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Capitol hearing on possible changes to Proposition 13 held Monday

March 12, 2012 12:00:00 AM PDT
Are property owners paying a fair share of taxes under Proposition 13? A hearing was held Monday at the state Capitol on possible changes to Prop. 13.

Local and state governments are hurting for tax revenue, and one proposal broaches the touchy subject of Proposition 13, going after certain property owners whose taxes haven't gone up in decades.

A lot of California homeowners covet Proposition 13, the landmark voter-approved law that limits how much property taxes go up.

But some critics believe commercial building- and land-owners are taking advantage of a loophole that lets their property taxes be re-assessed only when a new owner acquires more than a 50-percent stake, leaving schools and local governments struggling to pay for basic needs. They say closing that loophole would generate $9 billion a year.

"What we do is we blind our eyes from looking at this hole right in the middle of our tax system," said Lenny Goldberg, executive director of the California Tax Reform Association.

A new report by the California Tax Reform Association gives the example of Silicon Valley: how some longtime companies barely pay $1,000 an acre, while newer companies pay $58,000 an acre.

"How could the richest corporations in the world be paying virtually nothing on some of the most valuable property in the world?" said Goldberg.

Pro-business groups say it would be unfair to change the commercial end of Prop. 13. They point to another report by the Davenport Institute at Pepperdine University, which found increasing property taxes on businesses by $6 billion would kill 400,000 jobs in the first five years.

"Why would you want to put a huge additional tax burden on California businesses when they're already struggling?" said David Doerr, a spokesman for the California Taxpayers Association. "How many businesses have gone out of business already in this state?"

Any talk of changing Proposition 13 is almost unheard of; it's considered a sacred cow in political circles.

One economist says no other state has a Prop. 13 and therefore should be repealed.

"I can't think of one reason in the world why Prop. 13 should exist. I think it's an awful, regressive tax," said Chris Thornberg, a founding partner of Beacon Economics. "Yes, it's the political third rail."

The Howard Jarvis Taxpayers Association, which champions Proposition 13, says the law has saved Californians more than $500 billion in its 33 years in existence.

Meanwhile, the proposal to change the commercial assessments may be dead on arrival because it needs a two-thirds vote.