Palo Alto Weekly

News - May 16, 2014

Palo Alto joins effort to reform Prop. 13

Resolution seeks to shift more of a property-tax burden to commercial properties

by Gennady Sheyner

Palo Alto on Monday became the latest California city to officially favor reforming Proposition 13, though some on the City Council argued that the resolution currently on the table isn't going far enough.

Members offered a variety of reasons for their respective positions prior to voting to endorse reforms to the 1978 state law, which caps property taxes at 1 percent of the property's assessed value and also ties taxes to a property's 1975 assessed value unless it has changed ownership.

Everyone agreed that commercial properties aren't paying their share of property taxes, a dynamic that places a greater burden on owners of residences. The reforms, while non-specific at this point, would propose regularly occurring reassessments of non-residential properties.

A staff report from City Manager James Keene noted that before Proposition 13, 40 percent of local property tax revenues came from non-residential properties. Today, that figure stands at 28 percent, with residents and apartment owners paying the balance.

"I think the issue we're trying to deal with is just fairness — that inexorably, the share of property taxes being passed by commercial property owners is declining every year, in Palo Alto, in Santa Clara (County) and in California," Councilman Greg Schmid said on Monday.

Councilman Greg Scharff said the resolution should go further and include multi-family developments.

"It's a business. I don't see it as any different from other types of commercial," Scharff said.

He cited Equity Residential, the Chicago-based property owner that is now East Palo Alto's largest landowner.

"Are we going to give them a break?" Scharff said.

Councilman Larry Klein, a staunch and frequent critic of the law, agreed Proposition 13 was "manifestly unfair" and proposed it should be "blown up" in a Constitutional convention, rather than gradually reformed.

It's not fair, he said, that a young family who may wish to buy a house next to his would have to pay triple (if not more) the amount of property taxes that he pays. The proposition discourages young families from coming to Palo Alto, Klein said.

"It creates a lack of diversity in our community," Klein said.

Councilman Marc Berman had no problem with the council's resolution, which is general and doesn't back any particular reform proposal. While Klein argued that the resolution doesn't go far enough and offered only lukewarm support, Berman called the vote a "good first step."

Even Karen Holman, the lone dissenter in the 8-1 vote, said she is very much in favor of reforming Proposition 13. Her concern with the resolution on the table was based on possible "unintended consequences" for small businesses, which would see their property taxes shoot up under new reassessments.

"We've seen up and down the state and all over the country how downtowns have died, for lots of reasons," Holman said.

The resolution was drafted by the citizens group Evolve, which looks to direct more revenues toward education. It states that Proposition 13 allows commercial property owners "to avoid paying their fair share and has shifted the tax burden to residential property and away from business, including everyday homeowners and working families."

The resolution notes that reassessing non-residential property would generate at least $6 billion in additional revenue for California, according to data from the California Board of Education. Ian Fregosi, an organizer with Evolve, said the group feels it's unfair that "corporations are getting huge million dollar or billion dollar tax breaks, while our schools are 49th in the country in per pupil funding."

"We believe that our state should address the drastic budget cuts that local governments have endured by raising revenue, not making further cuts or by increasing the already high burden on individuals," Fregosi said. "We know the fairest way to provide desperately needed revenues is by reforming Proposition 13."

Other cities that have voiced support for reform of Proposition 13 include Berkeley, Brisbane, Burlingame, Oakland, Richmond and Santa Monica.

Staff Writer Gennady Sheyner can be reached at gsheyner@paweekly.com.

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