Who is prospering from Proposition 13?

Concerned about diminishing school funding, local parent examines effects of 1978 property tax measure, and makes some startling discoveries

Click on photos to enlarge.

By Renee Batti

Almanac News Editor

It's been called California's "third rail" -- as in, untouchable. When billionaire Warren Buffet was serving as candidate Arnold Schwarzenegger's economic adviser during the 2003 gubernatorial race, he touched it.

Proposition 13, Mr. Buffett said, was damaging the financial health of the state, and needed to be repealed or changed. Zap.

Under immediate fire over his adviser's comment, the soon-to-be-elected governor recovered by telling the world that he had admonished Mr. Buffett never to mention Proposition 13 again, or he would be forced to do 500 sit-ups.

Mr. Buffett appears to have reined himself in since that time, but questions about Proposition 13's fairness and financial consequences haven't gone away.

Menlo Park resident Jennifer Bestor had long heard many arguments for and against Proposition 13, which was passed in 1978 to control rapidly rising property taxes in the state. About three years ago, when she was the incoming treasurer of the parents' group at her son's school, Oak Knoll in Menlo Park, questions about the property tax law's consequences, particularly on the state's schools, became more pressing.

As the budget news from Sacramento became increasingly worse, Ms. Bestor recalled an opinion piece she had read in the Palo Alto Weekly several years before: The writer "pointed to the increasing share of property tax paid by single-family homes in Santa Clara County, and the decreasing portion paid by commercial landlords," Ms. Bestor recalls.

She asked herself: Does the same trend exist in San Mateo County? And if so, are commercial property owners paying their fair share toward public services -- schools, parks, police and fire services, and public works?

Then one day, during a meeting at which Superintendent Ken Ranella of the Menlo Park City School District painted a bleak picture of the district's finances and likely program cuts, Ms. Bestor crossed a line. "It was like a big dog picked me up by the scruff of the neck and shook me," she says.

"I told myself, I can't just wonder about this -- I have to figure it out."

Countless hours later -- hours spent in the county assessor's office, in county and city archives, and poring over assessment rolls she had purchased -- Ms. Bestor has come to the firm conclusion that, while Proposition 13 has generally worked for homeowners as voters had intended, "for commercial landlords, it's been an incredible windfall. ... Commercial property tax ... has evolved in a way that not even the direst opponents of Prop. 13 envisioned."

Ms. Bestor, a talented writer as well as a dogged researcher, took a whimsical approach to spreading the word about her findings: She composed an open letter to Warren Buffett, which she sent last week, in which she offers: "Please let me know how I can help you with the sit-ups. We desperately need to get some energy from that third rail."

Growing tax-burden imbalance

Ms. Bestor, who has an MBA from Stanford and is a former high-tech executive, collected countywide tax statistics, but her most focused research was on properties in the Menlo Park City School District. She did a parcel-by-parcel examination of commercial properties on Santa Cruz Avenue, and residential parcels in her own Allied Arts neighborhood.

Before she started her project, she says, "I wrote down all of my bad assumptions." The most erroneous among them: Commercial property owners pay more of the property tax burden than residents.

What she concluded after gathering data and crunching numbers from the assessor's office was startling: Although the countywide property tax burden was almost equally shared between homeowners and commercial property owners in 1978, "by 2008, homeowners were paying two-thirds and commercial property owners one-third (of property taxes), despite the fact that the major development in the county over those 30 years was commercial property east of (U.S.) 101."

The growing tax-burden imbalance reflects the fact that houses change hands far more frequently than commercial properties. Under Proposition 13, the tax rate is capped at 1 percent of a property's assessed value, and that value can be increased by no more than 2 percent annually. That formula is kept in place until the property is sold, at which time it is reassessed to determine its value at the current market rate.

In 1986, voters passed Proposition 58, which allows property to be passed from parent to child with no reassessment of the property.

A tale of two streets

Ms. Bestor's research of Menlo Park properties -- particularly of parcels on one commercial strip and one residential street -- sheds light on how the provisions of propositions 13 and 58 created the lopsided tax-burden equation.

Looking at Menlo Park's main downtown street, she found that of the 56 commercial parcels on Santa Cruz Avenue, 23 are at the 1978 assessment (plus 2 percent per year) level. Of those 23 parcels, only four are owned by the same people who owned them in 1978. Eleven have passed to a son or daughter, and in a number of cases are held in family trusts.

By contrast, of the 53 residential parcels in Ms. Bestor's neighborhood, 13 are owned by the same people who held them in 1978, and two are held by children of the 1978 owners, so are taxed at the 1978 level. The assessments of two other parcels were affected by other factors.

The other 36 parcels (including Ms. Bestor's) have been reassessed after changing hands, she says.

"My street is paying its way," Ms. Bestor says. "I think that Prop. 13 did what people hoped it would do (for homeowners). It allowed people to stay in their homes and families to plan their financial futures."

On the other hand, commercial property owners who are assessed at 1978 levels are not paying their way, she says. "Does it really make sense to subsidize family trusts, major real estate corporations and developers, who make smaller and smaller contributions (proportionally) to public services each year?"

In her letter to Mr. Buffet, Ms. Bestor cites a downtown Menlo Park example to underscore the inequity: "The Trader Joe's property -- the 'new' market in town contributes just $7,471 of general tax towards our local services (for two-thirds of an acre of prime commercial property) compared with Draeger's up the street at $66,585. It isn't Trader Joe's, of course, that's paying the tax -- if they'd bought the property when they moved in, that parcel would be contributing 500 percent-plus more.

"Trader Joe's leases it from a family trust, descendents of the 1978 owner ... with an address on a leafy street in Cape Cod. Since landlords charge what the market will bear, it's fair to guess that the property tax savings are accruing to those folks in Massachusetts while the costs are borne by school kids and residents of Menlo Park."


The consequences of the "windfall" to many commercial property owners go beyond the diminishing revenue to schools and other public services, she says. Business people who operate out of property they purchased in the last decade or so are at a disadvantage in the marketplace because their tax burdens are much higher than competitors paying a 1978-level property tax.

Another citation in Ms. Bestor's letter: "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."

Meanwhile, all property owners, no matter what their Proposition 13-dictated tax burden is, benefit equally from the public services paid for through taxes, Ms. Bestor notes. If a building catches fire, or a business is being robbed, publicly funded emergency workers will rush to the scene as quickly for a property owner paying $7,000 a year as they will for one paying $66,000. Also, she notes, business owners benefit from an educated workforce, making quality schools important for a strong business community.

Possible fixes

So what is to be done? Ms. Bestor suggests capping Proposition 13 benefits for commercial property owners at 20 years. "Every 20 years, non-residential property is reassessed at market value, then gets to enjoy another 20 years of tax relief," she writes.

She also suggests a system whereby properties can be reassessed gradually so as not to overburden assessors' offices, and a process for appealing reassessments.

Ms. Bestor also is attempting to launch local fundraising efforts that would focus on commercial property owners who benefit from lower tax levels. "I have the feeling these people are ready to be asked," she says.

"They need strong schools and a vibrant residential community just as much as anyone else does."

Recently, she met with a leader of the Menlo Park-Atherton Education Foundation, and with a member of School-Force, the Belmont-Redwood Shores Education Foundation, to discuss such an effort. It's too early to know whether the idea will catch fire, but it's safe to predict that Ms. Bestor will do what she can to spark the flame.

Go to Buffett letter to read Jennifer Bestor's open letter to Warren Buffett.


2 people like this
Posted by Devin Prouty
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 16, 2010 at 12:06 pm

Thank you Ms. Bestor for your important work. We need more education about these complex issues to make informed political decisions.

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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Mar 16, 2010 at 12:40 pm

Peter Carpenter is a registered user.

Our community is blessed to have someone like Ms.Bestor who is willing to do the hard work necessary to get facts and then to present them so clearly.

I believe that all commercial property should have its tax assessment brought to market incrementally over the next five and then be taxed at market rates thereafter. Any landowner who feels his/her assessment in unfair would simply allow the property to be put up for auction at its assessed value (which is what the State of Florida does to resolve assessment disputes)- if it sells then it is a fair assessment.

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Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Mar 16, 2010 at 12:47 pm

Kudos to the reporter Renee Batti for taking on a fairly complicated subject and explaining it so clearly. And kudos to Ms. Bestor for following her curiosity through to the answer. Now that we know how off-track Prop 13 has taken us, it's time to fix it - or at least the part concerning commercial property. I imagine the Howard Jarvis folks still hold enough sway to keep residential property free from reassessments.

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Posted by Poster
a resident of another community
on Mar 16, 2010 at 12:48 pm

More comments on this topic are on this thread: Web Link

2 people like this
Posted by Mira Talbott-Pope
a resident of another community
on Mar 16, 2010 at 12:56 pm

It is a relief to read an essentially political opinion, well and thoroughly-researched and clearly presented. Ms. Bestor deserves much credit for having done just this, and her conclusion is inescapable. Something has been needed to be done about Prop. 13 for many years....we are now seeing the results all over California. Perhaps Menlo Park can lead the way for other communities to work together to bring property-tax payments to a more equitable level.

4 people like this
Posted by At Home in Menlo
a resident of Menlo Park: Downtown
on Mar 16, 2010 at 1:09 pm

"...for commercial landlords, it's been an incredible windfall. ... Commercial property tax ... has evolved in a way that not even the direst opponents of Prop. 13 envisioned." Not true; many people predicted in 1978 that this would happen exactly as it has. And Ms. Bestor has not even considered the big corporate landowners whose property never changes hands. I applaud her research and her proposal to rectify the unfairness. Where do I sign???

