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Daniel Weintraub: Property-tax reform and the politics of revenge

By Daniel Weintraub
Sacramento Bee Capitol Alert
December 5, 2000

Assemblyman Bill Leonard was one of the original "Proposition 13 babies" -- the class of Republicans swept into the Legislature the year California voters passed a ballot measure to roll back property taxes. That was 1978. Those lawmakers and their progeny have since made Proposition 13 sacred, resisting any attempt to modify it, not wanting to even discuss it.

That's about to change.

Leonard, a Republican from San Bernardino County, says it's time to take another look at the famous proposition that ignited a national tax revolt. He thinks the measure and the rules adopted to implement it have come to favor big business at the expense of homeowners. And he is floating a proposal, known as a "split roll," that could boost business property taxes by $1 billion a year or more.

Leonard would like to shift that money from business to homeowners by lowering residential property taxes at the same time. But the lawmaker says he is also open to giving some or all of the windfall to local government to make up for property taxes the state grabbed from cities and counties in the recession years of the early 1990s.

Either way, it is sure to be an explosive idea. It is also one surrounded by a bit of political intrigue.

Leonard insists he has been eyeing this issue his entire career. He was prompted to act, he says, by recent economic trends that increased the overall share of property tax paid by homeowners compared to the amount paid by business.

"The balance that existed when Proposition 13 passed, I'd like to keep stable," Leonard said. "I signed the Proposition 13 petition because homeowners were being taxed out of their homes. I campaigned on that and I won the Republican primary because of that issue. I would regard this as restoring the integrity of Proposition 13."

But Leonard's timing is curious. His move comes as many conservatives are angry at big business for backing Proposition 39 on the November ballot. That measure, which passed narrowly, lowers the threshold for approving local school bonds from a two-thirds majority of the voters to 55 percent. The change will make it easier for school districts to raise property taxes to pay for classroom construction.

"Ten years ago, no conservative Republican would have credibly thought that a split roll was an option," said Jon Coupal, president of the Howard Jarvis Taxpayers Association, a group founded by the author of Proposition 13. "But there are many conservatives who believe that the business community has left the reservation and has repeatedly sought higher taxes, to the detriment of working-class families. We just had 20 California billionaires finance a campaign that really hits homeowners hard."

Coupal's group was the leading opponent of Proposition 39. His top objective at the moment is to reverse the result with a ballot measure restoring the two-thirds vote rule for bonds. But if that proves unfeasible, Coupal is willing to talk about sticking it to business.

"We're not ruling anything out," he said.

Proposition 13 limits growth in the taxable value of property to 2 percent a year as long as the property does not change hands. That means home values are reassessed at the sales price every time a house is sold. But commercial property owned by a corporation might never technically change ownership, even as all the shares in the company are bought and sold on the stock exchange. The result is that over time, the share of the total property tax paid by homeowners is creeping upward while business is paying relatively less, according to Board of Equalization data.

Leonard suggests reassessing commercial property whenever at least half a company's stock changes hands. That could mean tax increases annually or even more often for some companies.

Rex Hime, a lobbyist who represents commercial property owners, says he thinks conservatives are simply "venting" because they're angry about the school bonds issue. But he says it would be shortsighted for any antitax group or lawmaker to talk about raising taxes on business. Those levies, he says, ultimately will be passed on to consumers in the form of higher prices.

"To say we're going to punish people for doing something we didn't like by raising their taxes is just going to make it more difficult for folks to buy a home or a lawnmower or a lamp or whatever," Himes said.

The whole scene is a delight to those who have long advocated raising taxes on business. Lenny Goldberg, a lobbyist for the labor-backed California Tax Reform Association, says Proposition 13's treatment of commercial property is "the single largest gaping hole in our tax system."

He added: "This is an issue that the business community has not even permitted to be discussed. I'm just happy as a clam it's being discussed. How quickly it will build I don't know. If it's five or 10 years I'll be happy. If it happens this year, great."

It's not likely to happen this year. But the mere the fact that Proposition 13 has been put on the table by one of its original backers may well signal the beginning of a new era in California politics.

Copyright © The Sacramento Bee

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