he says is "good for us" is actually only good for him, and if he says Prop 13 is bad for us, I can only assume it is because he stands to increase his fortune if we change it.

As for Commercial enterprises...let me add the usual ..businesses are leaving California in droves..our unemployment is skyrocketing..is this REALLY the time to add to the remaining business owners worries of yet more taxes?


Posted by Paul, a resident of Downtown North
on Mar 18, 2010 at 4:46 pm

"The 20 kids/class thing was complete political theatre. However, it was probably even more popular among liberal Democrats than conservative Republicans. The teachers' union loved it. Either way, it can and should be repealed."

Gee, nobody ever successfully accused Prop187 Pete of being a liberal. And after seven years of the Terminator (also a Repub), the class size reduction law is still on the books with no real attempt having been made to repeal it. That indicates it's popular across the political spectrum, possibly even more than Prop13. You might want to look for another windmill.


Posted by Jack, a resident of Midtown
on Mar 18, 2010 at 4:56 pm

The 20/class thing is eroding at the edges. It should become an avalance back to normality. Only a severe budget crisis, like we have now, will get the schools to wake up to reality.

Prop 13 is here to stay, but school budgets will need to conform to reality.


Posted by Paul, a resident of Duveneck/St. Francis
on Mar 18, 2010 at 5:01 pm

I remember why Prop 13 was so appealing at the time - "make the legislature pass budgets responsibly by limiting their ability to just raise taxes indefinitely" - this was at least the argument I heard at the time, and it made sense to a lot of people.

As we have seen, the legislature is NOT more responsible in how they pass budgets. This does not necessarily mean we should repeal or even modify Prop 13, as either of those would give them more $$ to spend without addressing the basic issue.

Perhaps the answer is constitutional reform - I don't pretend to know the answer, but I am pretty sure it is NOT as simple as let's find a way to give the legislature more $$ to spend.


Posted by RepealProp13, a resident of another community
on Mar 18, 2010 at 5:33 pm

It seems so obvious to me that Proposition 13 should be repealed.

Other than making new property owners unfairly burdened, it has no purpose and no use.

If just for the purpose of "limiting their ability to just raise taxes indefinitely", why not let all property owners pay the same tax amount based on the same formula? Why are the 1978 owners so special? Are they the royal family of California?


Posted by RepealProp13, a resident of another community
on Mar 18, 2010 at 5:38 pm

I am surprised that no lawmakers ever proposed to repeal proposition 13. It serves no purpose today. There is a good chance that voters will vote for it, since majority of the voters are non-1978 owners.

With the fiscal crisis in Sacramento, now is a perfect time to get rid of Prop13!

Why not a single politician say the word "repeal"???


Posted by Paul, a resident of Downtown North
on Mar 18, 2010 at 5:55 pm

"The 20/class thing is eroding at the edges."

Yup. Another successful squeeze on the kids for the grown-ups benefit.

"I lost all trust in Buffet when he helped elect Obama on the premise that more bailouts would be "good for the economy"...then found out later that he MEANT more bailouts of banks would put more money into his pocket..as a partial bank owner of several banks."

My, my. Billionaire Warren Buffet is advocating for banks. Next thing you know, fish will be rooting for water.


Posted by RepealProp13, a resident of another community
on Mar 18, 2010 at 6:00 pm

I think property tax should be calculated as follows, not 1% of property value, which is a flawed formula.

1. Get a budge, if we want, get a cap on budge increases, say 3% per year.

2. Get a fair assessment on each parcel, same assessment no matter who owns it, whatever year it was bought, whatever price was paid.

3. Calculate tax for each parcel: (Total Budget) x (Parcel Value) / (Total Value of All Parcels).

It is such a simple calculation, why Californian invented such a stupid proposition 13?

Can big corporation's money control majority of California voters? I doubt it.

For some homeowners who has a lower base, consider to give it up. It is not ethical to take advantage of other honest younger homeowners.


Posted by Mike, a resident of Crescent Park
on Mar 18, 2010 at 6:10 pm

Those of you asking why no politician has opposed prop 13-some have and they have heard quickly from their constituents to forget it.

Prop 13 keeps homeowners from being taxed out of their homes, which has happened in other states where property values exploded like here. Many blue collar workers in Hawaii when values rose in the 80s and again in the 90s had to sell and move because of taxes.

Unless you get a reverse mortgage (for most a really bad idea except as a last resort)you cannot make use of increased equity to stay afloat while you pay higher taxes.

Under prop 13 the people who have lived in their homes for years pay less than a new owner. But then they have paid years more taxes into the community than the new owner. Most of them also invested in their community in other ways-the PTA, commissions, volunteer groups, etc. Those new to the community have not.

The final reason-all that money that would result from changing prop 13 would just be WASTED by our legislature and government. They have been out of money for years, and they still spend indiscriminately. Just think what they would do with this bonanza.


Posted by strip miners, a resident of Menlo Park
on Mar 18, 2010 at 9:41 pm

All, just drive or bike out Sand Hill, turn right on Oak past Oak Creek Apts. and behold Jennifer's crowds" latest iteration on a 50 year neighborhood school playground, indeed, Jane and Leland Stanford Jr.'s treasured nature sanctuary. A towering megastructure that dwarfs the neighbors, whose complaints about a bait and switch Measure U plan from Jennifer and her insiders, that had the buildings on the less obtrusive back side of the campus, was shouted down by Jennifer and her partners in crime. Yet to come is the massive Hillview Middle School rebuild that will loom over the neighborhood.
Jennifer, her like minded Biz School transplants, the Boyles, Boxes, Aronsons, Guthries and other sanctimonious "we need showcase, multi-story first class facilities for our public school kids, to hell with the neighborhood impact " invasive species, have no concept of stewardship, open play space, and local historical sanctuaries.
So, now they get front page Almanac and Palo Alto Online coverage to raise more taxpayer money, promulgate their build it bigger menality.
Their paradigm would make the Quentin Kopp and Ron Diridons proud.
The rest of us long time residents can just move away if we don't like it.


Posted by concerned citizen, a resident of Midtown
on Mar 19, 2010 at 8:41 am

Prop 13
to all those that think its fair please explain to me why i am paying more than 15 yes 15 times more than houses combined on my street we have the same view the same schools etc one house on my street is valued at 36 thousand dollars taxes of less than $400 a year and rents for 3k a month im tired of being told well u live in a nicer house and its worth more yes it is worth more but more like double not times 15 it appears to me the young newly arrived family's are more than making up for existing protected taxes homes don't get me wrong the existing owners who were here long before me deserve a break as most are retired and thanks to them in part we have a wonderful community to live in however something needs to be done no matter what way you look at it 15 houses combined pay less than one has to be considered unfair by most standards


Posted by Andreas, a resident of Ventura
on Mar 19, 2010 at 9:04 am

If California repeals Prop 13, the politicians would go wild with projects. They hand out big project to their districts, and who pays? Screw the homeowners. Make them pay. Raise taxes on them again, and again, and again.