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Posted by Stu Soffer
a resident of Menlo Park: Linfield Oaks
on Mar 16, 2010 at 1:19 pm

Thank you for the research.

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Posted by MP Resident
a resident of Menlo Park: Downtown
on Mar 16, 2010 at 1:53 pm

Thank you to both Ms. Bestor and Ms. Batti. I hope to the see the tax reform implemented.

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Posted by Resident
a resident of Menlo Park: Sharon Heights
on Mar 16, 2010 at 2:35 pm

Perhaps cutting the tax rate to 0.50%, down from 1%, and reassessing everyone's tax basis at market value, would be the most equitable solution if it results in the same net tax collections. It is quite unfair for residents who live side-by-side to be paying taxes that differ by a factor of 10 or more, simply due to how long ago the home was purchased. As income tax rates inevitably go up to cover the burgeoning cost of federal and state government, more pressure will be brought to bear on the inherent unfairness of Prop 13. Of course, I am a recent purchaser of a home, not a long-time owner of the same house; if the shoe was on the other foot, I'd undoubtedly be keeping my mouth tightly shut and let the gravy train roll on as long as possible!

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Posted by Peter Carpenter
a resident of Atherton: Lindenwood
on Mar 16, 2010 at 2:38 pm

Peter Carpenter is a registered user.

Resident states:"I am a recent purchaser of a home, not a long-time owner of the same house; if the shoe was on the other foot, I'd undoubtedly be keeping my mouth tightly shut and let the gravy train roll on as long as possible!"

My shoe IS on the other foot and I pay less than 5% of the taxes that my new neighbors pay, and I think that is simply WRONG.

There is no Equal Protection under Prop 13.

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Posted by Suzanne
a resident of another community
on Mar 16, 2010 at 3:10 pm

As a North Bay resident with ties to Menlo Park, I'm interested in how this will play out across the state. I've been watching as more than 186 public-school teachers in Sonoma County received pink slips by Monday's deadline. We need to get the word out about this much-needed reform before the 22,000 statewide pink slips turn into actual layoffs in May. Thank you for carrying this important piece.

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Posted by Jordi Argente
a resident of Menlo Park: Central Menlo Park
on Mar 16, 2010 at 3:22 pm

Great article, and fantastic piece of research. Proposition 13 MUST be modified, or changed alltogether. It is really hurting us all, and California finances.

Another interesting well-written article, albeit a little old, is this one:

Web Link

The analysis remains valid and strong...

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Posted by Ajai
a resident of another community
on Mar 16, 2010 at 5:19 pm

A very well researched conclusion, with data backing the ultimate conclusion that prop 13 in its current form cannot continue forward. Excellent journalism by the writer/editor as well in succinctly explaining Ms. Bestor's findings.

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Posted by Fedupwith taxes
a resident of Menlo Park: Felton Gables
on Mar 16, 2010 at 5:36 pm

Peter Carpenter.... If you think it is wrong that you are not paying as much in taxes as your neighbor then pay more. Nobody is holding you back from paying as much more in taxes as you want.
Prop 13 has worked very well for homeowners over the years. Remember what it was like in California before Prop 13. The politicians were raising taxes at will as prices of homes increased, even if you didn't plan to sell. It was a disaster for most people.

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Posted by Richard
a resident of Portola Valley: Central Portola Valley
on Mar 16, 2010 at 5:40 pm

it's about time someone figured this out. I told people in 1978 that the long-term effect of Prop 13 would be to shift the primary tax burden from commercial property owners to homeowners. As I predicted then, that is exactly what has since happened. That's why I said I would vote against Prop 13 (and I did) unless it excluded commercial property. At the very least, commercial property should have been excluded from the later Prop 58.

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Posted by Michael G. Stogner
a resident of another community
on Mar 16, 2010 at 6:36 pm

Thank you to both Ms. Bestor for your excellent work and to Ms. Batti for reporting about it.
All cities in California are suffering. It is time this is changed.

2 people like this
Posted by History Buff
a resident of another community
on Mar 16, 2010 at 7:44 pm

Just remember that before Prop 13 the tax rate was 2.7% of assessed valuation; so everyone benefits from Prop 13. How many people could afford 2.7% of current assessment today,even recent buyers?

4 people like this
Posted by MBA (Mo'Betta'Analysis?)
a resident of Menlo Park: other
on Mar 16, 2010 at 8:31 pm

LOL, are they serious, long time commercial property owners are getting a windfall under Prop. 13 and it's undermining school funding? As if their tenants aren't producing revenue to the city through sales tax and business taxes? And, of course, those commercial building tenants send their children to our local schools? Let's get a reality check. The whole State edu system funding is corrupted by career politicians, greedy school administrators, and their kowtowing insiders running the school boards. Look at the salaries and benefits for superintendants, community and state college, UC presidents and senior staff and it's obvious to see how supplicant parents blame "overpaid" teachers and their "powerful unions".
Stanford's prez and provosts voluntarily cut their salaries 10% last year. Do you hear anything from Ranella about cutting his $225K_ annual salary to lead by example? Of course not.
[portion deleted]

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Posted by Rear View Mirror
a resident of Menlo Park: Menlo Oaks
on Mar 16, 2010 at 8:44 pm

Since the Almanac vacated its Alameda offices, guess we can expect more of this sophomoric BS about local school funding woes.

<B> Editor's note:</B> The Almanac newsroom is still at 3525 Alameda de las Pulgas in West Menlo Park.

2 people like this
Posted by Publius
a resident of Menlo Park: Central Menlo Park
on Mar 16, 2010 at 10:58 pm

What a coincidence that an article about Prop. 13 would come out right before Measure C goes to the voters. Further more that Jennifer Bestor is an MPCSD parent. Seems that the pro Measure C group will do anything to try to pass this parcel tax.

I will say there are some good points made in the article, however changing prop. 13 does not solve the systemic problems that lead to California’s fiscal woes. In addition, making major changes to prop. 13 would result in other potential problems.

First, although it does make some sense to make some changes to the commercial property assessments, a large increase in the property taxes for commercial owners will have an impact on the storeowners renting those spaces. As we do not have rent controls, the increased property taxes would be passed down in the form of rent increases and that in turn would be passed on to the consumer. As I assume that most of the shops in down town Menlo are not “racking in” the profits, a doubling or tripling of rents would push many to close their doors. Less sales tax revenue and the loss of a vibrant downtown. Pretty basic economics.

Second, California is one of the most unfriendly business states in the nation. Companies such as HP have moved more and more of their operations out of California to other states that offered better tax rates and lower labor costs. CEO Mark Hurd made a comment once that HP was not fixed in any one area, and that the company would continue to look for locations to expand where HP could negotiate favorable tax credits and business regulations were less restrictive. Hence HP is currently building large campuses in New Mexico and Arkansas while the HP employee population continues to fall in California. There are many more examples.

Third, when it comes to residential property assessments, Prop 13 has protected many individuals from rapidly rising property values. There are a few elderly couples on our street that have been here since the 50’s and 60’s. It would be a loss if these couples lost their homes because of the skyrocketing property values that happened in the 90’s and 00’s. In fact, we all benefit from the 2% annual increase cap. When I looked up some of the property assessments for people on my street, I found that even those that purchased their homes in the 90’s were not paying as high as those who bought only 5 years ago.

Finally, I do not have a problem with those that pass on their homes to their children, as long as it remains the primary residence. What I would support immediately would be removing the Prop 13 protection on all residential properties that were not ones primary residences.

Let’s not use the current budget problems of the MPCSD as the driver to call for the end of Prop. 13. If you want to talk about real equity, why doesn’t the Almanac do a story on the inequities between districts such as MPCSD, Portola Valley, Woodside and those of Ravenswood, Redwood City and Mountain View? This is the real inequity in our society.

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 16, 2010 at 11:18 pm

Thank you to everyone who read, thought about, and commented on the article.

MBA, many apologies. I don't remember mentioning that, but those were probably the worst 72 hours of my life. Sounds like they were for you, too.

I believe, however, that it is the customer who pays sales tax, not the merchant (s/he collects and remits them). And, while businesses do pay a license fee, these are generally in the $1,000 range (sales up to $2 million or 100 employees) with an $8,000 absolute cap. More interesting is unsecured property -- furniture, equipment and fixtures owned by the tenant. But the Trader Joe's in Menlo Park pays almost the identical unsecured property tax as the Trader Joe's in San Carlos, despite a $37,000 difference in secured (land and building) property tax on almost identical sized properties, with identical prices on all the products I purchased.

History Buff, in Menlo Park in 1978, the general property tax rate on 400+ parcels was 3.664% +/- a little depending on location, however that was on a base that was "assessed at 25% of full cash value." Thus, the actual rate was .916%, or just under 1%. This took me a long time to figure out on the microfiche -- the clue was that the homeowner's exemption always showed as $1,750 (or one-quarter of $7000) on the property bills tax from that time.

I hope everyone can now commiserate with Ms. Batti who had to cope with my untethered fire hose of data. Did the Almanac move since last week? The offices next to it were vacant, but the Almanac was there.

<B> Editor's note:</B> The Almanac newsroom is at 3525 Alameda de las Pulgas in West Menlo Park.

