Thursday, June 10, 2010

Close the loophole

This from Matthew VilleneuveOrganizer, Close the Loophole:

Reforming Proposition 13 will take much more than a short-term political campaign. Restoring justice to California’s property tax system requires the kind of sustained communications and organizational effort that will last past the next election cycle and change minds over the long haul.

That’s why San Francisco’s elected Assessor-Recorder Phil Ting and a number of other leading advocates for tax justice have formed Close the Loophole, an organizing campaign designed to identify, educate and activate 100,000 Californians to be the backbone of a sustained drive for

While both public and private polls show there is currently majority support for Proposition 13 – that support is inflated by a misunderstanding of how Proposition 13 really works. Once voters understand that Proposition 13 contains a loophole that gives a massive tax break for big corporations, support for the 1978 initiative diminishes rapidly.

Close the Loophole will lead the process of changing the public consciousness and building a broad-based, enduring coalition around reforming Proposition 13.

An estimated 7.5 billion dollars are lost every year because of business tax loopholes in Prop. 13 – yet there is not an active organization with the singular purpose of reforming the initiative. In what will most likely be one of the worst budget years in the history of the state, 2010 presents our organization with an ideal opportunity to build a long-lasting coalition around meaningful structural reform. That’s why we formed Close the Loophole – to create a central organizing structure that can help sustain this important effort, educate Californians and support other organizations that begin to work in this arena.

Close the Loophole’s proposal is to create a Split Roll, a system that will leave current Proposition 13 protections intact for homeowners but allow commercial assessments for corporate landowners to rise so they reflect actual valuation. Estimates from the State Board of Equalization show that once a Split Roll is fully implemented, up to $7.5 billion in additional tax revenue will be available annually to repair the state’s budget crisis and fund vital services, like K-12 education.

We have a strong story to tell. Within a week of publishing Close the Loophole’s first opinion piece in the San Francisco Chronicle, thousands of Californians signed up to join the campaign on Facebook and on our website. Since our launch, we’ve published over a dozen pieces in prominent newspapers and blogs throughout the state. We’ve held events and leadership meetings throughout the state. Over 300 Californians have already offered to volunteer their time to Close the Loophole. By organizing 100,000 trained and motivated storytellers, we will create the type of infrastructure that will change minds and draw long-term support for this important cause.

We’ve already organized 10,000 Californians around closing corporate property tax loophole in
Prop. 13. Will you join us?

Please learn more about our efforts at or on


  1. We’ve already organized 10,000 Californians around closing corporate property tax loophole in
    Prop. 13. Will you join us?


  2. The "loophole" is one of the few benefits that CA can offer businesses so that they stay in the state and don't flee to Texas, Oregon, Utah, Nevada, etc. It is VERY expensive to run a business in CA and INCREASING the costs is only going to hurt the CA economy, which does nothing to help the schools. I believe that more local control of the money that is spent is a bigger issue than this loophole, so no, I won't join.

  3. Here's the loophole.

    By establishing dummy companies, corporations can use slight-of-hand accounting that make commercial property appear that it does NOT change hands when it is sold.

    Thus, we have many commercial properties that are still valued at their 1979 levels (when Prop 13 was passed, plus the 1% a year that the value of the asset is allowed to rise for tax purposes).

    Here's a hypothetical example. Building A, that was valued at $1 million in 1979, is now officially valued at $1.41 million...even though it may have in fact been sold several times for as much as $10 million or more. (inflation was as high as 14% annually in the 1980s, and we all know how property prices have risen).

    However, the current property owner is only paying $14,000 a year on his $10 million property.

    That's nearly a 0.10% tax rate.

    How would you like it if the annually property tax on your $500,000 house was around $700? You would love it!

    But our schools would be even broker than they are today.

    Therein lies the problem.

  4. Why not base a homeowner's property tax on the property's market value, rather than its assessed value?

    Nah, just kidding.

  5. Slight-of-hand creation of dummy corporations to avoid lawful assessments at time of sale represent tax evasion. We have laws in place to prosecute tax evasion. How many "bad apples" are playing this trick? A few? They will be hard to find and won't generate much tax revenue. A lot? If that's the case, they will be easy to find and prosecute.

    We do not need to modify Prop 13 to charge criminal offenses for tax evasion. We all know that in the end homeowners will suffer much more than commercial property owners after all is said and done. All it takes is one sentence, buried deep inside an over written ballot measure, to punish homeowners for all previous wrongs by the few bad apples.

  6. It's not just sleight-of-hand maneuvering. It is happening on a large scale.

    Other diverse states do a better and more efficient job with their tax laws and collections (Massachusetts) and have better schools and student outcomes (Massachusetts), and still have relatively robust economies, considering the recession (Massachusetts). California has been in decline ever since Prop 13 passed. Don't listen to the fear-mongering. Most of us benefit when everyone pays a fair share, including the corporations. Even the corporations benefit from a well-educated populace, which is why high-paying jobs are in educated states (Massachusetts, which recovered from waves of manufacturing loss and built a knowledge economy with high tech and bio-tech).

    I have already joined the Close the Loophole campaign.

  7. Seems like abnormally low property taxes on property that companies have owned for a long time also contributes to urban blight. How else to explain vacant weedy lots in areas like Lombard and Van Ness streets? If they had to pay what they should really owe, there'd be more incentive to put space to use.

    It took FOREVER to put something (now a Ford dealership) in the old Great Western Building on California and Van Ness. Must've been creepy and vacant for at least 10 years! And that is a busy corridor, next to Whole Foods.

