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Consider Changes to Prop. 13

Full Speed to Port!

Posted: March 5, 2008 4:56 p.m.
Updated: May 6, 2008 5:02 a.m.
 
This in from The New York Times regarding oil leviathan Exxon Mobil: "The company reported Friday that it beat its own record for the highest profits ever recorded by any company, with net income rising 3 percent to $40.6 billion, thanks to surging oil prices. The company's sales, more than $404 billion, exceeded the gross domestic product of 120 countries. Exxon Mobil earned more than $1,287 of profit for every second of 2007."

And from London's Daily Mail: "Shell Oil smashed all-time British company profit records today, posting 2007 earnings of $27.5 billion."

Shell's profit surge - it is now making a staggering $75 million a day on the back of a booming oil price that touched $100 a barrel this winter - was labeled as "obscene" by Tony Woodley of Unite, the UK's largest trade union.

Meanwhile, Assemblyman Cameron Smyth weighs in protecting corporate profits in his Feb. 24 essay in The Signal. Smyth fumes against a Democratic plan to modify Prop. 13, allowing for "split-roll" property tax assessments, so that business-owned properties may be periodically reassessed to keep business property taxation reasonably aligned with actual business property valuations and profits.

Says Assemblyman Smyth running interference for big business: "A split-roll property tax would devastate California's economy, eliminate Prop. 13 protections for businesses, and likely bring about a severe recession in our state."

"Forced to pay between $3 billion and $7 billion in higher property taxes each year, businesses would have to pass along the increased costs to consumers in the form of higher prices on all goods and services."
"Many companies would simply be unable to afford this massive tax increase and would be forced to leave the state or close their doors altogether."

Ah, the stench of the Republican politics of fear. "Tax businesses fairly, and they'll leave the state and leave you jobless!" It's hogwash, and Cameron Smyth knows it. Shell must be rolling over with laughter.
Smyth, as most know, cut some of his political chops as the paid spokesman and lobbyist for Shell Oil. More than most, Cameron knows the under-taxed value of Shell's and Mobil's holdings in California. More than most, Smyth knows that the largest, richest corporations in California benefit the most from Prop. 13's prohibition against property value reassessment.

Some 30 years ago in 1978, Prop. 13 was sold to voters as tax relief for fixed-income families struggling against fast-rising real estate values and resulting property tax increases. While that problem was real, the humongous, magnificent dirty secret of Howard Jarvis' Prop. 13 is that the overwhelming beneficiaries of Prop. 13 are the state's largest businesses. Jarvis represented and was funded by the Los Angeles Apartment Owners Association. Corporate real estate and other big business have long been happy, subsidized pigs at the Prop. 13 trough.

Meanwhile, the average Californian moves about every six or seven years, so most residential real estate is reassessed fairly frequently. Businesses however, sell real estate assets much less frequently than do homeowners. From malls to apartments, shopping centers, oil refineries, farms and business parks - until these properties actually change hands on title, they're never reassessed to current valuations. And when big business does "sell" property, it often uses loopholes to avoid triggering reassessment.

Ninety-nine-year leases don't pull the reassessment trigger, nor does the sale of stock of holding companies. You and I get reassessed whenever we move. Big business hides out from social responsibility with loopholes.

There's an easy way to think of it. Suppose you own a 200-unit apartment in Canyon Country. You bought it back in 1978, and you've held it ever since. Perhaps you paid $2 million for it back then, and your taxes were a whopping twenty-something thousand a year. You rented your 200 units for $160 a month to families who sent their kids off to use public services like schools, parks, libraries, police and fire protection. Your real estate taxes were used to pay the cost for public services for the families living in your building.

Today, 30 years later, you're renting those same 200 apartments, not for $160 per month, but for 10 times more at $1,600 per month. But your base property tax rate has more or less remained at 1978 levels, about twenty-something thousand per year. Meanwhile, the cost of teachers, firemen, police, parks and schools have all risen 500, 600, 700 percent! You're making 2008 profits, sending your 200 families into a community that now runs on 2008 costs, but you're only paying your share of community expenses at 1978 levels. Your profits are bloated by Prop. 13 subsidies, while our community is starved for funds to pay for your 200 renters. A Republican dream!

Meanwhile, homeowners continue moving about every seven years, and thus pay property taxes on generally more current valuations. Using the example above, it's likely the combined property tax of just six or seven recent homebuyers in Canyon Country equal that paid by the owner of the 200-unit apartment complex. Just a handful of homebuyers pay the social costs of 200 families living in the tax-subsidized apartment - all to the landlord's profit and to our community's detriment.

So back to Cameron Smyth and Shell and Exxon. Giant business like oil, corporate farming and industrial real estate are all making record profits throughout California. Meanwhile, our state is $14 billion in the red, our freeways and infrastructure are crumbling, and homeowners pay a disproportionate amount of the cost. And what we don't pay in taxes we pay in degraded quality of life.

It's time that big oil buddies like Cameron Smyth come clean and truly represent the interests of voters instead of the interests of business. Big business profits at 2008 levels. Just refer to Exxon or Shell. Now its time they pay 2008 taxes like the rest of us.

Californians should revise Prop. 13 to allow for periodic reappraisal of commercial property so that everyone pays his or her fair share, and no one freeloads. The Golden State can glisten yet again when business bucks up and pays its current share of the load.

Gary Horton lives in Valencia. His column reflects his own views and not necessarily those of The Signal.

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