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Posted by LVTfan (google it)
a resident of another community
on Mar 17, 2010 at 9:48 am

If triple net leases are typical for commercial tenants, the tenants will likely see a 2% annual increase in their property tax. The landlord, sitting on Cape Cod or wherever, continues to benefit from the community's investment in goods and services, and the tenant will bear a small portion of it through the triple-net provision which requires him to pay the property taxes, but it is the folks who pay sales taxes and wage taxes who will be paying most of it, as well as the newer homeowners, who get triply burdened.

Taxes on land value are perhaps the wisest and most just way ever devised to collect the revenue to fund the services which serve to maintain land value. Prop 13 limits that collection to a small and decreasing fraction of the annual rental value of the land. Had California not had Prop 13, it would not have experienced the extremes of boom and bust that it has gone through recently. Taxes on land value get capitalized into the selling price of land, and reduce the out of pocket costs of ordinary people because instead of paying the seller (and the mortgage lender) for land value AND then paying taxes to support one's community's budget, one pays one's community once.

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Posted by S. B.
a resident of another community
on Mar 17, 2010 at 9:55 am

Thank you Ms. Bestor for your thorough and insightful research. (Rachel Maddow would be proud.) Prop. 13 has been hurting all of us for far too long. May your hard work propel much needed changes.

2 people like this
Posted by POGO
a resident of Woodside: other
on Mar 17, 2010 at 10:49 am

As I stated earlier, I am in complete agreement with Ms. Bestor's proposal to revise the commercial real estate portion of Prop 13 law.

But this does not address the residential side, which continues to be front and center in this debate. Yes, there are inequities - huge ones - in the residential real estate tax arena. If you bought your home a couple of decades ago, you pay a fraction of the property taxes that a new homeowner pays.

Taxes are never fair. Rich people pay more than poor people (defensible, maybe... but undeniable). People without kids pay for schools they will never use. Young people pay for social security and Medicare that they may never receive (and will never receive if they die). People who don't drive pay for roads. People who don't remodel their homes pay for our city's building and planning departments. And so it goes.

So why is it unfair for a decades old property owner to pay property taxes that are based on their purchase price and indexed to inflation (capped at 2%). These "old" homeowners don't directly benefit from their dramatically appreciated property values until they sell their home and cash out. And that's when the new owner - who is aware of the new valuation and revised property taxes - takes over.

As Ms. Bestor stated, "for homeowners, Prop 13 has worked roughly the way that voters thought it would..." I agree. The problem is on the commercial side, not the residential side, and that is where reform should be directed.

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Posted by mere
a resident of Menlo Park: The Willows
on Mar 17, 2010 at 11:27 am

As a commercial property owner myself, and one that I inherited no doubt, Ms.Bester and Ms. Batti are dead on. I know I pay an unfair portion of property tax, have enjoyed it, and know the windfall should and will come to an end.

I guarantee you that landlords are charging what the market will bear, regardless of how much property taxes they are paying. The one paying $7k is capable of paying 70k.

4 people like this
Posted by Sad Californian
a resident of another community
on Mar 17, 2010 at 1:43 pm

This article (and the majority of the comments supporting it) makes me sick. Proposition 13 was voted into law by the citizens of California because they were scarred of their legislature and wanted to limit the government’s ability to continually raise taxes on their homes and investments.

The citizens of California had the foresight to include in Proposition 13 a 2% annual increase to the tax rate to provide for increased costs. Further, the citizens included the ability to reassess values upon sale/transfer. The appreciation of real estate in this state since 1978 has far outpaced the rate of inflation during the Proposition 13 era. In short, there is NOT a problem with the level of taxes being generated by California’s real estate. Have you even considered where the problem might be? The California citizenry was not stupid in 1978… they were omniscient.

The spending on behalf of our governments is totally out of control. Rather than LIMIT THE SPENDING OF THE STATE AND LOCAL MUNICIPALITIES, you want to change the rules and punish commercial property owners? Why can’t you understand the REAL PROBLEM? You claim that Proposition 13 has, “allowed people to stay in their homes and families to plan their financial futures” – what do you think that it’s done for commercial real estate investors? Answer: the same exact thing. In 1978 the citizens of California were intelligent enough to recognize that their government(s) had gotten totally out of control and LIMITED the Legislature’s ability to tax (that’s the whole idea (and genius) of Proposition 13).

Can you imagine what the tax rates on real estate in California would be if the citizens hadn’t voted for Proposition 13? Let’s take this a step further… Without Proposition 13, state and local governments would be increasing real estate taxes in a manner similar to how they have increased local sales taxes (from 5% in 1978 to 9.25% in Menlo Park today). How do you think this would affect California’s already dismal ability to compete with lower-cost states?

What happened to our great state? Only 32 years later and most of you are unable to even understand this issue. The problem is not that we’ve limited our governments ability to tax our real estate… the problem is that our government, at every level, has gone completely out of control with spending.

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 17, 2010 at 1:55 pm

I truly appreciate everyone who has taken the time to agree with me – and I value the doubters, sometimes even more. It’s naysayers who’ve pushed me to Look at the Details. And I just never know where this research will take me …

Today I read that it is “pretty basic economics” that “… a large increase in the property taxes for commercial owners will have an impact on the storeowners renting those spaces … a doubling or tripling of rents would push many to close their doors. Less sales tax revenue and the loss of a vibrant downtown.”

Doubling or tripling rents? Wow. That seemed somewhat unlikely, but I thought I’d better look at specifics. So I went to the commercial property listings on loopnet to check out the going rates in Menlo Park. The first property I saw was a standalone half-acre parcel on Live Oak, advertised at $30 per year per square foot for 7500 square feet. It seemed perfect for comparison, so I looked it up in my spreadsheet. The property has not been reassessed since 1978. The owner has the same last name as the original owner, but different first name (inherited, along with basis). The owner’s address is in Southern California and the bill shows $5,036 a year in general property tax for half an acre plus 7500 feet of building. (About two standard lots plus two houses, if you like to do residential equivalents.) I then found the two nearest commercial parcels (800 Roble and 905 El Camino) of comparable size that had changed hands in the last ten years. They are currently assessed at 5.7-9.2 times their 1978 value. (The median for all Menlo commercial parcels has been 9.1.) I multiplied the Live Oak parcel’s 1978 value ($254,680) x 9.2 x 1.1022% (the general property tax rate) and saw that bringing that 1978 parcel to market would probably entail a tax of no more than $25,825 – an increase of $20,000. Comparing this with the base rent at $30 x 7500=$225,000, I get an increase of less than 10% … hardly “two to three times.”

But wait. There’s more. There was a quirky note in the loopnet listing, “Current use is unusual…” What, I wondered, could that be? Yes, Menlo cognoscenti. It’s the mortuary, recently deceased. (The note also stated, “Do not disturb the current occupants.” I say, just try.) And why did the mortuary close? Read all about it in the Almanac. Web Link

The landlord doubled the rent. So Menlo Park has lost its last mortuary and the sales tax revenue from expensive caskets. And we’re still collecting the same measly $5K … And who doubled the rent? Even at the old rent, a property tax increase to bring that property up to market would have been less than 20%.

OK, signing off to go research more truths that are held to be self-evident.

1 person likes this
Posted by In agreement with Sad Cali above
a resident of Menlo Park: The Willows
on Mar 17, 2010 at 2:15 pm

Some quick trivia following the courageous and insightful post by the Sad Californian:

1)How many of you can afford your RE Tax payments today on your home if Prop 13 is revoked/reset/or substantially modified? Answer, hello East Bay, I've always wanted to live in Vacaville.

2) How many of you are ready to completely forgo retirement, get back into the workforce, and work until you die? Answer, Google hiring any 70 year olds?

3) How many of you want to see California's economy get crushed even further when businesses/residents flee and not only do your property taxes go up, but so do all other forms of state/local tax? Answer, sign me up, the more taxes I pay the better it makes me feel.

The list goes on. Let's get real and cut the rediculous spending first in Taxafornia.

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Posted by kleengeen
a resident of Portola Valley: Westridge
on Mar 17, 2010 at 2:22 pm

Leave it alone. Prop 13 is the best thing that ever happened to California and anyone who has owned a home prior to 2005 will agree. Schools don't need MORE money; they waste what they have. My whole family is in education. Need I say more. Schools need discipline and inspiration. Those of us who "managed to survive" in public school classrooms with 35 students and went on to get graduate degrees were inspired, disciplined and LEARNED -- what a concept! Prop 13 is as fair as it gets. And it is still as overhelmingly popular as ever.
(From the SF Chronicle - most recent Field Poll- 20:41 PDT --
"About this time every year, as the Legislature and governor wrestle over how to pass the state budget, somewhere, somebody blames Sacramento's stalemate - and the state of the California's mediocre schools and crumbling roads - on Proposition 13.

The wail usually echoes unanswered for a simple reason: Thirty-one years after California voters overwhelmingly passed the law that fixed the rate of property tax increases and required a two-thirds majority of the Legislature to raise taxes and approve state budgets, polls show that Prop. 13 is as popular as ever."

If the schools weren't trying to teach to the lowest common denominator, we might make some progress. And when the CTA (California Teachers' Association) spends $50M to defeat a Schwartzenegger budget cutting proposal, you have wonder what that union is thinking. And where to they "find" all that money? Get real. The money-grabbers are EVERYWHERE !!! Guess it's [political] human nature. God save us.

