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Buffet to Bestor: Let's share the pain if the Gov gets tough on Proposition 13

Original post made on Apr 21, 2010

Jennifer Bestor didn't know what to expect last month when she mailed a rather whimsical letter to billionaire Warren Buffet about her research on how Proposition 13 has shifted the state's property tax burden away from commercial land owners. His subsequent response, though, has left the Menlo Park mother of a school-age son smiling — and energized.

Read the full story here Web Link posted Wednesday, April 21, 2010, 12:00 AM

Comments (19)

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Posted by encinal mom
a resident of Menlo Park: Downtown
on Apr 21, 2010 at 9:44 am

Do I have to do all my sit-ups in the same day?

Go Jennifer!


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Posted by Jackrabbit
a resident of Portola Valley: Westridge
on Apr 21, 2010 at 12:42 pm

Buffet is the last person from whom seeking advice portends to be relative to the average taxpayer. Bestor is after her 15 minutes of "Warhol" fame and grandstanding on a subject for which Californians have no stomach or sympathy (other than the newcomers who are jealous of the old-timers and not willing to pay their "new arrival" fees). Just read the most recent California Field Poll on the subject -- overwhelming in favor of maintaining Jarvis-Gann. Stick with the notion of getting commercial property owners to donate rather than disrupting a program that works for everyone. Prop 13 is as FAIR AS IT GETS!!! Schools don't need more money; they need to abolish the teachers' unions and rid the system of waste and tenure. Money DOESN'T SOLVE ALL PROBLEMS and Bestor's simplistic "solution" is going to create more problems than it solves.


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Posted by MARILYN PRESS
a resident of Menlo Park: Sharon Heights
on Apr 21, 2010 at 4:58 pm

I remember when Proposition 13 passed. I voted against it. I told anyone who'd listen that, over time, the balance of property tax revenue would shift, with residential property becoming proportionately greater and commercial property becoming proportionately smaller. This is by the simple fact that residences turn over much more frequently than does commercial property. I am not happy about my "I told you so." We are now strangled by our short-sighted and very damaging decision. And with business in a position to spend immense amounts of money on media advertising (see PG&E on Prop 16 and Mercury Insurance on Prop 17), the chances of mounting a successful modification of Proposition 13 is probably slim to none.

"Jackrabbit" has an interesting solution---getting commercial property owners to "donate". I have a better idea: How about having PG&E, Mercury Insurance and Meg Whitman match their "donations" to their political campaigns dollar for dollar in donations to ailing schools?


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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Apr 21, 2010 at 6:31 pm

Marilyn,
Interestingly you were not exactly alone, reading the Field Polls (available on page 5 of Web Link ). 60% of those polled in 1981 felt that commercial property should be taxed at a higher rate (possibly since people remembered the process documented by Douglas Dupen elsewhere in this issue). And, even two years ago, 47% felt it should, vs. 44% felt it shouldn't, and 9% no opinion. Then came the financial crash and the numbers fell to 37% (with 58% feeling it shouldn't and 5% no opinion), and now the numbers are shifting again (shouldn'ts dropping to 52% while undecideds are climbing (11%), with a margin of error of 3%).

The function of money in all this would be interesting to track: with commercial paying an ever lower effective rate compared to residential to the tune of $4-8B/year, there must be very deep pockets somewhere!

Jackrabbit,
"Newcomers" vs. "oldtimers?" I guess I thought that before I looked around my neighborhood (it helps to have lived here for 20 years), but, funnily, many of the people who are paying the most are native Californians. (Indeed, the highest tax on the street is paid by a man whose great-grandfather came in 1850.) They just happen to have bought a home here for work or because they liked our 'hood -- or maybe because they didn't want to live with their parents. And others, who are renting inherited homes with 1978 tax bases, come from out of state.

Meanwhile, on the commercial side, less than half of the tax bills for pre-1985-basis commercial parcels in Menlo Park go to Menlo Park addresses -- including those that go to MP property managers. Otherwise, Hawaii, Alabama, Arizona, and Massachusetts (three different owners) are all represented, along with towns up and down California. It will, indeed, be interesting to see who donates to the Educational Foundation. Will it just be local commercial landlords? Or will folks 3000 miles away also care?

And, please, it always feels so condescending to be told that 'money doesn't solve all problems' by someone whose teachers are paid, on average $3,500 more a year than those in Menlo Park (from ed-data at www.ed-data.org), while Portola Valley spends $15,927 educating each of your children (vs. our $11,680) -- $4,200 a year more.

