Bestor saw an environment where there were clear winners and losers from Proposition 13. There was a shift in the property tax burden from a more equal share between residential and commercial property owners, to a marked decrease in the burden on commercial property. She also saw an environment where a small group of legacy commercial property landlords were reaping the benefits of low property tax bills, without passing any savings on to consumers or reinvesting in the community.
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She cited an example from her letter to Buffet of gas stations on the same street in Menlo Park with widely differing tax bills but very similar consumer prices:
“The nondescript little gas station on El Camino near my house pays $30,148 a year in property tax for the privilege of selling me less expensive gasoline than the two Shell stations ($14,214; $17,214), the Union 76 ($15,920), and the Chevron ($20,388) down the street. Those big-name stations have service bays to increase revenue and are on major intersections. But the “new guy” in town … is the one who’s paying $10,000 a year more for police, fire, road repair,education, parks and courts.”
She went on to compare two local markets – the Menlo Park Trader Joe’s, which leases the land from a family trust with an address in Cape Cod who pay a measly $11,200 in property taxes while the landlord of a Trader Joe’s just miles away in San Carlos pays almost five times as much.
“Unless this family in Cape Cod is cutting secret checks to Trader Joe’s they are really not seeing any benefit in the lower property tax rate, and neither is the consumer. The prices at both Trader Joe’s are the same.”
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Like Bestor, Goldberg has armed himself with research, documenting a statewide shift of the property tax burden away from commercial property by examining the tax rolls for each of the 58 counties in California.
This trend is especially dramatic in counties that both support large industries and have had thriving residential real estate markets recently like Los Angeles and Santa Clara counties. In Los Angels County the share of residential property taxes has shifted from 39 percent of the total in 1975 to 56 percent today. In Santa Clara County, the home to Silicon Valley, the share has gone from 50 percent to almost 70 percent.
But Coupal with Howard Jarvis Taxpayers finds the data meaningless. “Lets imagine that you were able to drive all of the commercial property out of California – which is more of a possibility if we split the rolls – then by definition all property tax revenue would be residential.“
A better measure, said Coupal, is the ratio of disparity between how much a property is worth at market value and what it’s taxable value is under Prop 13, which he said is smaller for commercial property than residential.
Coupal referred to the findings of a study sponsored by the California Business Property Association which found that commercial and industrial properties were on average assessed at 60 percent of their market value, 10 percent higher than residential properties on average.
However, economists Steven Sheffrin and Terri Sexton conducted similar research for the Public Policy Institute of California and found that disparity ratios for modified commercial properties, which were usually large legacy corporate properties were significantly higher than either residential or non-modified commercial properties, usually mom and pop type businesses.
“I noticed that these large complicated properties don’t turn over as much and really benefit from Proposition 13 protections more than homeowners,” said Sheffrin. “The benefits of Prop 13 should be for homeowners not for commercial properties.”