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Posted by kleengeen
a resident of Portola Valley: Westridge
on Mar 17, 2010 at 2:29 pm

Here, here to Sad Cali. Couldn't agree with you more. Right on!Those of us who were around in the early seventies saw families lose their homes to the "T(AX)MAN"; homes where folks raised their families but they could no longer afford owing to the "no end in sight" property taxes. The political greedballs got what they should have expected. The property owning taxpayers cut them off at the knees. Just desserts !!!

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Posted by Mary
a resident of Corte Madera School
on Mar 17, 2010 at 2:37 pm

Businesses are moving out of California at an alarming rate, if she gets her wish and they are taxed more, what do you suppose marginal small business will do?

It's not 13, it's spending, spending, spending and not living within your budget Calfornia.

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Posted by Gunther Steinberg
a resident of Portola Valley: Ladera
on Mar 17, 2010 at 2:58 pm

The first thing to remember about Prop 13 is that just equalizing everybody, would be akin to the IRS taxing you on unrealized capital gains of all your assets every year. No one would stand for that.

Limited revision of Prop 13 has always been needed, primarily for turnover of commercial property. Those who wish to eliminate it entirely on the basis of equal taxation seem to overlook the simple fact that everyone should be taxed on what they paid for their personal home. Long time residents paid low prices and should not be penalized for the increase of real estate values, since that would most likely tax them out of their homes.
Everyone bought a home that they could afford and they should be taxed on that value plus limited increases, as built into Prop.13.
If my neighbor paid 20x the cost of my home 25 years earlier, increasing my taxes by comparing current prices, that would be exactly the problem that Prop 13 addresses.
Unfortunately, when Prop 13 was enacted, the commercial property owner had an outsized influence, since they looked ahead on how to game the situation. That should be rectified. Perhaps even the passing the tax status to the next generation should be limited to homes and for one generation.

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Posted by Old Californian
a resident of Menlo Park: Fair Oaks
on Mar 17, 2010 at 3:04 pm

In total agreement with Sad Californian. I was here before and after Prop 13 and that is the reason I am allowed to still remain in my home, long after my husband and his income passed away, and long after many of my rancher and farmer friends had to SELL their homesteads in the South Bay to the greedy developers due to the huge hike in tax rates they could no longer afford because of farming interests. No one speaks about the farmers and ranchers thrown off their land near the 101 freeway and South because they could no longer afford the property taxes with the price they were getting for their peaches, plums, cherries, apples, apricots, and many more crops. The WISE use of our hard earned tax dollars is what's needed in government, not higher and higher and higher taxes. Give me a break. Enough is enough!

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 17, 2010 at 3:17 pm

Sad Californian –

I can understand that shining light on the effects of Proposition 13 in the commercial area is very upsetting to people.

I am not sure that I would say that we 1978 voters had ‘foresight’ to cap increases at 2% (after all, inflation alone had run 11.3%, 9.2%, 5.75%, and 6.5% in the four years leading up to the Prop 13 vote). Perhaps ‘optimism’ might be a more accurate word? And we did, as you note, include a provision to reassess at transfer, which Prop 58 (and the realities of the corporate ‘veil’), significantly gutted.

I can appreciate that commercial property investors have been able to plan their financial futures with Props 13/58 in mind. But perhaps you can appreciate that people with millions in assets and hundreds of thousands a year in rental income hiding behind the skirts of widows like Old Californian trying to hang on to their houses is a bit upsetting to others of us.

Imagine, for instance, if the Southern California property owner from my last post happened to have inherited a total of four pieces of property in Menlo Park. And imagine if three of them had a 1978 base year, and one was a misc. residential rental whose pre-1985 base I hadn’t looked up. All together, imagine that that landlord paid $11,414 in tax on those four properties -- about $47,000 less than other nearby landlords, who live locally, are paying for equivalent property. And imagine that, for argument's sake, that landlord were still willing to rent all those properties out at the old $15/sf/year – for a triple net rental income of $318,750 per year.

Please explain to me why our local services – our firemen, our policemen, our roads, our courts, our parks, our libraries and our schools – which are under the local control of people whom we know and can contact and hassle if we don’t like the service we’re getting … are less important than an continued $47,000 of tax savings to an out-of-town landlord whose financial future can assume both $318,750 of income and our continued provision of local services to those properties? Please explain why other landlords should have to compete on such an uneven playing field? Please explain how this makes California more friendly to business?

I can only hope that, in time, you will come to view us the way that joke goes … “When I was seven, I thought my dad knew everything; when I was 14, he knew nothing; now that I’m 21 … well, he’s learned a lot in the last seven years.” You thought we were omniscient in 1978; now you think we’re unable to even understand this issue; I do hope your opinion improves in seven years.

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Posted by good for the goose....
a resident of Menlo Park: The Willows
on Mar 17, 2010 at 3:21 pm

Ms. Bestor, thank you for all you hard work on generating data on property taxes in the school district.
Out of curiousity, we checked that your 3000 sf house in Allied Arts is assessed at only $1,100,000, when houses of that size in Allied Arts go for over $2,000,000. So, it appears, that thanks to Prop. 13, you are paying no more in prop taxes than someone who just bought a little 2 bedroom starter home in the Willows for $1.1.
If you have enjoyed free public education for your kids, then I guess you could afford to pay ad valorem taxes of $22,000. annually for your property into the district as gratitude for their free education.
Just think of the additional income tax writeoffs for itemized deductions.
Just think of all the private school tuition money you saved by not sending your kids to Menlo, Sacred Heart, Castilleja or ??

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Posted by Steve
a resident of Menlo Park: Central Menlo Park
on Mar 17, 2010 at 3:29 pm

Recent posts make me think the Howard Jarvis fanclub has been notified and is now bombarding this blog.
However, Ms. Bestor's arguments are well reasoned and her conclusion hard to fault: commercial property owners, grandfathered in by Prop 13, have been contributing less and less to the tax rolls over time. The tax burden has shifted instead to the home owners and especially to the young homeowners who somehow manage to buy in this market. Probably, most are working too hard to make their mortgage and property tax payments to weigh in on this discussion but I have to think their views of Prop 13 don't mirror those of recent posters.
We look at our state, county, and local governments all straining to maintain services and it's obvious that fixing just the commercial property tax loophole of Prop 13 would go a long way toward restoring fiscal solvency at all levels of government.

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Posted by Sad Californian
a resident of another community
on Mar 17, 2010 at 3:56 pm

Dear Ms. Bestor,
I generally applaud your research and desire to have a reasonable argument. To that end, the general logic to your latest comment (above) frustrates me even more than your original article. Moreover, it perfectly proves one of my points from my earlier comment.

In your above comment, you mention that the two parcels that you use for comparison (to what might be referred to as the Former Mortuary Parcel) are “are currently assessed at 5.7-9.2 times their 1978 value”. You further mention that the average for “all Menlo commercial parcels has been 9.1”.

If we assume that every parcel in Menlo Park that has not been reassessed since 1978 is currently assessed at 9.1 times it’s 1978 value; the average non-reassessed Menlo Park commercial real estate parcel’s value has appreciated 7.14% EVERY YEAR, COMPOUNDED FOR 32 YEARS. That’s extraordinary for any real estate, anywhere! For example, a $10,000 parcel that has not been reassessed due to sale/transfer since 1978 would currently be assessed at $18,845 and taxed as such (2% annual increases compounded for 32 years). The average Menlo Park parcels are assessed at MUCH HIGHER VALUES – at an average of 9.1 times their 1978 value, this means that the average $10,000 parcel in 1978 would be assessed today at $91,000! In case you missed it before, you would need 7.14% ANNUAL COMPOUNDING for 32 YEARS to get to that value.

It saddens me that you don’t draw the following conclusion from all this. What this all means is that MENLO PARK SHOULD HAVE MORE THAN ENOUGH TAXES. IF THE GOVERNMENT WAS EVEN REMOTELY CLOSE TO THE SIZE OR EFFICIENCY that it was 1978, we wouldn’t even be having this conversation. In fact, we would (and should) have municipal and state tax coffers that are OVERFLOWING WITH TAXES! Instead we have a bloated, near bankrupt beaurocracy that is as dysfunctional at the state level as any in this nation. There are many municipalities in the Bay Area that are even worse!

To go a step further, you refer to the potential $20,000 or 10% cost increase to the tenant, like that would be a good thing (“an increase of less than 10% … hardly “two to three times”)? I will grant you that the abolishment of Proposition 13 would not result in rents two or three times where they are today; however, do we really want even a 10% increase in the cost of renting for businesses in our state? This is a great idea… only if you want to see MORE BUSINESSES LEAVE CALIFORNIA for lower-cost states.

But there’s more. Your disdain for the Former Mortuary Parcel owner is obvious. How dare they try to DOUBLE the rent? This is the part that kills me the most. NEWS FLASH…. IT’S THEIR PROPERTY!!!!!!!!!!!!!! They can (and should be able) to do whatever they want. THAT IS WHAT THIS COUNTRY IS ALL ABOUT. If you or anyone else in your community is so bent out of shape that they don’t have a local mortuary, you (ANY OF YOU) are more than welcome to buy some land or lease some existing space and OPEN ONE. Go ahead, I dare you. Take the risk, deal with the local government, expose yourself to an uncertain tax increases, try to be a business owner in a anti-growth, super liberal enclave like Menlo Park where the citizens are tripping over themselves to pay more taxes (or at least for you to pay more taxes).

How have we gotten so misguided as a society?

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 17, 2010 at 4:10 pm

Dear Goose,

You are half right. I am really happy that people are learning to do the research!