Perhaps the most interesting thing is that not one Menlo Park commercial landlord with a 1978 basis has come out publicly and explained why s/he deserves to pay 5-10X less than the new landlord on the block. That valuable perspective would be more than welcome to my fifteen minutes of fame!


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Posted by Jackrabbit
a resident of Portola Valley: Westridge
on Apr 21, 2010 at 9:13 pm

JB -
You're sounding a lot like "talk to Meg". As a fourth generation San Francisco Peninsulan and being 70 years of age, I resent being preached to by one that wasn't here when Prop 13 came down having seen friends, neighbors and relatives lose their homes in which they had raised their families; this because out of control politicians felt the tap would never run dry. Well guess what? The taxpayers reacted and revolted. As a B-School graduate, you should be the first to understand the need to forecast anticipated expenses (as well as income). And property taxes fall into that category. As they say, "don't mess with Texas (Taxes)"!


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Posted by Michael Stogner
a resident of another community
on Apr 21, 2010 at 9:20 pm

I'm in....Great job


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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Apr 22, 2010 at 7:52 am

Dear Mr. Jackrabbit,
Well, other than being the same age, the same sex, having the same educational background, living in the same school district, and being largely self-funded, I can't imagine why I might sound like Meg! (I actually graduated from the GSB with Mr. Poizner, but that is Beside The Issue.)
Unlike Meg, I was here when Prop 13 passed (albeit as a Palo Alto homeowner and voter). And, if you read the original Almanac article, you will see that I feel Prop 13 worked about the way voters expected on the residential side. My focus is on clarifying its effects on commercial property.
I do understand the value of forecasting expenditure -- my recommendation is, after all, a maximum 20-year period between reassessments on commercial parcels. Twenty years! I can't remember (in decades in business) ever running a financial model out more than ten. Other than anchor retail, how many commercial leases run more than 15 years? So why grant tax caps in perpetuity?
At twenty years, I found that the tax law had created a significant competitive barrier to entry -- and by 32 a real windfall -- that was neither improving our business climate nor our community's fiscal stability.
So, as much as I support the anti-litter campaign that spawned the original 'don't mess with Texas' bumper stickers in the 90's, I now think that we need to tap that windfall for the community services that will keep my elderly friends, neighbors and relatives happily in their homes.
P.S. Is your crunch as good as your jackrabbit kick? We could use you. 80-70 = only ten!


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Posted by LVT fan (google it)
a resident of another community
on Apr 22, 2010 at 8:51 am

So have we now trivialized a matter of economic justice and treating everyone -- even homeowners -- as if we believed they were fundamentally equal -- into a nice joke about pushups and a proposal to ask commercial landlords (and, I suppose, triple net lease tenants, too?) to make a token charitable contribution to meeting the legitimate needs of the community.

Sad. Very sad.

There are a lot of people who are being subsidized by the provisions of Proposition 13, and a lot of others who are being forced to pay taxes on their purchases and their wages in order to make up some of the foregone public revenue from the most legitimate and just tax base, land value.

This damages the economy. It is unjust and stupid. California's colleges -- with only a few exceptions -- no longer teach economics effectively, so it isn't the fault of the students who in good faith sought answers there. (Someone expressed it as "neoclassical economists are rich people's useful idiots.") Many of those rich people's privileges are protected by this, and all you can talk about is a few "poor" widows. So you continue to endure a stupid and venial tax system, and all you seek to do is nibble at its leaves, rather than finding the root of the problem.

Keep nibbling, and farm out those pushups! You can entertain yourselves nicely! Don't make any radical changes; you might make a difference! Pretty soon, your own children will have graduated, and you will just be able to enjoy your "protection" under Prop 13, and it will be other people's children who suffer.


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Posted by Jackrabbit
a resident of Portola Valley: Westridge
on Apr 22, 2010 at 12:59 pm

Touche JB. My concern is that once a law is revised, albeit in part, the barn door is open for further revision and ultimate elimination; hence my reference to "don't mess with taxes/Texas". Having seen long time resident homeowners lose their properties back in the seventies through no fault or creation of their own but owing to the unsatiable appetites of our elected/appointed "representatives", my sense is that Prop 13 is about as fair as it gets regardless of when you purchased your home. PV has an excellent school funding foundation (to wit your reference to per pupil expenditures)and we are more than happy to contribute to that directly. That seems to be a better and more direct way to aid the schools.