Look, politicians get elected by making promises. Want a new school? A bridge? A pony circus? Just vote and get it. Both Dems and GOP do this. Who pays? Someone else, or nobody.

Many laws are passed that have no funding. That's what we have now: spectacular deficits without any hope of being paid. For example, state employees are supposed to get hundreds of billions in retirement pensions. Ain't gonna happen.

Repeal Prop 13, buy a house, and get whacked with endless tax hikes.

We must reduce spending to viable, sustainable levels. We can't continue to spend without regard to paying the bill.


Posted by kludged, a resident of Barron Park
on Mar 19, 2010 at 9:08 am

Let's focus on jennifer's proposal, she's NOT saying repeal prop 13, she saying modify it to allow for CORPORATIONS and BUSINESSES to be reevaluated every 20 YEARS. Prop 13 has been useful to residential purchases, since property tax is known, and maybe the loophole should be closed that when a person dies, their house needs to be revalued. Other than that, prop 13 is understood, and works reasonably well. If they state wants more money, it can raise income taxes, or usage taxes; we just happen to have a political group in sacremento with no backbone; you can't imprison 5% of the state forever and achieve a balanced budget. Something has to give. Either decriminalize drugs, or raise taxes or both.

jennifer has a really sound proposal, let's not confuse it as 'repeal prop 13'.


Posted by Ada, a resident of Midtown
on Mar 19, 2010 at 9:09 am

Prop 13 is what makes renting affordable. If you take it away, rental rates will skyrocket, in which case Palo Alto will be forced to build even more "affordable housing".
One thing i would suggest is give some sort of a break to owners who purchased houses in the recent, say 5-10 years, and stop raising their cost basis by 3% a year. Property tax cost basis of my house now exceeds what I can sell the house for, yet Santa Clara County Assessor declined reassessment application. Now that is so unfair - not only I am paying 10 times more than my neighbors, but I am paying based on a higher cost basis than I can sell the house for.


Posted by Resident, a resident of College Terrace
on Mar 19, 2010 at 9:15 am

It is not Prop 13, but Proposition 58 ( which allows property to be passed from parent to child with no reassessment of the property) which needs to be repealed. Original owners will eventually pass away and houses will get reassessed and things will equalize and get more fair. Let's put Prop 58 on the ballot!


Posted by New resident, a resident of Downtown North
on Mar 19, 2010 at 9:25 am

It would be great if Jennifer could look into the possibility of amending Prop 58. How likely is it that Califonrians would vote to repeal this right to pass properties to children w/out reassessment of their market values?


Posted by 58 Not 13, a resident of another community
on Mar 19, 2010 at 11:04 am

Again, Jennifer was not advocating repealing Prop 13, which while it has it's pros and cons, there probably wouldn't ever be enough support for a repeal. Again, the issue is with beneficiaries inheriting the cost basis/property tax and the business/commercial side.

Prop 13 probably does not lower rents in PA btw for Ada. If I inherited a house with a extremely low tax basis with no mortgage, I could probably still rent out that house for what the market allows. Just because I would pay basically no tax basis versus my neighbor who might also be renting but paying 10x the property tax, doesn't mean I'm going to lower rents by the difference in property tax. I'll just be smiling all the way to the bank as I deposit a bigger profit check than his. Another point is that maybe I'm renting to a family who is using the schools and facilities, and maybe I live in Alaska for all I care. My property is no longer adding much value to the PA community and so I'd be screwing over every other person in PA because of that. Plus the family renting from me is now using those facilities. Now would I deserve that or not, that is the general question, and one Jennifer is asking if it might be better to amend Prop 58. That's the type of people she's saying she'd like to go after in a sense. I also wish I had such an arrangement but unfortunately I don't...


Posted by jazzman1954, a resident of another community
on Mar 19, 2010 at 11:15 am

this article centers around well to do cities.
Prop 13 helped established home owners from loosing their properties as values increased. Oh the poor well to do school districts looking for money. why was not prop 13 an issue before the economic crash?


Posted by adjustments, a resident of Crescent Park
on Mar 19, 2010 at 11:29 am

Jazzman, it was.

Prop 13 was aimed at preventing people from losing their homes and that should still be the objective, which is the reason that prop 58 won't be repealed either. On the other hand, prop 13/58 should only applies to properties that qualify for homeowners exemption. Subsidizing businesses wasn't the objective.


Posted by enough, a resident of Palo Alto Orchards
on Mar 19, 2010 at 1:17 pm

Excuse me, but without Prop 13 my mom couldn't afford to stay in her house anymore. Why don't you people mind your own business? What's done is done and as time moves on and people die, things will even out.


Posted by enough, a resident of Palo Alto Orchards
on Mar 19, 2010 at 1:20 pm

It's like people buying homes by the railroad then complaining it's noisy. What is the past is the past, sorry your bitterness and jealousy is making you into Vigiliantes so you can target the people who benefitted from Prop. 13. YOU ARE TARGETING THE ELDERLY. Disgusting.


Posted by propped up, a resident of Crescent Park
on Mar 19, 2010 at 1:28 pm

Some of you have serious reading comprehension problems. The focus is on modifying prop 13 for COMMERCIAL properties. A commercial property is not the home you or your grandma owns. Got it?

"What's done is done and as time moves on and people die, things will even out."

Wrongo. Corporation owners may come and go, but as long as the corporation itself exists, it keeps the low tax. And as for residential property -- well, that's what prop 58 is all about. When people die, their kids get to inherit the low taxes, a subsidy from the less affluent to the more affluent. Who voted for this thing?


Posted by Enough, a resident of Palo Alto Orchards
on Mar 19, 2010 at 2:28 pm

Wrongo: SOME of us know how many people are angry and gunning for people who are still under Prop 13. You think this is the only person looking at this?


Posted by Midtown parent, a resident of Midtown
on Mar 19, 2010 at 2:28 pm

Exactly! The discussion is about commercial properties and inheritance! Participants of this thread - please read carefully the thread carefully! It just does not make sense to allow passing tax benefits to children and grandchildren of original owners - not only these children are privileged to inherit a house, they are also inheriting huge tax break, compared to those who work hard to be abel to afford to buy a house and pay disproportinally higher property property tax.


Posted by Lynn, a resident of Southgate
on Mar 19, 2010 at 2:35 pm

I like the idea of Prop 58 amendment, but I wonder if it is possible to repeal Prop 58 tax break for heirs and make their properties be reassessed to market? The problem is that there might have to be a grandfather clause which will allow an old rule to continue to apply to existing situations, and the new rule will apply to all future situations. If there is no way to avoid "grandfathering", then Prop 58 is not worth fighting for.


Posted by Ada, a resident of Midtown
on Mar 19, 2010 at 2:38 pm

Why not worth fighting for? there are still many original owners around who have not passed their properties to children or grandchildren... Of course once Prop 58 amendment is on the ballot they will speed the process up:)


Posted by I have an MBA too, a resident of Another Palo Alto neighborhood
on Mar 19, 2010 at 3:45 pm

Jennifer Bestor,

You have an MBA, but you clearly flunked Macroeconomics 101. On your street you have many folks with 1978 property tax basis, IE they pay 1/20 of the property taxes for the folks with the same house next door.