Our house is assessed at $1.1M+. We bought in 1990 but, sadly, only have one child who has attended a Menlo public school for five years. So, we paid in $10K+ a year for fourteen years without a child in the public school -- and are now paying $12,000+. Our public schools get $7,897 per child from local property taxes according to the latest figures I could find on ed-data, so our household is spinning off $4,000+ towards our other local services. Please forgive me for not detailing our income, but allow me to suggest that we are covering every dollar of state and federal aid paid to the school on our child's behalf many times over. We have also contributed to the MPAEF each year our son has been in school here, over the $1000/child that is returned to the district.

For those of you who enjoy data, our net assessed value is higher than 4,840 homes in the district and lower than 2,103.

Now, Goose, tell me about yourself! Are you in one of the $1.1M Willows starter homes? How many children do you have? Do they attend one of the local private schools? How long have you lived in Menlo Park?

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Posted by Broken Cal
a resident of Menlo Park: Downtown
on Mar 17, 2010 at 4:10 pm

If there is ever a vote to restrict Prop 13 to residential owners who are residents, I would support it. That said, restricting increases to 2% a year was an unfortunate OVERREACTION to the inflation of the time. Inflation has averaged 3% for most of the past century, and 3% seems more "fair".

What's not fair is that if I were to buy the exact townhouse I rent, my property taxes alone would be more than my current annual rent. I would love to buy in MP, but the can't justify a triple or quadruple housing expense for the priveledge.

Don't homeowners see something is really out of whack when mortgages plus taxes are double the cost to rent the same place? The housing bubble is still here, which is why a property tax bubble is still here too. think about it.

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Posted by MPCSD Prop. 39 violations
a resident of Menlo Park: other
on Mar 17, 2010 at 4:20 pm

Prop. 39 (School Construction Bond Measures) reduced the former 2/3 required majority vote to 55%, with the provision that the Bond Oversight Committee have a "Bona Fide Taypayer Organization" member, and "Senior Citizen Organization" member. This was a concession to the spirit of Proposition 13, since senior citizens can't opt out of bond measure charges as they can for additional school district parcel tax payments. Turns out, MPCSD Bond Oversight committee has never had the required Taxpayer Organization member since the $91 Million School Construction Measure was passed well over 2 years ago. Last we checked, they don't have a senior citizen organization member present.
When you look at the "Taj Mahal" monster complexes being built at K-5 Oak Knoll ($12 Million) and K-8 Encinal ($20 Million(?)), and the proposed $40 Million for Hillview Middle School rebuild, makes you wonder whether district taxpayers are getting fiscal transparency mandated by State Law?

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Posted by Broken Cal
a resident of Menlo Park: Downtown
on Mar 17, 2010 at 4:22 pm

To the comments about businesses leaving california, the inflated salaries of professionals here have as much to do with it as the overall business climate. Professionals in other countries are paid $12k a year for the same work people in silicon valley get 100k+ for. Commercial rents are high, taxes higher. It's a global economy now.... changing the tax rate on commerical properties is peanuts to the other crazy infrastructure costs to doing business in California.

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Posted by Terence
a resident of Menlo Park: Park Forest
on Mar 17, 2010 at 4:24 pm

So we should all move to India and live like kings on $12K a year?

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Posted by Sad Californian
a resident of another community
on Mar 17, 2010 at 4:31 pm

Dear Ms. Bestor,

Please find your questions along with my answers below.

YOUR QUESTION - “But perhaps you can appreciate that people with millions in assets and hundreds of thousands a year in rental income hiding behind the skirts of widows like Old Californian trying to hang on to their houses is a bit upsetting to others of us.”

ANSWER - Why does it upset you that people want to keep THEIR MONEY? Regardless of how little or much they have? Our society was not designed to allow people who are upset about how much money someone else has EARNED to TAX them and TAKE IT away. As a matter of fact, our country’s war for independence was actually fought to provide freedom from that exact sentiment.

YOUR QUESTION – “Please explain to me why our local services … are less important than a continued $47,000 of tax savings to an out-of-town landlord whose financial future can assume both $318,750 of income and our continued provision of local services to those properties?”

ANSWER – BECAUSE IT’S THEIR MONEY!!!!! Just because someone is operating a profitable business does not mean that they deserve to pay more taxes! I have a suggestion for your next article. Why don’t you do an investigation/comparison into how much your city collects in tax revenue, how much it spends (relative to population growth and inflation), what services are provided, etc comparing 1978 and 2010. If you are honest in your investigation, you will discover that the problem is not that someone is paying taxes on a 1978 basis increase 2% per year. The problem is that the municipalities are OUT OF CONTROL in terms of spending. When you’re done with Menlo Park, I dare you to conduct a similar study comparing 1978 California Government with today’s California Government. If you haven’t had enough at that point, you could do a similar study for our entire nation. Your likely to be as horrified as I am.

YOUR QUESTION - Please explain why other landlords should have to compete on such an uneven playing field?

ANSWER – This is what all landlords do. No two properties are the same – they’re all “uneven”. How does a landlord on a Motel 6 in Vallejo compete with the Ritz Carlton in Half Moon Bay? They compete on price (both what they paid for the property) and what they can charge for rooms. Like all businesses, they also compete on customer service, managing expenses, access, visibility, etc. All commercial real estate is “uneven” – that’s the way it is. The economics are how people are supposed to compete; not through government levied taxes! What we don’t want to do is have our government decide what is “fair” and then utilize the tax code to “even the playing field”.

YOUR QUESTION - Please explain how this makes California more friendly to business?

ANSWER – Many businesses (and tax-paying citizens) are moving out of California because they don’t like the high costs associated with living and working in California. To that end, getting rid of Proposition 13 for commercial property will inevitably raise taxes which will then be passed on to the businesses, which will further increase the already high costs, which will make California less desirable:
low taxes = lower cost/higher profits = more friendly
higher taxes = higher costs/less profits = less friendly

Last, but not least; in response to your diatribe on 7 year olds… a wise man once told me, “an 18 year old who isn’t a liberal, doesn’t have a heart… and a 35 year old who IS a liberal, doesn’t have a brain”. I enjoyed our little back-and-forth today. Unfortunately, I have to go back to work now… there are taxes to be paid!!!!

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Posted by Tax Payer
a resident of another community
on Mar 17, 2010 at 5:04 pm

[Post removed; stick to the issue and avoid personal attacks]

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Posted by Steve
a resident of Menlo Park: Downtown
on Mar 17, 2010 at 5:23 pm

RE: the notion that businesses are going to leave the state if property taxes on commercial properties are increased. By and large - BALONEY! More conservative scare tactics!
Trader Joe's is not going to leave Menlo Park if their landlord has his property taxes adjusted to equitable levels. Their customers are here! Same for most other retail shops, hotels, restaurants - they have to be here to serve their customers. No way they're going to leave the area - we're how they make money.
And it wasn't property taxes that drove the mortuary out of Menlo Park. It was their greedy landlord who, not content that he's making a mint on the Prop 13 loophole, chose to double their rent. Wonder how that's working out for him now that he's getting zero rent.

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 17, 2010 at 5:29 pm

In the midst of all this kerfuffle, I would like to share another piece of interesting local data. I had assumed that, on average, owner-occupied single family residences (SFRs) and condos would have a higher net value than those which are not ‘home owner exempt.’

This is not what the data say. The average HO-exempt SFR in our school district has a net assessed value of $1,020,000 and the average HO-exempt condo $495,000 – while the average SFR without an HO exemption is $1,562,000 and condo is $510,000.

This holds for both Atherton and Menlo Park separately, though the difference shrinks to about $200K for SFRs in Menlo Park. So, on average (and I realize averages can be misleading), single-family dwelling units in which the homeowner is dwelling pay less than where they aren't ... which makes me uneasy about saying that we should determine which SFR/condo gets Prop 13 benefits based on a homeowner exemption. It kinda seems like, here at least, non-HO properties are paying their way. What do you all think?

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Posted by Broken Cal
a resident of Menlo Park: Downtown
on Mar 17, 2010 at 5:33 pm

To Terrance,

Well, I know local folks that have moved to Singapore and Mexico for small salaries and have large houses with live in maids now. I have other friends that work remotely from Oklahoma and Boston, and Boulder, living in beautiful houses that cost $200k, not $2mil for something comparable.

My point is that the cost of living in Menlo Park is unsustainable and I suspect the business environment will continue to change for the worse for the next 10-20 years as more companies hire global workers, and more workers move to affordable places to live.

Perhaps California incomes (and property taxes) will normalize back to American norms to be competitive... or perhaps they won't.

To state the obvious, California is in deep doo-doo, and needs a revolution to be competitive again.

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Posted by Maria
a resident of Menlo Park: other
on Mar 17, 2010 at 5:42 pm

I bought my house in Woodside in 1973 for 63K. I couldn 't have afforded more and if Priop 13 had not come along could not have stayed. Six years ago, I had to sell my house ( I should have sooner.) and now live in a condo which I paid 500K for. If I am not under Prop 13, I'll lose my home at 72 years of age or eventually oler. How many more years will I be able to work? Do I deserve to be thrown out of my home? Do I have to move aweay from my family. Living in my condo is certainly not as nice as having my own single dwelling home.

There are lots of people like me, and on very limited incomes after working all their lives!

Taxes the businesses more is one thing, but not where I go to sleep at night!!

All gen erations after me are entitled to enjoy what I leave to them!

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Posted by LVTfan (google it)
a resident of another community
on Mar 17, 2010 at 6:00 pm

Why not simply treat everyone as if we genuinely believed they were equal?

