Villaraigosa has Prop. 13 in his sights [Updated]
Los Angeles Mayor Antonio Villaraigosa once again jumped on the third rail of California politics on Monday, telling lawmakers that businesses are unfairly exploiting Proposition 13, the constitutional amendment limiting property tax increases.
"Proposition 13 has fallen victim to the law of unintended consequences,” he said during a Capitol hearing. "What was conceived of as a measure to relieve the tax burden on homeowners has had the effect of benefiting commercial property owners at the expense of homeowners."
Villaraigosa has urged changes to Proposition 13 before, calling it a “corporate tax giveaway” in August and urging Gov. Jerry Brown to "test the voltage in some of these so-called third-rail issues."
At issue is a provision in the constitutional amendment that prevents sharp increases in property taxes except when there's a change in ownership. This was intended to provide homeowners with financial security, but businesses have used legal maneuvering to avoid costly reassessments. As a result, homeowners have paid an increasing share of property taxes, according to a recent report from the California Tax Reform Assn., a Sacramento-based advocacy group.
"A system which allows the richest corporations in the world to pay virtually nothing in tax on acres and acres of prime commercial land must be re-examined and reformed," the report said.
Villaraigosa said Proposition 13 still serves an important purpose and suggested a "grand bargain" that would increase protections for taxpayers but limit exemptions for businesses. Such a compromise might include expanding the sales tax to apply to services, he said.
[Updated at 4:17 p.m: Villaraigosa expanded on his criticisms in a conversation with L.A. Times reporters, saying "Prop. 13 is broken. It needs to be fixed."]
Depending on whom you ask, Proposition 13 is either the root cause of California’s financial crisis or the state’s saving grace.
Liberal opponents say the constitutional amendment has created inequity and choked off funding for schools and other government services. Others point out that new homeowners pay higher rates than their neighbors because their property assessments are more recent.
But conservative supporters say Proposition 13 is the dam protecting California residents and businesses from a wave of tax increases.
"Prop. 13 is one of the few business incentives that California have left, because, quite honestly, we are high-taxed enough in many other areas and the regulatory climate is not exactly conducive to business development," said Assemblywoman Diane Harkey (R-Dana Point).
[Updated 4:17 p.m.: A report released Monday by Californians Against Higher Property Taxes said removing Proposition 13 protections for businesses would increase taxes by roughly $6 billion and decrease the state's economic output by $71.8 billion over five years.
"A lot of the burden will be carried by small businesses," said Michael Shires, a public policy professor who worked on the study.]
The taxpayer anger that led 65% of voters to approve the constitutional amendment in 1978 has made politicians wary of seeking any changes to it.
When billionaire Warren Buffett suggested the system was unfair while he was serving as an adviser to then-candidate Arnold Schwarzenegger, the former bodybuilder joked that he would make Buffett do 500 sit-ups if “he mentions Prop. 13 one more time.”
-- Chris Megerian
Photo: Los Angeles Mayor Antonio Villaraigosa at the Capitol in Sacramento last year with other California mayors. Credit: Rich Pedroncelli / Associated Press