This is the classic "I've got mine, so tough darts to you" mean-spirited mentality of Prop 13. This creates a wildly inefficient real-estate market with bizarre incentives. Your claim that Prop 13 allows folks to not be priced out of their homes is soooooooo very oversimplified. Prop 13 causes long-term homeowners to behave in very strange and selfish ways that harms society as a whole.

Your whole argument reads as "I don't want to pay any more taxes, so I'll try to find some other constituent group to fill the fiscal gap, namely the commercial parcel owners." That's the California "anyone but me," irresponsible approach to governance. Prop 13 is the main reason why CA is ungovernable.

It is disappointing that you did the research, created the spreadsheet, but then ignored the data and drew a conclusion based on your own personal financial wishes.


Posted by Wha?, a resident of another community
on Mar 19, 2010 at 4:35 pm

"The 20/class thing is eroding at the edges. It should become an avalance back to normality. Only a severe budget crisis, like we have now, will get the schools to wake up to reality.

Prop 13 is here to stay, but school budgets will need to conform to reality."

Right - the education of the future of our state and country need to 'conform' so that those already out of school can keep what they have. Bah Humbug to all the old Scrooges out there! Our children should not bare the brunt of bad money management, but do on a regular basis.

Other states don't have Prop 13. How do they do it? And last time I checked, CA schools were not doing well when compared to other states.

Web Link


Posted by Mark, a resident of Leland Manor/Garland Drive
on Mar 19, 2010 at 5:02 pm

"Roughly 46% of property taxes in Menlo Park goes to the school district. So, how many kids live on these commericial properties that go to Menlo Schools? Zero. So why is it "unfair" - what is the logic?"

Yo "Common sense," here is some real common sense. Good schools push up property values by attracting families to live in their towns. In turn, these new inhabitants support local "commericial" interests because they shop where they live.


Posted by keep our taxpayers., a resident of Esther Clark Park
on Mar 19, 2010 at 5:14 pm

Other states don't have prop 13 because they weren't doubling the value of their houses every 10 years, making it impossible for people to age in their homes since by the time they had reached their max earning potential, they were priced out of their homes with the taxes..and then RETIREMENT..let's not even go there, where people had bigger tax bills per year than they had income!

We had an explosion of home values, helped along by the ever so great limitations on building and land use of our way of thinking..and there you have it.

There may be some tinkering we can do that would make sense, but at this point I simply don't care enough to raise the taxes on ANYone..we need to keep every taxpayer we have left in our State, and not drive them to another State.


Posted by pat, a resident of Midtown
on Mar 19, 2010 at 5:21 pm

I have an MBA too wrote that Prop 13 " creates a wildly inefficient real-estate market with bizarre incentives" and "causes long-term homeowners to behave in very strange and selfish ways that harms society as a whole."

Please explain.


Posted by propped up, a resident of Crescent Park
on Mar 19, 2010 at 6:07 pm

pat, you don't need an MBA to see what happened with the real estate market thanks to prop 13. For starters, housing prices, which had been climbing steadily upward, abruptly tripled and quadrupled after it passed. This means that an average person earning $25k in 1977 (a decent income) could buy a nice 3/2 for $75k. In 1979, that person was earning maybe $30k but that same house cost $225k and was therefore out of reach.

Once you grab the brass ring and spend everything you have (and more) on a house, prop 13 ensures that there are disincentives for you to move. Let's say you bought that $75k house in 1977, but now it's 1985 and you have four kids. Your house is worth $300k and the house you want costs $350k--so you could afford to move, except for the fact that trading up just a little would cause your taxes to increase fivefold! Hence, prop 13 leads to market stagnation.

Fast forward a few more years, and you're an empty nester living in a 5-bedroom house on a few acres, but you're paying almost nothing in taxes by today's standards. Meanwhile, young families can barely afford a tiny starter home, thanks to prop 13 inequities.

Seems to me that it would be better to have a system that provides incentives to people to move out of houses that are too big for their families and lifestyles and open that housing stock to families that need the space. Prop 13 has the incentives all backwards.

I don't think residential prop 13 is going away anytime soon. And public sentiment is in favor of keeping it. But prop 13 should never have been applied to corporations/businesses, and it's way past time for us to make it go away.


Posted by keep our taxpayers., a resident of Leland Manor/Garland Drive
on Mar 19, 2010 at 6:14 pm

What folks don't realize is that EVERY person behaves in selfish ways..period.

The only question that remains is ..how can government screw it up more? One way is to force private individuals to comply, out of self-interest, with societally destructive laws, for example like the latest fiasco that has dumped our real estate market, (coming from the very strange Community Reinvestment Act, with all its bizarre behaviors it forced on banks and home buyers)

As a result, as usual from market interference, we have lost real estate tax revenue..ta da!! presto chango, less money for our schools.

From liberal policies.


Posted by prop 13 advantage, a resident of Evergreen Park
on Mar 19, 2010 at 6:51 pm

"Once you grab the brass ring and spend everything you have (and more) on a house, prop 13 ensures that there are disincentives for you to move. "

Thus prop 13 encourages neighborhood stability and diversity at the same time (diversity because there are both new and old owners rather than just new owners at a certain income level). It also encourages multi-generational family relations - generally healthy but critical during an economic depression. In this sense, to a limited degree, it accomplishes what rent control does for tenants, for owners.


Posted by just another dude with Prop 13..., a resident of Los Altos
on Mar 19, 2010 at 8:14 pm

I agree that prop 13 changes could focus on some adjustments based on the asymmetrical behavior that has occurred since 1978. Older owners have lots of options...the younger have fewer.

Unfortunately, that probably will not happen as the lobby for the entrenched interest are very strong and the corporations own SAC.

It is an empirical fact that house prices really jumped in the five years after prop 13 and have only flattened off for brief periods since then (1989 to 1994 and the last two years). Intel has billions of $'s of land in Santa Clara that they are still paying 1978 assessments on...and they could pay more.

True that too many tax increases at this time might cause them to pay more, but there is no free lunch. See the NYT article a few weeks back when the Intel CEO said he was just as happy to hire people in China...so like they give a $hit at this point anyway.

I moved to PA in 1992 and was able to rent a home in south PA for 1000$/month (4br2bath) and our rent was only raised twice in the 10 years I lived there and was only $1200/month when I moved out. Pretty sweet!

This was possible b/c the owner had bought this house in 1975 and moved to another house in PA to rent this house out for income. In 2002 she moved back in for 2 years to take her 500k tax-free out and then moved to her other house to do the same.

Of course when I moved back here in 1992 it was easy to find a place to live and hard to find a job. ;-)

If I was married with kids at that time, I would be getting a real sweet deal with the benefits of not just living there on the cheap, but getting the nearly FREE excellent schools as well.