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Posted by HES
a resident of Menlo Park: The Willows
on Apr 22, 2010 at 1:56 pm

Jackrabbit,

Thanks for coming around to a more reasonable position. Prop. 13 has benefited me and my wife personally, esp. since its companion props allowed us to keep our old assessment when we became empty-nesters and downsized by moving to a smaller house, still in the Willows where we'd lived for 35+ years.

There must be a middle ground between abolishing Prop. 13 entirely and leaving all its pernicious effects in place. California's public school systems, from kindergarten all the way up to UC, have been decimated by the lack of revenue and the idiotic 2/3 requirement for budget passage in the legislature. As for the comments blaming everything on teachers' unions, hey, those unions existed back when California's schools were the best in the country rather than the second worst. The difference is precisely Prop. 13. It needs revision.

Attempt to subtitute voluntary payments for legitimate taxes won't fly in the long run. My wife and I donate to worthy causes of our choice, but the public schools really need to be PUBLICLY funded. Our future is in the hands of the next generation, so even people with no children have a civic responsibility to the education of the young. Sadly, even some of our neighbors in the Willows don't see this, but that proves my point. They need to be obliged to support the education of other people's children in the same way that I (who do not believe in military solutions to "national security" problems) am obliged to support the Pentagon's runaway spending.


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Posted by Gunther Steinberg
a resident of Portola Valley: Ladera
on Apr 22, 2010 at 2:49 pm

As a 41 year resident in my home, I am protected from escalating taxes under Prop.13. I believe that at the time, it was a well justified measure, since local entities kept upping the tax rates to finance anything that came to their mind.
I suspect that the number of residential properties that are under Prop 13 tax levels is shrinking very steadily and will approach zero in the foreseeable future. The same cannot be said for commercial properties, since methods have been developed to transfer them without their being re-assessed. That should be corrected ASAP, without touching residential.
To me, Prop 13 was eminently reasonable. Being taxed on unrealized gains in value seems tome to be equivalent to the IRS taxing everyone on unrealized gains on securities which have not been sold. - Imagine buying Google at 25 and holding it. Then the IRS comes and demands taxes on the increased value when it rose to 500, but has not been sold. Everybody, especially the high income investors would scream VERY LOUD.

I can only guess that at the time Prop 13 was written, some smart lobbyists or real estate investors got their fingers on writing some sections on commercial properties. Just like the lobbying that goes on in Congress on a daily basis, where industries write their own laws, or try to.


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Posted by Willy
a resident of Woodside: other
on Apr 22, 2010 at 3:14 pm

Gunther:

"I can only guess that at the time Prop 13 was written, some smart lobbyists or real estate investors got their fingers on writing some sections on commercial properties..."

Methinks it was the other way around, written for commercial properties, with residential written in as a sop, to effectively market and pass it.

Several counties have reported that the prop tax burden has gone from 60/40% commercial/residential to 40/60% commercial/residential (LA and SF in particular.)

Anyone have data on San Mateo; specifically how much the burden has shifted to residential?


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Posted by Renee Batti
news editor of The Almanac
on Apr 22, 2010 at 4:39 pm

Renee Batti is a registered user.

Willy,

Assessors in both San Mateo and Santa Clara counties reported that residential property owners shouldered about two-thirds of the property tax burden in 2009. In 1978, the burden was shared almost equally in San Mateo County. I'm not sure what the ratio was in Santa Clara County 32 years ago.

Here's a link to the original story about Jennifer Bestor's research:

Web Link


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Posted by Renee Batti
news editor of The Almanac
on Apr 22, 2010 at 4:43 pm

Renee Batti is a registered user.

I just discovered that the link to Jennifer's letter to Warren Buffett wasn't included in the story I referenced in my last post. If you haven't read it, it's worth your time:

Web Link


 +   Like this comment
Posted by Willy
a resident of Woodside: other
on Apr 22, 2010 at 5:26 pm

Renee:

Gracias!

Enjoy your boards and daily newsletter.


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Posted by David Roise
a resident of Menlo Park: Allied Arts/Stanford Park
on Apr 23, 2010 at 7:30 am

This goes to Gunther Steinberg's recent comment.

I like your analogy to Google stock, but you don't go far enough. In the case of the Google stock, you would at least be taxed on the proceeds of the stock when it was sold (either as regular income or as a capital gain, depending on how long you held it). In the case of your home, the gain (if any) goes straight into your pocket--or the pockets of your heirs--without being taxed (unless you are subject to estate taxes, which these days is pretty unlikely).