I've spent a lot of time exploring this (15 years ago, no one could have convinced me I'd find public finance issues so interesting or so important!) and have concluded that California writer Henry George largely got it right, and that his remedy -- shifting all our taxes onto the value of land -- is directionally absolutely right. Prop 13 is the direct antithesis of what George showed his readers (Progress and Poverty) was the most just -- and, indeed, the only just form of taxation.

The costs of providing the public goods and services which make land valuable ought to be paid for via taxes in proportion to the value of the land held by each party. Urban land values, even in George's day, were hundreds and thousands of times higher than land beyond the urban fringe, and within each city, some sites were and are far more valuable than others. Collecting from each landholder each year some significant portion of the annual value of the land (that is, the value for which it would rent without the current improvements on it) is the most just way to pay for all the services which maintain and increase land value. Tenants pay through the rent they pay their landlords, value which today the landlords -- including our Cape Cod residents -- currently get to pocket just as if they had something to do with creating it or maintaining it. And instead of paying the landlord or mortgage lender AND paying taxes on one's wages, purchases and buildings, one merely pays in proportion to one's holdings of that which one didn't create.

California's Prop 13 got it backwards. Let's move forward.

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Posted by LVTfan (google it)
a resident of another community
on Mar 17, 2010 at 6:52 pm

Responding to the Q&A posted by "Sad Californian" --

There is a difference between "investing" in land and investing in buildings and other improvements which tenants might find appealing and worth paying for.

When one "invests" in land, one pays off the previous landholder for something he didn't create with the expectation that one will get others to pay you for access to that land, and then for someone else to pay you a lump sum someday when you tire of this or die for the future rights to charge someone else for access to that land.

This is a dumb way to structure an economy, and contributes hugely and quietly to the extreme concentrations of wealth and income prevalent in America -- a country dedicated to the proposition that we're all created equal! (If you're not conversant with the statistics on the concentration or distribution of wealth and income, you can find the Federal Reserve Board stats at Web Link Maybe you'll decide that it looks okay to you.)

When being a triple-net landlord is a profitable "business," there is something wrong with our definition of business. Most of the rent comes from land value, not the value of the building or the services provided by the landlord. And then the landlord can look forward to so-called "capital" gains down the road, despite the fact that buildings depreciate (and his tax forms are giving him full credit for that depreciation).

Is this any way to run an economy? The landlord's gains do not come out of thin air. They come out of the labor of ordinary working people. It may be a very nice system, for the landlord class. But it is not right, or just, or efficient, or conducive to widespread prosperity or to equality of opportunity, or consistent with all those concepts which we celebrate on July 4.

And the gains of the poor widow homeowners also do not come out of thin air. They, too, come out of the labor of ordinary working people. Should we protect our poor widows? Yes -- but not their heirs.

How do we do that? Very simply and logically. See Web Link for some thoughts.

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Posted by Jackrabbit
a resident of Portola Valley: Westridge
on Mar 17, 2010 at 7:03 pm

Proposition 13 – The fairest way to tax California property owners.

Taxes are inherently unfair but Proposition 13 is, probably, as fair as taxes go. Being a fourth generation San Franciscan, I have watched the greediness and wastefulness of politicians for most of my 60+ years. The citizens of California watched their tax money squandered as more and more money poured into the public coffers. Property taxes were imploding year in and year out with no end in sight. People who had raised their families in homes that, sadly, they could no longer afford owing to out of control property taxes. The homes had become too expensive to own not through any improvements the homeowner had made but merely because the greedball public mooches had found a cash cow in property taxes.

When Prop. 13 passed in 1978 it reverted back to actual property values set by local county assessors beginning in 1976 with a 2% escalation each year thereafter (or from that point in time when a home was purchased and taxed from that point forward). The value set on the property in 1976 was its actual market value as established by each county’s assessor. One could contest it but, by and large, the values were realistic. It has continued until this day with the same formula. Had one bought a residence in 1979, the value would have been established at that time based on the price paid for the home. What could be more realistic and honest – an actual paid price to set the assessed market value.

Now those of us who have had our homes for a considerable amount of time (beginning in 1976) have seen our assessments rise each year in the amount of 2%. We are the ones who have invested in the area’s infrastructure, amenities and all things making California desirable. For someone coming in, there is a price to pay for all the improvements that have been made to make one’s life more pleasant and living conditions attractive. And for newcomers, that is, simply, the price of admission. Quit whining or move.

Proposition 13 was the rightful and fair solution – and still is.

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 17, 2010 at 7:04 pm

Dear Sad Californian,

You have to go to work paying taxes? My husband is livid that I haven’t been working on ours. Oh, well, this dialogue (diatribe?!) is more fun.

YOUR QUESTION: Why does it upset you that people want to keep their money?

MY ANSWER: Why does it upset YOU that WE want to keep OUR money? That we do not go willingly into the dark night of the grandchildren of commercial property owners paying 79% more than their grandparents did when inflation alone has raised the cost of the services their tenants demand by 332%!

A property whose basis dates to 1978 is now paying 179% (79% more) of the tax they paid then, in real dollars. But inflation has increased the underlying cost of the services to 332% (so $3.32 buys what a $1 bought). OK, who provides the difference? Yes, me, the homeowner.

I have said, and I’ll say again, that, in my personal opinion, Prop 13 has worked as expected for homeowners. I treasure my older neighbors and want them to stay comfortably in their homes – I hope they feel the same way about me.

But it puzzles me that HOMEOWNERS ARE EXPECTED TO CHEERFULLY ABSORB THE BURDEN OF LOCAL SERVICES for second- and third-generation HEIRS to commercial real estate who are paying 50 cents on the dollar for services.

YOUR QUESTION: How does a landlord … in Vallejo compete with … Half Moon Bay?

MY ANSWER: WHY ARE WE TALKING ABOUT Half Moon Bay and Vallejo? I am talking about Menlo Park. If you come to Menlo Park, you will see that we have a great number of similar parcels. 40% of them are paying 1978 rates. 20% are paying NINE times that. 40% are somewhere in the middle.

I agree with you wholeheartedly that “economics are how people are supposed to compete; not through government-levied taxes!” So why are 60% of our landlords forced to consider, not economic factors, but significantly differing tax burdens in their decisions? While we, the residents, pick up the balance?

And, MY QUESTIONS: Since 30 years of Prop 13 for business has NOT created a business haven to which people are flocking, how many more will it take? Is that halcyon period just ahead? Is the extra 5-8% we might get from leveling the commercial playing field going to postpone the inevitable for a few more months when you’d rather the ‘patient’ died?

QUESTION: During our country’s war for independence, which side did your ancestors fight on? For inherited privilege or the right to self-governance? To collect local taxes spent for local benefit, or to get stuck in an endless cycle of remote tax hikes and sales taxes doled out by a distant government in, oh, say, Sacramento? (Half of Menlo Park is now afraid I am going to lay out my American genealogy – all thirteen generations of it.)
Sad Californian, I can appreciate your interest in doing a study of municipalities. Go for it! We will all be fascinated. I suspect 100% of the people reading this love careful attention to detail, and tight fiscal management, and good government. If you can help focus government, so I get more for my tax dollar – thank you!!

(Another question: do people LIKE all these CAPS? I always understood it was SHOUTING, which is not polite.) Time to make dinner. See y'all tomorrow!

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Posted by POGO
a resident of Woodside: other
on Mar 17, 2010 at 8:08 pm

Jennifer -

Thank you again for the excellent research and for your seemingly tireless engagement on this issue. You seem to be quite capable of defending your position and I hope you are able to maintain your sense of humor.

Nearly all of the objections to modifying Prop 13 have to do with the impact on residential real estate. This is, of course, understandable. Politically, the only viable strategy is to limit changes to the commercial real estate market and make it clear that residential properties are unaffected.

I hope you will consider running for elected office.

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Posted by Kristin
a resident of another community
on Mar 17, 2010 at 8:19 pm

My parents bought their house in Los Gatos in 1971 for $40,000. Yes the house I grew up in. BUT, they voted as PARENTS first. They not only voted against 13, they even campaigned against it because of what it would do (has done) to school funding. If only more people were so unselfish. Unfortunately most people vote their pure self interest and only their own pocketbook. People like "Sad Californian." It just makes me sick.

That said I do think they needed tax relief for the elderly and retired who might have lost their homes, but it has gone MUCH too far.

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Posted by Palo Alto Resident
a resident of another community
on Mar 17, 2010 at 8:31 pm

Here is a link to the Palo Alto Weekly thread

Web Link

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Posted by Sabastian Curry
a resident of another community
on Mar 17, 2010 at 9:29 pm

The government has already taken enough. How much is enough, 40%, 50%, 70% of the productive income of society? This is not liberalism my friends, this is socialism which is really theft. You are for middle men stealing more of the citizens life energy.

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Posted by Good to the last drop
a resident of Menlo Park: Downtown
on Mar 17, 2010 at 9:31 pm

JB, now that the pasta is al dente, run the tax roll name for the Ives house back 10 years and you'll get my point. They have been renters, yet used the school board position to pass judgment on the rest of us to shut up and pay, and assume liability for ever increasing MPCSD taxes and bond payments. Taxation with representation, as in "You pay, we pay". Except they didn't pay like the rest of us.
And, more unsettling, especially when you advocate overdevelopment of neighborhood schools that dwarf neighboring houses and drive down their value. You people are all alike.