In Jan 2005 my wife and I bought our home in south Los Altos, moving where we landed so our kids (not even born yet) could go to excellent public schools. We bought just before the GOOG options came out, b/c as expected the price of similar homes in our 'hood went up almost 35% in the next six months.

Some friends bought a very similar home around the corner for about 500K more than we did. Ouch! Of course prices go up and down, went up thru 2007 and then down about 15% since then. We are still up about 30%...but that is not the point.

We moved here for the public school and now we have the 'free' public school for our two kids for the 'cheap price' of 16K a year. And this is cheap compared to private schools in the area, which would be more than that for just one kids and with no tax write offs (AMT adjusted it is not that great, but better than nothing). We are very luck to have bought then as not we would be paying much more, and our costs now are almost locked in due to prop 13...so now and every year we live here benefits us even more. This is how prop 13 works for people, but it keeps people from selling homes...the last house on our street sold in 1994.

It would be the same cost if we had 10 kids, so that is an angle that might be looked into, how large families are also somewhat gaming the system. Sure our next door neighbors on both sides pay about 1k/year, but they have not had kids in the hood for over 30 years and one put his kids in private school. Bottom line, life is not fair and prop 13 is not fair. Can we change it? It is possible, but doubtful...

The public school that my son will go to next year raises about 400k/year for the k thru 5 elementary school to make up for the budget cuts...that is the wave of the future.

And this is pretty fair, b/c people are paying for the services that they are using...the more kids, the more you pay.

No free lunch.


Posted by Nora Charles, a resident of Stanford
on Mar 19, 2010 at 11:06 pm

I commend Jennifer for her fine work. It is fascinating, but not surprising, to learn that many businesses have not been paying their fair share.

Prop 13 needs a major overhaul. It is unfair that we newer homeowners pay 10 or 20 times more a year in property taxes than long-time residents in comparable houses. We all receive the same city services. Perhaps taxes should be assessed not only by house price, but by income. If elderly, fixed income residents cannot pay what newer homeowners pay, that is understandable, and their rate should be adjusted accordingly. But if a well off, long-time resident has the means to pay what newer home buyers pay, yet is protected under Prop 13--not fair!

And why are property taxes continuing to go up while house prices have leveled off? Will we ever be cut some slack?

When we retire we will be forced to move, as the property tax burden will just be too high. There has to be a better, more equitable system.


Posted by Nora Charles, a resident of Stanford
on Mar 19, 2010 at 11:13 pm

Dude, I think you're on to something about those with more children paying higher property taxes! After all, having children is a choice, and those with one or two kids (or none) should pay less than those with enormous families.


Posted by kait, a resident of another community
on Mar 20, 2010 at 8:17 am

Reassessing commercial property owners every 20 years isn't fair either; look at how very different pricing was here 20 yrs. ago. Look at how different it was three or eight years ago. Therefore, a gradual reassessment--one that is applied to both residential and commercial owners--is a fairer solution. I live in a development in RW Shores that has four basic models. I paid $1M for my home five years ago; I have many neighbors who've lived here 30 years in identical homes who are paying far less in taxes than I.


Posted by SteveU, a resident of Barron Park
on Mar 20, 2010 at 10:29 am

SteveU is a registered user.

Great work JB

Apartments and single family rentals, are Commercial properties. They are Zoned Residential. The long term landlords reap "market rates" on many of these properties. with no increase in taxes


So how come we have all these empty Commercial (zoned C) buildings if the tax deal is so good?

And least someone forget. The Business TENANT pays property taxes on "equipment and fixtures" in addition to what the landowner pays.


Posted by JLK, a resident of Atherton
on Mar 20, 2010 at 11:02 am

Just spent a jet-lagged night thinking about the article and comment threads. Suspect Bester is right for different reasons.

(A) Basic aid districts are going to sink as every new resident is a family. Schools will overcrowd until spending per kid is the same as non-basic aid. Want to stop overcrowding and dropping per-child spending? Fix the other districts. It's not about us. Getting more money into the mid-level housing market school districts is vital to stopping overcrowding in Palo Alto/Menlo/Los Altos/etc.

(B) Why is CSR so important? Because it's the marginal money we get. It's the tail wagging the dog. It's kids getting sent to schools across town because class sizes can't float up a kid or two. So we pay for our schools and Sacto controls them. Prop tax is local funding. He who controls the purse controls everything.

(C) Will someone call the Santa Clara Assessor and find out what percent of Palo Alto commercial property is at a 1975 basis? 1985? (I'm out of town and just can't sit on hold, sorry.) They must be able to generate this information. It can't take a person having to buy the rolls to get it.

Thanks for listening.


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 20, 2010 at 1:20 pm

SteveU,

Two good issues. Why do we have empty commercial buildings? And which ones are empty? In Menlo Park City School District, 20% of the properties (69 total) are paying current market-based taxes. 40% are paying 1985-based taxes (94 of which date back to pre-1978). So the low-paying 140 have a lot more rent flexibility ($10,000+ more, depending on the size of the parcel/building) than the 70 of them who are paying the most. About the only thing that evens it out a bit are the businesses that own their buildings (or the related family trusts do).

I analyzed this a bit for Menlo's 'Main Street' (Santa Cruz Ave.) where I could peer into empty spaces, but, unfortunately, the numbers weren't big enough for statistical validity. However, it did appear that legacy landlords might have exactly the tenant flexibility that logic would suggest.

Bottom line, though, it that you can't talk about "commercial" or "business" as if it's one homogeneous group. There are haves and have-nots that Props 13/58 have created.

And unsecured (equipment and fixtures) is another factor. When I looked at the County's drop from 50 - 33%, I included unsecured (entirely under commercial). Yes, it's the businesses -- not the landlords (unless the business IS the landlord) -- who pay for equipment, fixtures, personal property, etc. So, for example, Trader Joe's DO pay a lot of tax on their furniture/fixtures/etc. -- in fact, it dwarfs what their legacy landlord is paying in Menlo Park. ($23.441 vs. the landlord's $7,471.) However, they also pay unsecured in their equivalent store in San Carlos ($24,067) where the newcomer landlord is paying ($44,604).

This was one of the many things that brought home to me the fact that businesses are NOT the same as landlords. And, increasingly, aren't their own landlords.

Thanks for your interest.


Posted by new taxes, a resident of Crescent Park
on Mar 20, 2010 at 3:06 pm

I don't have a problem with prop 13 but always vote against bonds and for parcel taxes. Exaggerating the prop 13 advantage on new taxes is just wrong.
Parcel taxes aren't fair either but at least the single guy person in a 5 bedroom mansion pays the same as the couple in a 1-bedroom condo next door and not less!


Posted by Jack, a resident of Midtown
on Mar 20, 2010 at 3:20 pm

Jennifer,

Can you point to any businesses that are paying LESS tax than they did in 1978? Isn't it true that almost ALL commerical property owners are paying MORE taxes?

