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Prop 13: The Building-Sized Loopholes Corporations Exploit 

Wednesday, Jan 4 2012
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In fact, the assessor already audits San Francisco businesses. But "real property" — land and buildings — is not audited. Only "business and personal property" — computers, office equipment, vehicles — is. When asked why real property couldn't be subject to random audits, Ting replies, "that's a great question."

As California's only city-county, San Francisco retains a vastly larger portion of its property taxes than anywhere else, around 65 percent. Most counties only keep between 11 and 29 cents on the dollar; here, it would make unquestionable economic sense to vastly enhance the assessor's office. Ting notes that his department's budget has seen its general fund allocation rise from around $11 million five years ago to some $15 million currently. This growth represents one-tenth of 1 percent of the general fund — for an office generating 39 percent of the fund's revenue.

The reason Ting isn't blessed with more money and manpower is that it might make his office too effective, and, unlike the head of the IRS, the assessor is an elected position — as are the supervisors who approve his budget. Sure, San Francisco is facing down a $263 million budget shortfall, but there would be a different price to pay for empowering city employees to harry taxpayers. "A bumper sticker popular when Prop. 13 was enacted said 'Bring Back the Corrupt Assessors,'" says U.C. Berkeley law professor David Gamage. Assessors had attempted to "modernize, rationalize, and make effective assessment laws. But, on an individual basis, voters don't like having property taxes enforced in a rational, effective manner." Neither do corporations.

"We are not knocking on doors," Ting notes. Instead, he says, his staff diligently peruses the San Francisco Business Times to spot potential reassessment-inducing transactions. They also monitor communications from the Franchise Tax Board and Board of Equalization (BOE). Corporations, in fact, now must report more information to the government than ever before. Those failing to inform the BOE of an ownership change face hefty penalties. The BOE sends twice-monthly Legal Entity Ownership Program (LEOP) reports to all assessors, who may then look into reassessing local holdings.

This program is not infallible. A 2002 merger that should have resulted in reassessments of every Jiffy Lube property in California wasn't caught until David Kersten, a private researcher with the California Tax Reform Association, contacted the BOE in 2010. Meanwhile, multiple sources within San Francisco's assessor's office confirm one dazzlingly inept employee, unable to grasp the substance of the LEOP reports, simply crammed them into his desk — for months. Once a property falls through the cracks, it tends to stay there. Asked if there's a retroactive measure to undo past oversights, Ting responds "There really isn't."


One of the most sought-after experts on Prop. 13 is also a stay-at-home mom from the Peninsula. Jennifer Bestor is a former high-tech executive with an infectious laugh and an insatiable drive for research who systematically crunched the numbers from the assessor's rolls in her hometown Menlo Park and its neighboring environs. A Republican whose ancestors have been GOP members since it truly was the party of Lincoln, she has become one of the most outspoken critics of Prop. 13.

Bestor wanders through the suburb's quaint downtown. By memory, she recites the property tax payments of store after store. Per Prop. 13, they're wildly variant; the hulking Trader Joe's has been owned by one family trust for generations. It's valued in the vicinity of $700,000 — less than many of the nearby houses it dwarfs — and contributes around one-ninth the property taxes of a grocery store around the corner. Property taxes are the lifeblood of local communities — but the savings generated by that piddling assessment are enjoyed by out-of-state heirs. George Carlin used to say that one advantage of living in the past is that it's cheaper. In California, it's the basis for property tax administration.

Bestor's findings have percolated into Ting's stump speech about the iniquities of Prop. 13 — he brought up the Trader Joe's to SF Weekly spontaneously. Ting has met with Bestor at least four times, last year handing her the city's "Land and Improvements" list to pore over.

This data breaks down the percentage of the city's property tax revenue based on the year the real estate was last assessed. Like other municipalities Bestor has researched, San Francisco's is not a pretty picture. Going back to 1995 — older transactions aren't included in the city's database — 53 percent of property has been reassessed. Yet these recent buyers pay 78 percent of the city's overall property tax. Among single-family residential properties, 57 percent of homeowners are paying 81 percent of the taxes. Most San Franciscans are, literally, not getting their money's worth. The winners under Prop. 13, Bestor notes, are "heirs and legacy corporations. We're creating trickle-up wealth."

We're also not going to do much about it. Critics of Prop. 13 like to complain it's been deified by spineless politicians — but We the People like it, too. A September Field Poll revealed 63 percent of state voters would pass Prop. 13 today. Fifty percent of those polled would even oppose raising the tax rate on business and commercial property — down from 68 percent in 1980. Meanwhile, it would require a two-thirds vote in the Legislature to close loopholes regarding corporate "change of control." Good luck with that.

In today's fiscal and political landscape, it seems the will is not there to undertake the labor-intensive, proactive steps required to snare the next One Market Plaza — even before crossing swords with ace corporate lawyers. Provided they set aside a little cheddar for the disgruntled sandwich-makers, don't expect to be reading about the next fat cats busted for concealing a change of ownership anytime soon.

About The Author

Joe Eskenazi

Joe Eskenazi

Bio:
Joe Eskenazi was born in San Francisco, raised in the Bay Area, and attended U.C. Berkeley. He never left. "Your humble narrator" was a staff writer and columnist for SF Weekly from 2007 to 2015. He resides in the Excelsior with his wife, 4.3 miles from his birthplace and 5,474 from hers.

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