A push to provide tax relief to commercial landlords has quietly advanced in California’s capitol. For a scheme with such potentially devastating consequences for schools and local governments, it’s garnered surprisingly little attention.
Come May 29, the state Board of Equalization (BOE) will vote on a plan that would give cash rebates to commercial landlords that claim the pandemic has had a similar value-diminishing effect as fires, earthquakes and other disasters that cause physical damage.
The BOE oversees county assessors, who’d have to cut those checks triggered by reassessments. The proposal’s backers, the California Alliance of Taxpayer Advocates (which goes by CATA), represents the attorneys whose job it is to appeal assessors’ property valuations.
Santa Clara County Assessor Larry Stone vehemently opposes the idea.
The veteran taxman told the BOE as much in a strongly worded May 12 missive, which called the industry-led plan a “direct violation” of the state constitution.
“I cannot underscore enough, the impact these recommendations will have on schools and local government,” Stone wrote. “If assessors adhere to these directives, the BOE would contribute to California’s exploding budget deficit. For every dollar of property tax revenue the BOE diverts away from normal channels, the state, schools, counties and cities will have to cut an equal amount in order to balance local budgets.”
“The property tax system wasn’t designed to give [this type of] relief,” Stone’s second-in-command David Ginsborg said. “There are other programs for that.”
Programs such as the $2.3 trillion federal relief package for the private sector and local governments. Or, Stone noted, the Federal Reserve’s $600 billion in loans for medium and small businesses hurt by the pandemic.
If CATA prevails, local governments would have to hand over scarce dollars to some of the richest corporations on the planet—many of which reside in Silicon Valley.
Under Prop. 13—a controversial law borne out of the late-1970s tax revolt—property can only be reassessed if it’s sold and can only rise by a nominal margin year to year. The statute also lets landlords request a tax cut if they can prove their property’s been damaged enough to lower the value.
As San Jose Inside has reported before, those assessment disputes put the county’s three appeals boards up against multinational corporate giants—Apple, Google, Facebook and other companies with virtually limitless resources to wage such fights.
With more people working from home and less office space used, rents are bound to fall in the coming year. And come Jan. 1, companies impacted by the trend and that disagree with the assessor’s valuation can file an appeal for temporary property tax reductions going forward. At the height of the Great Recession, Stone’s office took the initiative of lowering assessed values for 136,000 property owners.
What CATA apparently wants, however, is the kind of immediate relief granted in cases of physical property damage. Stone—himself a commercial landlord—calls the lobbying group’s proposition a “radical change” that would endanger the public in a time of crisis.
“The constitution is not a malleable piece of clay that can be molded at will to fit whatever is most politically expedient in the moment to curry favor with a handful of business owners at the expense of all 40 million citizens in the state of California,” Stone wrote. “The legislature can no more define ‘property physically damaged’ then it can define Proposition 13’s annual 2 percent limit on assessed value to mean 10 percent should the state’s budget face a crisis. These changes require a change to the constitution.”
Airlines tried this gambit—to no avail—after 9/11.
In 2002, when Stone served as president of the California Assessors Association, airlines tried to get the BOE to grant them tax relief as a result of economic harm suffered in the wake of the 2001 terrorist attacks. The Sept. 11 strikes grounded flights for 11 days and scared people from air travel for many months after.
“The airlines tried to make the same argument then,” Stone said. “Nobody was flying at the time, it took the airlines a number of years to fully recover and they tried to get us to lower their taxes based on that economic harm.”
Despite warnings that such a policy ran afoul of the state constitution, the BOE hewed to industry demands, prompting years of litigation that ultimately overturned the decision.
“We can go through this again,” Stone said, “but we already know that it’s impossible to do. We already know what the outcome will be.”
The airlines ultimately got significant relief on Jan. 1, 2002—along with other property owners whose values declined below purchase price—in response to the market.
The proposal going before the BOE next week may seem well-intentioned, the assessor said, but said it’s completely political.
“Elected officials are tripping over themselves, saying, ‘See us, we’re protecting the victims from harm,’” Stone said in a phone call this afternoon. “But how about the schools, how about local government, how about the first responders at the county hospital who are risking their lives every day to fight this pandemic? This would take money from them—that’s the revenue that this bill would be giving away.”
Not to mention that it would blow an even bigger hole in the state budget, which already faces a $50 billion deficit in the year ahead.
Not that it would even get that far, Ginsborg added, because the BOE can’t just change those kinds of rules as it goes along.
“It’s sort of like you get nine innings, but you want to add an inning because you don’t like the outcome,” he said. “These agents, the ones who file assessment appeals, they want to increase the chaos in the property tax system so they get more business.”
CATA has yet to respond to a request for comment.