I think your argument is that commerical property owners are not paying ENOUGH more to cover the increased expenditures that schools have devised. If I am correct, then the argument goes to WHY the schools are costing so much more than the INCREASED tax revenues. This a different, but related issue, germain to your argument. If you would like to discuss this subject, please let us know...I am sure that many of us can come up with ideas to keep the school costs down.


Posted by pat, a resident of Midtown
on Mar 20, 2010 at 3:28 pm

> "prop 13 leads to market stagnation."

The housing market has been stagnating since 1978? I must have been too busy watching moving vans move up and down my street to notice.

> "it would be better to have a system that provides incentives to people to move out of houses that are too big for their families and lifestyles and open that housing stock to families that need the space."

What kind of incentives, and who covers the cost?

Who decides what's too big? Exactly what "lifestyle" would be valued most highly?

Should a childless couple have only one bedroom? Should people with families have one bedroom per child or should children double up?

When the kids go to college or get a job, should mom and dad move out of the family home to make room for a new family with young kids?


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 20, 2010 at 6:04 pm

Jack, Sorry, we just got back from Little League and now my father-in-law has turned up early for dinner. I assume you mean landlords, not businesses? Businesses pay unsecured tax on their fixtures/equipment/etc., while landlords pay on the land and buildings. They are sometimes the same, but, in Menlo Park, generally different.

If you mean unsecured, I'd have to buy the 1985 roll for that (another $315 plus programming...). Since unsecured is not limited to the 2% increase, no business should, theoretically, be paying less, but, of course, equipment needs have changed with a cell phone having as much computing power as a mainframe did in 1978 ...

If you mean secured, one easy example is the 22 (of the 56) commercial parcels on Santa Cruz Avenue (our University Ave equivalent) whose assessments have risen the Prop 13-mandated 2% pa = 79% since 1978. Thus, in real dollars, they are paying less than they did then.

(In 1978, their general tax was $47352, which in today's dollars would be $155,791. The total general tax they paid was $88,546. There were misc. additional taxes then, which I didn't capture. Now there's the school parcel tax which adds another $12K to their bill. )

These are their street numbers, you can look them up on the San Mateo County Tax Collector's database and/or do a parcel search on the San Mateo County Assessor's Parcel Maps to determine their physical location, size, and Google Maps for tenants.

00000556 SANTA CRUZ
00000654 SANTA CRUZ
00000640 SANTA CRUZ
00000643 SANTA CRUZ
00001050 DOYLE
00000635 SANTA CRUZ
00000860 SANTA CRUZ
00000700 SANTA CRUZ
00000789 SANTA CRUZ
00000725 SANTA CRUZ
00000842 SANTA CRUZ
00000897 SANTA CRUZ
00000883 SANTA CRUZ
00000800 SANTA CRUZ
00000639 SANTA CRUZ
00000890 00000898 SANTA CRUZ
00000780 SANTA CRUZ
00001100 EL CAMINO REAL
00000746 SANTA CRUZ
00000875 SANTA CRUZ
00000719 SANTA CRUZ
00000930 SANTA CRUZ

Just realized that we could probably consider 1100 El Camino (the McDonald's franchise) a tenant-owner.

Hope this helps -- Jennifer


Posted by Jack, a resident of Midtown
on Mar 20, 2010 at 6:39 pm

Jennifer,

First let me say that I hope your son/daughter went 2/3 at bat, today, in Little League! LL is a great organization, and it does not demand government money.

If you want to make the argument about "real dollars" (inflation, I assume), then you need to make the same argument about schools' spending. For example, when the 20 students/class mandate was created, how did this inflate the cost of schools? When mainstreaming mentally retarded kids was mandated, what did that cost? When art was deemed essential, what did that cost? How about music and sports?

If there were no such mandates, and we simply went back to basics, what would the savings be? May I suggest that such savings would be more than cover the overall inflation rate? To put it simply, schools have busted their essential mission, which is to provide a general education to those capable of understanding it. This does not cost a huge sum of money, and Prop 13 is not the reason that schools cannot limit themselves to their basic mission.

If you want an example of how education should be done, in this area, look at the Asian parents, who have figured it out. It is Asians kids, largely, who are supreme in academic pursuits, today. They tend to want to teach the basics, and their apporach is much less csotly that what is going on now.

Prop 13 provided plenty of money for education, and it still does.

What is the problem?


Posted by SCasa, a resident of another community
on Mar 20, 2010 at 7:22 pm

The many who presumably believe California is not ready to face this issue should count the long list and the tenor of the responses. Predictably and understandably, people with longer-term vested interests in the Bay Area are generally against changing the Prop 13/58 status quo.

To those of us who are newer here and see the CA from a different financial vantage point, much of what Prop 13/58 protects makes less sense. Both props undergird a faith in CA that is lost to its newer residents, and its continued existence in its current form implies that many residents here - and their concerns - count by various degrees less because by fate or choice because they weren't here in 1978.

Many in favor of Prop 13 also seem to assume that changing it is an either/or action, and frankly it's not. There are thoughtful comments on, and the heart of what Jennifer advocates for, a specific redress on commercial taxes - and nothing onerous at that. Fixing Prop 13 is not a panacea to all of CA's ills. And doing so as proposed here is not a slap in the face at the state's senior citizens.

Prop 13 - and 58 - are not untouchable issues. I'd be happy in the very least to see the notion that they are torn down.


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 20, 2010 at 8:59 pm

Jack,

Thank you for your kind wishes -- we had to be satisfied with 0/1 and a .500 OB%. Little League is a wonderful organization -- and La Entrada (public school) provided a lovely diamond for an opening day game.

I find it interesting to be positioned as an apologist -- for unions, curriculum, pensions, ADA, and every other government action -- by virtue of illustrating a generally unknown aspect of Props 13/58 that has created an irrational economic playing field. Yes, what drove me to research this was puzzlement -- how was it that we didn't have enough money for the schools? -- but what kept me at it was a growing awareness of a conspiracy of silence and noise.

As I gradually uncovered a very lopsided system, I was reminded me of a lunch I went to, many years ago, at a trade show. I was pleased to be casually included in a growing group of about 15. We crowded into a convention center restaurant, where we ordered food and drinks (shows my age). It was busy and the temporary staff was overwhelmed, so the service was slow, the food was lousy, the waiter confused, the bus boy incompetent, the coffee was cold, etc. We were presented with a group check, which infuriated everyone since we were on expense accounts. But it was clear that getting individual checks would take another half hour.

So we looked at the total (everyone had had about the same thing) and decided $18/person would cover it. So people began tossing money into a pile in front of me (I was all too pleased with my shiny new AmEx card) and leaving. I totaled up the money. $210, including the $20 I'd thrown in. The bill alone was $235.

I walked out of there, having paid $45 for a lousy lunch, another $15 for a tip because I didn't want the waiter to think that I'd totally stiffed him (he'd seen the pile of money) ... and wondering who'd stiffed me. The guys at the end of the table who kept complaining about their burgers while downing beers? The squiffy woman who dissed the busboy? Someone else who'd simply kept mum and had a meal for free?

