As Gov. Arnold Schwarzenegger and state legislators contend at
last with the full scope of California’s budget problems
(continuing yearly deficits of at least $8 billion per year, with
no end in sight), almost everyone involved is reacting with
predictable knee-jerks.
As Gov. Arnold Schwarzenegger and state legislators contend at last with the full scope of California’s budget problems (continuing yearly deficits of at least $8 billion per year, with no end in sight), almost everyone involved is reacting with predictable knee-jerks.
Democrats would like to raise taxes but hesitate, fearing wrathful voters. Schwarzenegger seeks to cut programs that benefit the poor, while asking no sacrifice of his business supporters or other backers.
It’s a crisis that began even before the recall of 2003 drove ex–Gov. Gray Davis from office. And it’s an opportunity for courage and creativity.
Schwarzenegger says he’s being courageous in proposing his cuts and a permanent formula of budget reductions whenever agreement on a new spending plan is difficult to reach. But political courage is never found in sparing your own supporters from pain; rather, it is defined as risking your own base in pursuit of an ideal.
So far, no one on any side of the budget debate has demonstrated the needed courage, with no one willing either to take any serious political risks or own up to past mistakes.
And there have been plenty of mistakes in the past, on all sides. Democrats increased spending by 37 percent in the five years before the Davis recall. Republicans insisted on dribbling away the surplus of the late 1990s by refunding part of it to taxpayers in chunks that felt nice, but changed no one’s lifestyle. And it was they who insisted on cutting the car license tax by about two-thirds – a move Davis reversed when times got tight, only to see Schwarzenegger trump him and restore the cut upon taking office.
All those moves were serious errors, driving state government into today’s hole.
And yet, with a little willingness to accept political risk, Schwarzenegger and the legislators he so often confounds could look seriously at the state’s single largest potential source of untapped revenue: the tax on business and commercial property that has changed hands since Proposition 13 passed in 1978.
Taxes on thousands of business and commercial properties – so many that no one has catalogued the exact number – have been virtually frozen since the landmark tax–cutting proposition passed 27 years ago. This benefits in particular limited partnerships which buy California properties under terms that preclude the taxes on those properties from rising more than 2 percent per year.
Making changes in the rules that allow this unjust travesty to continue would not represent a tax increase, but only a rewrite of regulations originally put in place by legislators to help administer Proposition 13 after it passed.
Like property taxes on houses and condominiums, Proposition 13 set the levy on business property at 1 percent of either the 1975 assessed value or the newest purchase price, with a 2 percent rise in the tax allowed every year. When property changes hands, the tax becomes 1 percent of the purchase price and revenues from residential property tax climb steadily as homes change hands. Meanwhile, a vast share of business property taxes have not moved up significantly.
That’s because of rules that obfuscate the definition of changes in business property ownership. The regulations allow partnerships to buy hotels, shopping centers, apartment buildings and other property without reassessments so long as no one person controls more than 50 percent. But if an individual buys the same properties, taxes will rise.
Fixing this unjust loophole has been proposed in recent years in legislation carried by Democratic state Sen. Martha Escutia of eastern Los Angeles County. It has gone nowhere because of lack of courage. Simply put, no one in office dares tinker in the slightest with anything about Proposition 13.
Never mind that fixing the reassessment rules would cost homeowners nothing. Never mind that it could produce anywhere from $3 billion to $12 billion per year, depending on which estimate you believe – most likely enough to end the “structural” budget problems so many politicians gripe about.
Never mind that it would be a far cry from the “split–roll” so dreaded by business, a system that would tax business property at higher rates than residential. Never mind that it would restore some semblance of fairness to taxation in California.
This reform goes nowhere even though the Howard Jarvis Taxpayers Assn., dedicated to the absolute preservation of Proposition 13, doesn’t even have a particular objection.
It goes nowhere because it would take courage to change anything at all about Proposition 13 and courage is the single ingredient most lacking in government at all levels these days.
But as the year drags on and Schwarzenegger and the Legislature find themselves deadlocked, there’s always the hope they will turn to the obvious solution that’s been staring them in the face all along.