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Posted by Henry Riggs
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Mar 17, 2010 at 9:38 pm

Thank you to Jennifer Bestor for the impressive work putting this together, and to the Almanac for putting it on page one.

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Posted by Confused
a resident of another community
on Mar 17, 2010 at 9:39 pm

Dear Ms. Bestor,

I am confused...isn't Prop 13 a law? "MY ANSWER: Why does it upset YOU that WE want to keep OUR money?" It actually is NOT YOUR money given Prop 13 states that you have No right to that money. Can you please explain why you feel entitled to this money? Are you also entitled to my checking account?

Thank you,

Confused in SF

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Posted by Publius
a resident of Menlo Park: Central Menlo Park
on Mar 17, 2010 at 10:15 pm

Wow! I just looked up the historical state budget data and from 1980 to 2006, the state budget grew from $24.366 billion in 1980 to $114.307 billion in 2006. If my math is correct, that is an increase of 369%. That is almost 15% per year. So much for fiscal responsibility.

Oh, and Steve, you are quite right the retail shops, store and hotels will not be leaving the area. However, I sure hope there will be better jobs in the state than the options provided by these businesses.

Again, I often wonder if this article is really not an attempt sway Menlo Park voters to support Measure C.

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Posted by common sense
a resident of another community
on Mar 17, 2010 at 10:57 pm

a few facts - of your property tax: 46% goes to your local school district, 8% goes to the city, and the rest to the county, community colleges, etc.

another fact - growth in government spending far exceeds inflation, and without some way of limiting government spending, any change in taxation will be inadequate some years from now. A major cause are the generous pensions government have granted, and every city has unfunded liabilities of tens to hundreds of millions of dollars.

another fact - many of those commerical properties in downtown Menlo are retail establishments, and under the lease agreements they pay for the property tax. Raise the property tax, and the businesses will need to raise their prices and pass on the costs to their customers or they go out of business.

another fact - businesses pay a business license tax based on revenue which homeowners don't; they also generate sales tax, of which some goes to the city. Raise a business's cost too much, and they relocate to a neighboring city where property values are lower - like Redwood City.

opinion - the arguement about "fairness" has no relevance. Commerical properties don't have owners who send their kids to schools, yet 46% of their property taxes goes to pay for schools. Is that "fair"?

opinion - why focus only on an asset class like real estate? why not also tax the value of people's stock portfolios? the reason why is because no actual money is generated until the asset is sold. And taxing assets just for holding them is what is unfair.

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Posted by More numbers
a resident of Menlo Park: Downtown
on Mar 17, 2010 at 11:32 pm

The budget grew by 369%, but what did the populate grow by, and what was the rate of inflation over that period? California of 1978 is not the same place as the California of 2010. Cal spends more on prisons than on schools.

The median household income was $29k in Menlo Park in 1979, and now it's $133,251 in 2008 according to wikipedia and the US census. That growth is just about 369% as well.

The state population grew from 23.6 million to 36 million over that period. The state prison population went from 24k to 171k over the same period. That's what most property taxes are funding... NOT schools!!!! And commercial property owners and long-time home owners are certainly benefiting from that gov't service that they hardly pay for.

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Posted by calling you out
a resident of another community
on Mar 17, 2010 at 11:52 pm

"For someone coming in, there is a price to pay for all the improvements that have been made to make one’s life more pleasant and living conditions attractive. And for newcomers, that is, simply, the price of admission. Quit whining or move."

Yeah! I am an old Jackass, and I got mine!! So what if I pulled up the ladder and make everyone else pay the taxes!

What a jerk.

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Posted by calling you out
a resident of another community
on Mar 18, 2010 at 12:02 am

to the jerkies who defend prop 13:

If it really is to save the old grandmas from losing their houses, now all those grandmas are GONE! In the ground, folks, or at least at a nursing home.

What has happened? Prop 13 now serves the RICH who were "here first" (and their inheritor kids) at the expense of those trying to move up the food chain.

People with $2,500,000 houses (that they paid $100,000 for) in high-end neighborhoods now pay $3,000 per year (instead of $35,000 per year) in tax and RENT OUT THE HOUSES for $10,000 per month! The owners are not poor grandmas. They don't even live in the houses -- THEY are COMMERCIAL PROPERTY LANDLORDS now, because they do not occupy the house. And the house is a business, not a home.

What else has happened? INCOME TAXES ARE UP to make up the difference. Income taxes on PRODUCTIVE PEOPLE who are trying to succeed, so there can be super-low taxes on INHERITORS who live off the tax breaks. Oh yeah, and they can BORROW against the property TAX FREE.

What is happening? The people who EARN money are leaving CA.

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Posted by mc
a resident of another community
on Mar 18, 2010 at 12:20 am

Jennifer, I posted this to the MV Voice Town Square, but since you said you're really only tracking this thread, I'm putting it here as well--

"I've definitely seen this with old leases (Safeway, some of the gas stations, all the old car dealerships on Stanford land). That said, there seems to be a steady decline in the proportion of 1978 base year property tax bills being sent to tenants".

Jennifer, I do appreciate your passion for public schools--I share it. I'm afraid that your information is not complete, though. The assessors' information shows who is legally responsible for the taxes. A tenant in a commercial lease WILL generally be billed by the property owner for these taxes, as a condition of their lease. This contractual commitment will not be reflected in the public records that you are viewing. My original statement is 100% accurate. If you want to confirm this, you can find the leases for many publicly traded companies as a part of their online SEC filings. You will find that they are, in fact, billed for property taxes, including increases. The same is generally true for small local businesses.

Again, I'm not attempting to change minds, just put out the best information. I do wish you success in fighting for adequate funding for public schools, but I dont agree with your preferred method of finding the dollars.

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Posted by Recent Buyer
a resident of Menlo Park: Sharon Heights
on Mar 18, 2010 at 7:18 am

I am a recent purchaser of a 2,300 s.f., 4BR/2BA home, acquired to meet the needs of my growing family for a larger house. I pay $19,000 per annum to Mr. Buffington and his successors and assigns. Many of my wonderful, long-term neighbors who I like and respect pay less than $2,000/yr. I guess that's the price of admission (or, in my case, re-admission in the move-up market as I've lived in CA for 30+ years). I fully understood and accepted that when I "moved up;" I love it here and wouldn’t live anywhere else. However, sad stories about widows being thrown out onto the street somehow fail to make me love this disparity, as my long-term-owner neighbors drive by in their Mercedes and Lexuses while I have to borrow against my HELOC (which I suspect they are eligible to obtain as well with their substantial equity if living expenses are squeezing them) to pay my taxes as I scurry off to work in my Honda to help pay for their Social Security as well, which I may never benefit from, and to pay for the creeping AMT that was never meant to target non-millionaires like me. The greatest generation is being amply rewarded fro their fine efforts to make California a great place to live, and my hat is off to them for their clever arguments to preserve the status quo.

The upshot:
Prop 13? Okay, I can live with that for residential property only.
Prop 58? An absurdity that never should have passed for either residential or commercial real estate.

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Posted by cynic
a resident of Menlo Park: Downtown
on Mar 18, 2010 at 8:43 am

Residential property prices tripled within a few years of Prop 13's passing. People who bought houses for $75,000 in 1975 were not rich, and there are some in my neighborhood, now retired, who were blue collar workers. Yes, their home is worth $2 million, but it is their only asset, and if they were taxed $20k/year, they would be gone real soon.

So that, for residential RE, is our tradeoff Do we value age and socioeconomic diversity in our neighborhoods enough to support Prop 13 for residential owners? Personally, even though I am now a beneficiary of the inequity (having bought a while ago) I would love to see it disappear. Not only did Prop 13 drive up prices, it dried up the housing stock. Empty nesters receive subsidies so they can remain in 5-bedroom houses on a couple of acres while young families have to squeeze into tiny homes on a scrap of land. All the hysteria about grandma not being able to afford her home camouflaged the fact that in the olden days, grandma would ultimately accept the inevitable, move to a home that was more appropriate for her lifestyle, and free up a residence for a family that needed it more than she did.

But I don't think Prop 13 is going away for residential. So I would like to concentrate efforts on commercial.

It's folly to say that business will dry up if Prop 13 is removed for commercial. What will happen, or so we can infer from the initial aftermath of Prop 13, is that prices for commercial RE may decline somewhat. Some owners may indeed decide that it's too expensive for them to do business here. Great! They're not going to take the property to Cape Cod with them! Let them sell, whereupon there will be no barrier to reassessment.

I appreciate Jennifer's research but disagree with her recommendation. Prop 13 should be eliminated for commercial RE. Period. If we have this much disparity after 30 years, what's it going to be like in 2040? Commercial property owners are going to have to bite the proverbial bullet at some point; why not now?

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Posted by WL
a resident of another community
on Mar 18, 2010 at 9:31 am

The Real Estate market is in meltdown mode, the bubble has popped, foreclosures are through the roof and these geniuses want to raise property taxes on California landowners? No wonder Taxafornia is an economic disaster zone - here's a simple solution to bring in more tax revenue for the state: resume drilling for oil offshore and tax the oil sales! According to Assemblyman Chuck DeVore, his Assembly Bill 2719 would allow new oil drilling from existing rigs with a projected yearly oil tax income to California of an additional $16 Billion with an additional 7,000 jobs. Tax Californians or drill for oil: what's your choice?