I understand that you don't like the way that schools in California are run. I suspect that, in a school board meeting, you and I would be fighting hard on the same side.

But I don't accept that there is a privileged group -- long-term commercial landlords -- who deserve an ever-cheaper ride on a ticket intended for seniors.

But, if my fellow Californians want to create a privileged species (Landlordicus Supra Nobis) -- OK. Let's do it out in the open via the ballot box. The problem is hiding one set of beneficiaries under the skirts of another.



Posted by common sense, a resident of Midtown
on Mar 21, 2010 at 7:53 am

The total for Menlo Park property taxes came in around $150 million, which means businesses paid around $50 million.

Of that $50 million, around $23 million went to the local schools that businesses can't send their kids to. Sounds pretty unfair/lopsided to me.

Oh, and business contributed $7 million in sales taxes, millions in dollars in hotel taxes, more in business license taxes.

By the way, the Menlo Park city budget has increased 33% since 2005 - Many of businesses who would end up paying any increases in property taxes have not seen and increase of 33% in their businesses. The "change prop 13" folks say there's just not enough money.

It's not nice to covet other people's money, especially when they aren't managing their own money very well.


Posted by TAS, a resident of Barron Park
on Mar 21, 2010 at 8:36 am

"Of that $50 million, around $23 million went to the local schools that businesses can't send their kids to. Sounds pretty unfair/lopsided to me."

Wrong. Taxes are not paid on the premise that you get them all back--they're used for the general welfare. What's unfair is that businesses have figured out a loophole that lets them pay far below their fair share.

"Oh, and business contributed $7 million in sales taxes, millions in dollars in hotel taxes"

Nope. It was their customers who paid those taxes.

"Many of businesses who would end up paying any increases in property taxes have not seen and increase of 33% in their businesses."

So what?


Posted by propped up, a resident of Crescent Park
on Mar 21, 2010 at 8:57 am

What does the city's budget have to do with this discussion?

The elimination of Prop 13 for businesses might mean a one-time jump in property taxes from that sector. But in the future, it would help ensure that businesses pay equitably according to the value of their property. Expecting the new kid on the block to carry the load for everyone else may indeed discourage people from investing in local business property (and thereby keep local business from thriving). Too, if longer-term property owners paid their fair share, we wouldn't have so many instances of their preferring to keep a property vacant. Right now, their costs are so low that they often will leave a prime spot unoccupied for months or years rather than rent for the going rate.

As I see it, eliminating prop 13 for commercial property is not about giving the government more money but about equalizing the burden. Why would anyone be opposed to that?


Posted by Another concerned mom, a resident of Another Palo Alto neighborhood
on Mar 21, 2010 at 11:03 am

If the Prop 13/58 status quo proponents believe there is enough merit in their argument, they should have no problem defending it in an election. I believe it is about time this issue come to a vote. We've lived in CA for 20 years and Prop 13 never made sense to me and I didn't even know Prop 58 existed (we came from an area with locally determined and funded public school taxes). If not a Prop 13 repeal, then why not a transfer tax on real estate transactions whereby those benefitting from the huge run-up in real estate values, share the wealth and allow communities to recoup some of the lost tax value when the properties change hands?

I've certainly seen much more ridiculous propositions on the ballot.


Posted by Jack, a resident of Midtown
on Mar 21, 2010 at 11:22 am

If the Prop 13 critics think they will be paying less tax, should 13 go away, they are completely wrong. It would simply mean that long-time owners will pay more...and that additional money will increase the size and scope of government.

The longer that newer owners stick around, the better 13 will look to them. Of course there are always some masochists who like to be taxed, but the vast majority of us do not.


Posted by common sense, a resident of Midtown
on Mar 21, 2010 at 11:39 am

TAS writes

"What's unfair is that businesses have figured out a loophole that lets them pay far below their fair share.

"Oh, and business contributed $7 million in sales taxes, millions in dollars in hotel taxes"

Nope. It was their customers who paid those taxes."

Again the words "Fair Share" - that's the issue - what is "fair share" of an expense that someone isn't allowed to use, isn't it?

And as you say, taxes get passed on to customers, so any increase in property taxes do get passed on, until the business finds they set up shop in the next town and get a better deal. Bye bye sales tax.

Propped Up -

The city budget is a part of this discussion, because it relates to what is "fair share". As you write "equalizing the burden"; the burden is based on the city budget & school budget. If the city budget had grown at the rate of inflation, if the pension promises to city workers had been more fiscally prudent, there wouldn't be a need to increase the burden.


Posted by TAS, a resident of Barron Park
on Mar 21, 2010 at 1:17 pm

"Again the words "Fair Share" - that's the issue - what is "fair share" of an expense that someone isn't allowed to use, isn't it?"

Use is irrelevant to any discussion of taxes, which you seem to misunderstand. Sure, businesses would obviously have to reassess where to locate if they were paying their fair share (just as new businesses do). It's called a level playing field.


Posted by Jack, a resident of Midtown
on Mar 21, 2010 at 5:04 pm

"It's called a level playing field."

The way to level the field is to reduce all property taxes back to 1978 assesment levels, increasing 1-2% per year.

Then the schools would be forced to get real, and all the property owners would be happy.

Should we put it on the ballot?


Posted by Classically fair., a resident of Greater Miranda
on Mar 21, 2010 at 5:21 pm

This "fair share" phrase I keep hearing is such an arbitrary phrase.

Who is the great arbiter of "fair share"? Who is deciding which businesses earn too much and need to "share" more? Who is deciding who to steal from, and who to give the profits from the thefts to?

I am beginning to think this whole phrase "fair share" is screwing up our thinking.

"Fair" in the classic liberal sense is EQUAL OPPORTUNITY, not equal outcome. Break the bad habit of believing you, or anyone else, has the "right" to determine the outcomes of another person's life.

I doubt you would want me to willy nilly decide how much space you should inhabit as your "fair share" of living space, nor how much food you should get as your "fair share", so stop thinking you have the right to determine what is the "fair share" of others.

Instead, think about outcomes. What are the natural results of policy x, y, or z? What are the goals I want to accomplish? Do I want more jobs, more businesses, and thus more overall taxes paid into the system? Perhaps I should make it as easy and profitable as possible for businesses/employees to work in my town, State, Nation etc.

Simple stuff, really.



Posted by common sense, a resident of Midtown
on Mar 21, 2010 at 6:35 pm

Many who want businesses to pay for their services, but wouldn't want to let them into their park (e.g. Foothill Park), or have the children of those paying these taxes go to the same schools as their kids. It's really all about wanting the service, but not willing to pay for it themselves.


Posted by chris, a resident of University South
on Mar 21, 2010 at 7:26 pm

Classically fair,

How are people who bought their houses in 1978 paying their fair share of taxes?


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 22, 2010 at 8:58 am

The aspect of this discussion that puzzles me most is when business and landlords are all lumped together as "business." They aren't. There is no such single-headed critter.

