In the same decade that Don Hoefler's column in Electronic News officially renamed Santa Clara County "Silicon Valley," another historic event happened in California: A taxpayer revolt carried Proposition 13 with a 64 percent majority, freezing property-tax rates to protect homeowners in reaction to the state's 1970s booming real estate market and escalating property tax burden.
Why are these two events linked? Because the final transition Santa Clara County made from agriculture, canneries and manufacturing to high tech innovation, research and industry has created some of the most desirable and expensive commercial property on the planet. Much of this property is owned or held by corporations valued well below market -- some at only 2 percent increases since 1976 -- creating an unfair tax burden on residential homeowners to fund public services.
Since Prop 13 passed, the property-tax obligation in virtually every California county has shifted from commercial to residential land owners. The Santa Clara County Tax Assessor reports that property valuation rolls in 1978 were equally split between residential and commercial property owners. Now, residential homeowners shoulder twice the burden of non-residential property, primarily because of a loophole that avoids re-assessment if less than 50 percent of ownership changes hands. In fact, corporate merges and take overs are not always considered a "sale" or "ownership change" as defined by Prop 13, and therefore real estate is not re-valued.
In a city like Palo Alto, with a 3-to-1 imbalance of jobs to housing units, it means that corporations do not pay their fair share toward city services like police, fire, parks and infrastructure or toward educating the next generation workforce.
Polling by the nonprofit, nonpartisan Public Policy Institute of California finds solid voter support to fix the policy that undervalues corporate property indefinitely, keeping an estimated $9 billion of much needed revenues annually from the schools, community colleges, cities and counties of California.
It is time to close the loophole.
In 2014 Palo Alto joined hundreds of other cities and school districts that endorsed the Evolve California campaign to correct the Prop 13 corporate loophole. On May 7th the "Make It Fair California" initiative launched in Sacramento. The Evolve website illustrates the issue of "Your Castle" v. "Sleeping Beauty's Castle." Property taxes owed by an average California family are about 40 cents per square foot, Disneyland pays a nickel; the average family income in California is about $62,000; Disney Corporate income is more than $42 billion.
On Wednesday, June 10, SCA5 was introduced to the California Senate by Loni Hancock of Berkeley and Holly Mitchell of Los Angeles that initiates the legislative process to close the corporate loopholes on non-residential commercial and industrial property while protecting homeowners, renters and small businesses from any change. The estimated new $9 billion in revenues will have accountability provisions to ensure it is spent on schools and local services we all depend on.
Correcting this part of Prop 13 is welcome news to me because I have seen firsthand the impact on our schools. Twenty years ago Palo Alto public schools faced the reality of long-term limited school funding based on Prop 13's mechanical taxing formula. District reserves and revenues from site sales had run out, and a strategic long-term plan forced cuts to classroom programs. In 1993, Superintendent Jim Brown asked each school PTA to work closely with their principal to identify budget cuts and choose which classroom programs to terminate. I was a PTA President at Walter Hays Elementary School at the time, and this meant cutting into the meat of student curricula. PTA was raising funds but not enough to save these programs, which required reliable and consistent revenues.
The PTA mission is to better the lives of children through advocacy. It was common for PTA to fund programs and augment school needs but not to sustain programs or have the district rely on voluntary funds. By the early 1990s, Walter Hays had a rigorous fundraising effort to augment site funds by about $40,000 to sustain "enrichment programs" like classroom aides, Junior Museum Science and art. Duveneck raised PTA funds to hire a tenured teacher. The era of fundraising Band-Aids ended, and the journey to reorganize into district-wide fundraising began.
Today, Partners in Education raises $5 million to sustain site-identified enrichment programs at each school. But this is not enough to fix the consequences of mechanical taxation formulas regulated by Prop 13.
A better re-assessment trigger for non-residential property is a simple fix but needs a 67 percent majority in the legislature. It will be a game changer for many cities, school districts and counties across California -- including Palo Alto, which is corporate property rich. It will wake up the Sleeping Beauty Castles and infuse public education and city services with billions annually -- and Make It Fairer in California.
The "Make It Fair California" campaign is limited to correcting non-residential corporate loopholes. More can be found at evolve-ca.org and makeitfairca.com. No other state in America budgets for public services using fixed property-tax rates. For a summary of Prop 13, refer to Santa Clara County Assessor's Annual Report at sccassessor.org. The 2004 documentary by John Merrow "From First to Worst" illustrates the change to California public education and can be found on YouTube.
Nancy Shepherd served on Palo Alto City Council 2010-2014, led the change in PAUSD district wide fundraising from 1994-2001, is a retired commercial real estate accountant, and serves on the advisory board for the Evolve campaign. She can be emailed at email@example.com.