  8. I would vote for a full modification to prop 13, so that long time home owners also took on their share of property tax.

    I will not vote for scape goating of corporations. For those of us who work in the private sector, increased taxes will only drive more jobs out of the state.

    So no, I won't be signing up for the close the loophole campaign. Not this one, anyway.

  9. "Slight-of-hand creation of dummy corporations to avoid lawful assessments at time of sale represent tax evasion. We have laws in place to prosecute tax evasion."

    There is nothing illegal about this practice. It is perfectly legal. It's called a "loophole."

    And that is why we want to close the loophole.

  10. "But our schools would be even broker than they are today."

    They must have been broker when you went to school. Pardon me but someone who is promoting a cause for the benfit of education ought to have a better command of grammar.

  11. California's major corporations actually opposed Prop. 13 when it was on the ballot in 1978, as did most of our officials in BOTH parties. They saw it as a threat to the state's infrastructure (including the school system) and financial security.

    Just a historical note.

  12. Re: adequacy suit and proper school funding

    Next school year dropouts from 8th and 9th grade will have to be figured in the API per State law. All those zeros will cause a dramatic drop in scores, particularly in urban areas with high dropout rates. Those that believe the problems in education are first and foremost one of proper finance will attribute the lower API numbers to the drop in funding. They will be partially correct. But they will try to make it seem that it is all the result of cutbacks.

    The dropout rate will figure prominantly in next year's distressing API results for secondary education and will receive broad media coverage. Everyone will be spinning it to maximum advantage. Please remember that the statistics will represent both the effects of class size increases, dropouts and normal year to year variants such as the drop in professional development.

    In any case, I agree to close the loophole and I am not a big believer in higher taxation, just fairer taxation.

  13. This is a great history of Prop. 13, for those who are interested in learning more.

  14. Caroline,

    That links to the Democracy Center website but the "page is not found"

  15. Glad to see there is some solid interest here in reforming Prop 13. If you want more info on the effort or if you would like to help our with the cause, please email me:

  16. I'm trying with a TinyURL to post a working link to the history of Prop. 13 on Democracy Center.

  17. don't tell Meg Whitman

  18. "I would vote for a full modification to prop 13, so that long time home owners also took on their share of property tax."

    Well, that would move us right out of the city -- along with all the low-income families who have lived in my neighborhood from the early 1900s onward, in multiple generations. Prop. 13 for homeowners makes a lot of sense when you buy in a crappy neighborhood nobody wants to live in a decade or more before it's trendy. Why should you be punished for being a long-time resident who has contributed to making the neighborhood liveable, when suddenly market values skyrocket because rich people want in on a good thing? My understanding is that Prop. 13 was designed to keep small property owners able to reside in their houses long-term, and that corporations somehow got in on it. I should read the history to double-check that but am too bleary right now.

  19. "Well, that would move us right out of the city -- along with all the low-income families who have lived in my neighborhood from the early 1900s onward, in multiple generations."

    I'm not sure you are aware of it, but what you are describing is a system where wealth (tax free home ownership) is passed down in families.

    You're fine with this, but not fine with the idea that corporations should be encouraged to stay in the state so that our employment situation (and state revenue from employee income tax) does not worsen.

    It appears that you do not have even a basic grasp of economics.

    My family pays $9000 dollars a year in property tax. Our neighbor, who's mother bought their house in 1970, pays $500 a year in property tax. (The family also owns several other properties, all of which are taxed at about $500 a year. They are affluent and drive a Mercedes.)

    Where do you suggest that state revenue come from? The sky?

    All I can say is that I hope this attempt to increase corporate tax, without addressing the very unfair and uneven property tax on homes, fails.

    Shame on Phil Ting, the Assessor-Recorder. He knows full well how unfair is the residential property tax sitution.

    This campaign is just another attempt at a boondoggle for wealthy, long time, tax, pension and union protected San Francisco residents.

    When there's no more corporations in the state or corpoarate employee income tax to collect, and your juicy pensions start to fail, maybe you'll finally come to.

  20. Dear Grammar Policeman:

    Is "broker" really incorrect grammar?

    When I was learning English as a second language, we were taught that all one-syllable adjectives (such as "broke") add "er" for the relative, and all three letter adjectives (like "exciting") use more + adjective. (two syllable works are shadier territory--like "shadier" or "more shady.")

    Perhaps you are confusing broker as a noun with broker as an adjective?

    Time for you to go back to school?

  21. "I'm not sure you are aware of it, but what you are describing is a system where wealth (tax free home ownership) is passed down in families."

    True that. But there has to be something between people being priced out of their neighborhoods -- punished for long-term residence -- and a tax-free inheritance, no? We have lived here 15 years and pay $4K/year in property taxes. That is a month's salary for us; hardly a free ride. There should be something to support the stability that long-term owners bring to a neighborhood, without punishing new owners so heavily.

    Also, rent control would need to go if property taxes went up, because homeowners with rental properties would need to be able to keep up with the increase in property taxes. Somehow I don't see that happening; rather, I think small property owners would have to sell and leave the city. That doesn't seem like a good thing.

    And saying someone does not have "even a basic grasp of economics" is just plain nasty. If you're the other side, I'll stay where I am in this debate.

    I think it's "more broke." It isn't true that you add -er to one-syllable adjectives, or we'd have "gooder" and "burneder." Since the schools are both broke and broken, there is no sense in anyone going back to them.