First, businesses in Menlo Park generally do NOT own the underlying property. Landlords do. Different critters.

Second, in Menlo Park, 20% of landlords have owned their property ten years or less. One out of five. 40% have owned it 30 years or more. Two out of five. So we have one critter -- new landlord -- who is paying a full tax burden on his property -- for every two who are paying 1979+2% burdens. Different critters, all. But competing for the same (business) tenants.

And, unlike In residential property, where I typically see that the owner of a 1978+2% tax bill is the person who was paying it in 1978 (or the surviving spouse thereof), in commercial property, I found that it was typically either a corporate landlord (Inc. or LLC) or the child or grandchild of the person who owned the property in 1978.

So, common sense, when you say "it's all about the wanting the service, but not willing to pay for it themselves," who are you talking about? The commercial landlord who is paying less than $1,888 for a property housing a dry cleaner and an antique store? Does that landlord not expect the same police, fire, hazardous waste, street and public parking maintenance as his competitors around town who are paying 5-10 times as much? Or his residential customers who are paying 10-20 tmes as much?

Where, common sense, is the economic common sense in this imbalance?

We have allowed Props 13 & 58 to create an unbalanced economic playing field. Now that is bad for 'business.'


Posted by SB, a resident of Menlo Park
on Mar 22, 2010 at 9:06 am

Ms. Bestor's astute analysis is refreshing and deserves everyone's attention.


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 22, 2010 at 9:14 am

Chris,

One of the awkward bits of taking a middle-of-the-road position is that I get it from both sides. But I will defend my "Prop 13 has worked about like voters expected it to" in the following way. Someone who owned their property in 1978 is now paying about 179% of the tax they paid then. In real dollars, with a 329% inflation multiplier since then, this means they're paying about half the real dollars they did then.

In my neighborhood, 13 of the 15 homes at 179% are elderly neighbors. They have no children in the schools. They drive very little on the roads (though rather slowly...), they may use the library but not the parks, they do call 911 when their spouses fall and they can't get them off the floor, and they can be forgetful about pots on the stove, though we haven't had a fire yet, thank goodness, so far, their only known appearances in local courts has been as jurors. So they're making about half the "real" contribution they did in 1978 -- hmph. Fair or not fair, given their use of public services? Your call.

One of these houses, by the way, is now on the market. We will be sad to see her go. But glad to see the increased tax revenue.

Meanwhile, there are the other two. Neither of them currently has a homeowner's exemption on it. One I know is a rental property; the other may be that or a second home. Fair or not fair? I'll admit that I have a hard time defending Prop 58.


Posted by common sense, a resident of Midtown
on Mar 22, 2010 at 10:57 am

Jennifer,

In response to your comment:

"So, common sense, when you say "it's all about the wanting the service, but not willing to pay for it themselves," who are you talking about? The commercial landlord who is paying less than $1,888 for a property housing a dry cleaner and an antique store? Does that landlord not expect the same police, fire, hazardous waste, street and public parking maintenance as his competitors around town who are paying 5-10 times as much? Or his residential customers who are paying 10-20 tmes as much?

Where, common sense, is the economic common sense in this imbalance? "

About 8% of the property tax bill goes to fund those city services. A retail property generates can generate alot more for city through the sales taxes and business license tax they spend. If you look at calls for fire service, you would see that more service requests are for residential than commerical. Same for police service requests. So why are you trying to discriminate against commerical properties so that residential properties can benefit?

By your own logic, if Menlo Park wants to extract more from their commericial to pay for "city services", then they should raise their sales tax rate, and their business license tax rates.

What about the 46% of the property tax bill that goes to the local schools? You don't really address it - why don't you want kids from families associated with the commerical properties to go to your schools?

Finally, what would be better to fund the "city services" is for the city to attract more businesses to town to generate the sales tax, business license tax, and hotel visitors who pay occupancy taxes, rather than try to squeeze the current businesses for their last nickel.


Posted by jb, a resident of Leland Manor/Garland Drive
on Mar 22, 2010 at 6:05 pm

It seems to me that some of the grumbling about Prop 13 residential inequities is being blamed on the buyers of pre-'78 houses instead of on the markets. Tax on the $1 million family home comes because the market (which is us) has jacked that price to the stratosphere, not because someone who retired 15 years ago is living in a more modestly assessed house.

If Prop 13 were to go away, a time would come when your taxes would rise every time another house was sold in your neighborhood. That is what was happening when Prop 13 was instituted. Elderly people who owned their homes were receiving tax bills that represented more than they ever paid in mortgage payments. The contiguous homes were reassessed every time a house sold and prices were going through the roof.

We bought in 1977. There was a desperate land grab happening in the residential markets then also. Houses were going up $10,000 per month as people dashed into showings waving fists full of money to grab a house right out from under people conversing with the realtor. $10,000! not much, you say. But those houses were priced at $40,000 to $90,000.

My newly minted Phd husband had a fantastic salary at his first job. It was more than the salary paid to the head of the department where he just got his Phd! $12,000 per year. It took him 35 years to reach the princely salary of $100,000 per year. At that time, our daughter came in one day saying, "Guess what! Adam (BA, computer science) just got a job and they offered him more than Daddy makes!" The wheel has turned again.

The new layer of salaries and home prices behave the same, but at a different level.

Even though you are paying so much more for your house and in taxes, your income is unheard of by many of the retirees on your street. And your astronomical taxes could be rising (to continue the metaphor) meteorically, as well. Proposition 13 could be gone, and there is no guarantee that anything more reasonable would be put in its place.


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 22, 2010 at 10:31 pm

It seems I haven't repeated myself enough! Sorry for the echoes, folks!

Neither Prop 13 nor Prop 58 ever even hinted at a goal of rebalancing the share of community services landlords and businesses pay. Neither proposition suggested creating a wildly uncompetitive playing field in which 20% of the landlords and businesses would pay $12,500 per parcel towards community services, while 40% would pay $2,500 per identical parcel.

Since not one commercial landlord or tenant business has claimed that they do not derive value from good schools in the community, why exclude that 46%?

But there is the growth industry of academic coaching businesses centered around El Camino and Roble, and throughout the downtown, to be considered.

I suppose that's a strategy for Menlo Park -- drive the schools into the ground so the parents are willing to pay anything for after-school tutoring. If the tutors rent enough offices in Menlo, our property taxes will ... oh, no, that's right, new businesses, old landlords, same old 1978 basis. But surely sales tax will ... oh, that's right ... no sales tax on services. Well, at least no new revenue will ensure that the schools continue to create a market for the coaches, who'll keep rents up.

In San Mateo County, 22% of the property tax bills goes for fire, police, and roads.

Consumers (not businesses) pay sales tax -- the vast majority of which goes to Washington and Sacramento. When counties or cities levy sales tax increases, they see major ticket item sellers move elsewhere. Here in Menlo Park, we have an empty auto row to remind us of the fickle nature of sales tax revenue.