I don't want to see older homeowners getting taxed out of their homes, but I also think that Prop 13 has created an extremely unfair tax situation. Why don't we consider changing the law to keep track of all the taxes a homeowner would have owed had the property been assessed at its actual value, and then require that those accumulated taxes be paid when the property is sold (just like you would pay capital gains after selling your Google stock). That way nobody can complain they are being taxed out of their homes, but our schools and cities would get the tax revenue that they so desperately need. Win-win.


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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Apr 23, 2010 at 8:40 am

Willy,
In 1978, both San Mateo County and Santa Clara County were 50% single-family residential and 50% commercial (industrial, retail, agricultural, and multi-family). By 2008, both had shifted to approx. 67% SFR/condo - 33% commercial. (In 2009, Santa Clara shifted back a bit, due to [a] the proactive reassessment of 90,000+ SFR/condos down to the current market value, and [b] an addition of an unidentified $1 billion of new improvements in property that had been bought a year before. Commercial properties were not proactively reassessed, so those of us who follow this stuff are waiting for the 2010 Annual Report, due out in three months.) The San Mateo information is available by request from the Assessor's office. I don't know if Terry updated it for 2009, since, by then, I'd decided to narrow my research just to Menlo Park's city school district.

JR,
I actually feel it's crucial to make the commercial-residential distinction because, otherwise, the majority of people seem to think that commercial property owners are paying an increasing (!) proportion of the lion's share (!) -- and that retirees and 'oldtimers' are dragging the system down.
This misperception makes it seem more likely to me that, if California crashes, Prop 13 will be revisited in toto, rather than surgically improved. The turnover in residential means that, now, over a third of Menlo homeowners and 48% of Santa Clara County homeowners have bought in the last ten years and are paying 10-20X what 25-33% of their neighbors are in taxes. So an ever larger proportion of voters is not getting what they're paying for -- and blaming the 'oldtimers.'
What I'm trying to highlight is the extent to which it is not oldtime residents, but rather commercial property owners, who are disproportionately benefiting ... and whose benefits will proportionally grow, given the legal ways such property can be held to escape reassessment. What amazes me is the way that 'oldtimers' have been stirred up to fall on their swords for commercial property owners.

LVT fan,
When you commented on the original article, I actually looked up LVT and tried to figure out how it would work in Menlo Park. After a little work, I realized that understanding it would take a lot of analysis and assumptions. Looking at my street and just reapportioning the current tax against each parcel, I could see that 33 houses would pay more, four about the same, and 16 less than currently. (For the record, ours would pay $2358 less.) I didn't see that as a likely political winner.
Turning to commercial, even more would pay more (since even more are now paying less, if you know what I mean) and, most particularly, I could see that four-story office buildings would pay much less under LVT -- and the same as one-story office buildings. Given that higher-density buildings are bigger drains on public services (e.g., roads, firefighting), I just don't see this as even a long-shot win politically.

And, contrary to my public avatar (fame-seeking desperate OC housewife), I have no interest in being the Boadicea of Tax Revolt ... but would love to finish my will index for 1640 - 1740 Archdeaconry Court estates in Bluntisham-cum-Earith, Hunts. Instead, because I don't feel that the growing discrepancy between residential and commercial property should go unmentioned, I have strangers pinching my middle-aged tummy like a toddler's cheeks. Egads.


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Posted by Gunther Steinberg
a resident of Portola Valley: Ladera
on Apr 23, 2010 at 1:39 pm

Regarding David Roise's comment on tax on sold property or securities mentioned in my original comment. The big point is that one is taxed on unrealized gains. Tax on the property or securities when sold is perfectly legitimate, since that is a tax on capital gains. Of course, Bush and company made special deals for the wealthiest among us, by lowering capital gains well below normal income. The result, as with commercial property under Prop 13, that people find ways to minimize all their gains by reclassifying them.
We do need to remember that taxes and government are what keeps, or tries to keep our society on a civilized footing.


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Posted by Jackrabbit
a resident of Portola Valley: Westridge
on Apr 23, 2010 at 10:45 pm

To DR - You are incorrect to state that the proceeds of a home sale goes straight into your pocket. Did you forget capital gains? If you have been in your home for at least two years, the individual exemption is $250k any profit above the original purchase price plus improvement costs and the exemption results in capital gains taxes. If you have in your house awhile, the tax is SUBSTANTIAL !!! Make no mistake.


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