Business taxes in Menlo Park rarely exceed $800 per business -- a drop in the bucket compared to the $10,000 above. (Which, I'll repeat, the landlords of 65 of our 352 commercial parcels are paying.)

The idea about attracting more visitors, customers and tenants to Menlo Park is interesting. How much will it cost? Perhaps we could add another parcel tax. They're so popular with the 2000 households and 65 commercial landlords who are already paying a disproportionate share towards our common weal.

Time for bed!





Posted by 14k/yr in prop taxes, a resident of Duveneck/St. Francis
on Mar 22, 2010 at 11:04 pm

JB

Try to remember the 10%+ inflation rate of the late 70s and early 80's. Congratulations on paying off your mortgage with inflated dollars.

Good luck finding a recently minted PhD today who can buy a house in Palo Alto. Evidently your salary was 25% of a home's price. That is never going to happen again.

Sorry, but your whining does not elicit any sympathy from me. Just enjoy your windfall quietly.


Posted by common sense, a resident of Midtown
on Mar 23, 2010 at 9:33 am

Jennifer writes, "Since not one commercial landlord or tenant business has claimed that they do not derive value from good schools in the community, why exclude that 46%? "

Where's the poll that supports that?

and then she writes "I suppose that's a strategy for Menlo Park -- drive the schools into the ground so the parents are willing to pay anything for after-school tutoring"

Who's talking about driving the schools to the ground? If Menlo Park wants to be unfriendly to businesses (for example by raising taxes), it will drive some businesses to locate in neighboring towns, and reduce the tax base of the city.

Jennifer also writes "In San Mateo County, 22% of the property tax bills goes for fire, police, and roads". Menlo Park has their own police department, and city services... And where is the data that shows 22% of each person's property tax bill goes to fire, police & "roads"

Jennifer writes "Consumers (not businesses) pay sales tax -- the vast majority of which goes to Washington and Sacramento. When counties or cities levy sales tax increases, they see major ticket item sellers move elsewhere. Here in Menlo Park, we have an empty auto row to remind us of the fickle nature of sales tax revenue."

If property taxes are raised on commerical properties, by your logic, consumers will pay as well. and sales tax doesn't go to Washington. By the your logic, raising property taxes, which the commerical renter will end up paying, will provide "an incentive for major ticket items sellers move elsewhere"

By the way, Jennifer's analysis on commerical property valuations is flawed. Please name us 100 "identical" commerical parcels where we can compare the property taxes. Jennifer is assuming commerical property valuation is based on parcel size; that is only one of several factors.


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 23, 2010 at 10:40 am

Midtown would be a fascinating neighborhood (Colorado Avenue) to do the same analysis I've already done for Menlo Park.

Instead of repeating your own misstatements about what I've said, why not do the analysis yourself -- for your local commercial district!

Meanwhile, let me correct the misstatement I made -- of the 9.25% sales tax we pay in Menlo Park, 6.25% goes to the state for general purposes, 1% to the state for local criminal justice and health services, 1.25% to the county for transportation, and .75% to local governments for city and county operations. (None goes to Washington -- what was I thinking late last night?!!) Web Link

Sales tax is, of course, a zero-sum game in California, except in border counties where it drives customers across state lines to Oregon, Nevada, etc., for their major purchases, and is a net loss to the state.

And, no poll -- just read the comments in all three comment sections of the papers which published this. Still waiting for one of the 40% of landlords who are paying substantially less than their competition to step forward and explain why that makes it a better economic and community environment for us all.



Posted by common sense, a resident of Midtown
on Mar 23, 2010 at 11:55 am

Glad to see some of the egregious statements taken back.

But a list of the "identical" parcels would help fact check some of the conjectures & theories.

Where's the data on San Mateo county spending 22% of property bill collections on police, fire & roads?

And where are the valuation models that are used for commercial properties?


Posted by Jennifer Bestor, a resident of Menlo Park
on Mar 24, 2010 at 10:33 pm

One of the most interesting things about Menlo Park is that our "main street," Santa Cruz Avenue, was subdivided in such a way as to present almost 80 50x100' lots, which exist in single-, double-, and triple-wide combinations as parcels. Better yet, the parcel maps are available online at www.smcare.org -- go to the Assessor's section and click on Parcel Maps. Then enter "Santa Cruz Avenue" and find a parcel in the 600's or 700's -- it's straightforward from there to find parcels, their sizes, and, in www.sanmateocountytaxcollector.org you can then look up the tax bills for each parcel. You can then even check out the street view on Google maps (though we would love for you to come and have lunch here -- see it for yourself)!

Six parcels you may want to pay particular attention to have retail vacancies right now according to loopnet.com. These are 556, 626, 654, 842, 827, and 871. The available spaces (in sf) are: 2850, 3000, 4231, 1500 (and 3500), 2438, and 7100, respectively. The property tax per sf (including general tax, school parcel tax, high school maint tax, and mosquito abatement) are (per sf): $.25, $2.62, $.74, $.67, $3.26, and $2.50, respectively. The asking prices per sf per year are: $33.60, $30, $42, $31.20, $30, and $33, respectively. All are triple net, except the first, which is full service (tax incl. in basic rental per sf). This is not a large enough sample for statistics, but if you can't resist a correlation coefficient -- it's -.53.

And, the excellent data on the exact breakdown of all Menlo Park's property tax revenues can be found on our City finance website Web Link
On the left-hand side, under "Related Links" you will find the Budget 2009-10. On page 28 (out of 212) you will see the overall breakdown of property tax; on page 24, you will find the subsequent breakdown of the City's portion.

Now, I'm sure you can think of many, many, many more things for me to do ... but ... well, how about you do California Avenue in Palo Alto first, then come and share!


Posted by Not one cent more, a resident of Southgate
on May 11, 2010 at 8:14 pm

Keep the 2 thirds vote and protect prop 13 and 58. The homes should not be taxes or reassessed when a death happens.If the kids choose to stay they should not have to be taxed out of their homes. By the way, No more taxes period. The state needs to stop spending and really needs to make cuts. [Portion removed by Palo Alto Online staff.]


Posted by OhlonePar, a resident of Duveneck/St. Francis
on May 11, 2010 at 9:03 pm

Not one cent,

Are you willing to throw out the "three strikes" law? Because if you're not, then you need to understand we're paying a hell of a lot to lock up people for life.



If you were a member and logged in you could track comments from this story.

Post a comment

Posting an item on Town Square is simple and requires no registration. Just complete this form and hit "submit" and your topic will appear online. Please be respectful and truthful in your postings so Town Square will continue to be a thoughtful gathering place for sharing community information and opinion. All postings are subject to our TERMS OF USE, and may be deleted if deemed inappropriate by our staff.

We prefer that you use your real name, but you may use any "member" name you wish.

Name: *

Select your neighborhood or school community: * Not sure?

Comment: *

Verification code: *
Enter the verification code exactly as shown, using capital and lowercase letters, in the multi-colored box.

*Required Fields