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Posted by To Recent Buyer
a resident of Menlo Park: The Willows
on Mar 18, 2010 at 9:55 am

"I am a recent purchaser of a 2,300 s.f., 4BR/2BA home, acquired to meet the needs of my growing family for a larger house. I pay $19,000 per annum to Mr. Buffington and his successors and assigns." First off, no one "needs" to live in Menlo Park nor buy a house at that price. You could rent or live in a less expensive neighborhood. While I empathize with you hard work (I do the same), I am bothered by the reality that you "have to borrow against my HELOC" to pay your taxes. This state is spending more than they have even though the money keeps flowing in. With a seemingly unlimited credit card during boom times, our state forgot about being fiscally responsible. Now that times are hard they don’t know what to do but tax more. Just as I have reduced my spending, so should the state and those living above their means.

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Posted by One of the insane
a resident of Menlo Park: The Willows
on Mar 18, 2010 at 10:30 am

It's great to be living in a state that the rest of the word regards as akin to an asylum being run by the insane. The cherry on top is that most of us agree with their assessment!

I don't buy the comments that this story is somehow a support piece for Measure C (the proposal to levy an additional parcel tax to increase tax revenue directed towards local school operations). Publius, I think you should keep your comments attached to the Measure C story threads rather than diffuse the discussion here.

Mr. Steinberg puts forward a well-sounding, but in my opinion, fallacious argument that increasing property taxes to match local market values is like taxing unrealized capital gains on all of one's personal assets. While I agree that taxing net wealth is not a fair proposal and would unreasonably discriminate against people who save rather than those who spend, we are talking about the support of local services here---which should be "fairly" assessed across the local population. By no argument whatsoever does it make sense that neighbors pay a 10x differential towards local services.

Prop 13 is an unfair implementation of the essentially good idea to curb local government spending. A fairer approach would have been to limit total property tax revenues that could be collected by the county to some inflation adjusted multiple of the total area under development. Individual homeowners would then all be paying a portion of the tax
proportionate to their parcel sizes. Property taxes increase would have be kept at a reasonable level --- though probably higher than 1%. Instead the voter pool in 1978 got to decide whether to pass on the lion's share of increased local govt service costs to future homeowners or to share it more equally. Is it any surprise that the inmates voted the way they did?

The question is how to go about fixing this broken situation now---and I believe the answer is that it will have to be done in pieces. The commercial real estate holders are a small but powerful lobbyist group. Hopefully we will have an opportunity to help support and vote for an initiative on the ballot to eliminate the unfair advantages some of these owners enjoy with respect to prop 13. After that comes the estate transfer and family trust loopholes---I've yet to hear how that can be deemed as fair.

Finally the remainder of Prop 13---though I just don't see how to change this---there will always be over 34% of the voters who get to pay less property tax than they would in a more equitable sharing of cost. This is why voter initiatives are a *bad* idea and we should trust elected legislators to make informed and fair decisions---just be sure to not let them vote for deficit spending or large increases in tax revenues!

At least the weather is nice in our rubber-walled state.

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Posted by Palo Alto Resident
a resident of another community
on Mar 18, 2010 at 11:43 am

I am not against the idea of protecting the homes of the elderly while they are living in them, but it gets a little out of proportion when real life scenarios show the pitfalls.

I live in Palo Alto in an area where the homes are 50 years old. One neighbour, who is the original buyer of the home raised her 4 children in the 50s and 60s and lived in her home until about 5 years ago when she moved into a nursing home. Her 4bed/2 bath eichler was given a facelift and rented out to a young family, the eldest of which was in preschool at the time and has since started elementary school and they still have a toddler. This family have been told by the children of the original owner that the likelihood is that they will be able to stay as long as they want in the home as the rental income is paying for the nursing home at present and when the mother eventually passes on, the children have no plans to sell the home but will keep it on as a rental.

This house could well be housing Palo Alto families with schoolchildren for a long time and the property taxes will be minimal. The grown up children know they are on to a good thing and as long as PAUSD schools are as good as they are reputed to be.

There must be a huge number of rental properties where the same is happening. The renters are probably paying market rate rents, but the owners are the ones who are reaping the financial benefits - and they don't even live in Palo Alto.

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 18, 2010 at 11:49 am

Jennifer Bestor is a registered user.

Mc, yes – I’m sorry that I didn’t also clarify that I agree.

The nature of triple-net leases IS that the tenant pays the property tax. At the same time, a very large number of Menlo commercial parcels have two or more tenants. And, most tenants seem quite savvy about their costs – do they, in September, open the mail from their landlord and say, “OMG, our share of the taxes is $15,000!” (from recent-purchase landlords) or “Whoopie! Who’d’a guessed we’d only owe $944?!!” (from legacy landlords). No, it’s all part of the calculation.

For that reason, however, I think a phased approach to this makes a lot of sense – something where tenants have a little time to renegotiate who’s going to pay, especially if the landlord is charging the same $/sf as the building next door whose taxes didn’t go up (recent-purchase landlord).

(I also think a phased approach might get our localities through the current crisis without creating a 1976-77-like swell of money coming in that they’re unprepared to spend wisely. 5-10% more isn't exactly a swell, in these times of 10%+ cuts, but reinvesting thoughfully would be valuable.)

Thanks very much for cross posting here!

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 18, 2010 at 11:54 am

Jennifer Bestor is a registered user.

MPCSD Prop. 39 violations,

PLEASE be the taxpayer-association rep to the Bond Oversight Committee! Yes, that position has sat open for want of candidates. Go for it! Do it!!

Our community values committed people who have skin in the game!!

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 18, 2010 at 12:01 pm

Jennifer Bestor is a registered user.


One thing that stung me to the quick was your assertion of my distain for the owner of the mortuary property. I’ve re-read my postings and I don’t see that. I'm heartily sorry if it came across that way.

I do see my frustration with the bald assertion that reassessing commercial property every 20Y (if unsold in the interim) would “double, triple” quadruple or otherwise exponentially increase rents. Both the mortuary and the old Menlo Park Hardware were unique institutions in our town. Both businesses closed because landlords doubled the rent. Both landlords enjoyed and continue to enjoy 1978-based tax caps. The new Menlo Hardware, while a welcome addition, does not have the complement of crusty old geezers who could tell me how to fix anything and sell me the fifty-cent part to do so.

So, while I absolutely defend the landlord’s right to charge what the market will bear for the property, I absolutely challenge the assertion that my proposal would throw businesses out on the street (unless legacy landlords wanted them there).

AND, for those of us who spend our lives looking at online tax bills, I’d like to mention the most remarkable thing about the bill for the mortuary property. The entire bill was paid on September 22! Both halves. (This was also true for the hypothetical three other properties theoretically owned by this individual.) This means that the person got the bill and, rather than withholding the money until December 10th, or only paying half, this person sent it all in right away,

Having spent two years collecting money from 400 fellow parents and a handful of vendors at school, I cannot tell you how rare and responsible the person is who pays in full, right away.

Having talked to a number of commercial landlords over the past 72 hours, I’d like to add that I hope the MPAEF goes forward with a targeted drive. Instead of dismissing the schools as irrelevant to them, these landlords recognize good schools’ value when it comes to recruiting new tenants who (along with their employees) will live in this community.

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Posted by Broken Cal
a resident of Menlo Park: Downtown
on Mar 18, 2010 at 12:01 pm

Trust our elected legislators? I think it's fair to say our legislators will never touch prop 13 because they care about getting reelected. That's the fallacy of our whole system. We keep pinning our hopes on the next elected official who then falls into the same trap and can't make any real progress.

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Posted by Thanks Jennifer
a resident of Menlo Park: Downtown
on Mar 18, 2010 at 12:07 pm

Enough said from all around. Many great points.

Now what elected rep or political action committee will refine the proposals and get a ballot created to reform the commercial property tax loopholes?

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Posted by fred
a resident of Menlo Park: Downtown
on Mar 18, 2010 at 12:15 pm

WHo benefits? It seems to me that Mr. Bohannon has benefitted handsomely on his commercial properties. Even if the city were to grant his 20 year development permit, the properties wouldn't be reassessed until they are built - up to 20 years from now.

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 18, 2010 at 12:42 pm

LVTfan, I feel like I’ve been ignoring you. Sorry. I just don’t have the time right now to research the LVT movement.

That said, in the interest of a phased approach that could get off the ground quickly, the idea of reassessing land-only has an appeal. When buildings are significantly upgraded, the Improvements part of the assessment increases, regardless of the land basis. So, reassessing land every 20 years and letting commercial building permits determine when buildings were reassessed may be very cost efficient.

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Posted by Recent Buyer
a resident of Menlo Park: Sharon Heights
on Mar 18, 2010 at 1:46 pm

Dear "To Recent Buyer," thanks for your comment that "I am bothered by the reality that you "have to borrow against my HELOC" to pay your taxes." I realize full well that my family is technically living beyond our means, but we love Menlo Park city and area schools so much (where I have lived for the past 25 years as a renter and then a starter-home owner) that we are essentially willing to burn up the equity we earned in our prior 1,100 s.f. home by using the HELOC on the new home to make ends meet, at least until the kids are out of college in around 2023. I just share this as an example of the new reality faced by I daresay more than a few "late Baby Boomers" who are willing to make sacrifices for the good life in Menlo Park. Without such sacrificers, I suspect the residential RE market would grind to a halt in some of our pricier neighborhoods, severely impacting resale values for those who don't plan to pass their homes on to their kids ala 1986's Prop 58. After all, there are only so many Google millionaires and VCs to go around.

Great discussion - thanks Jennifer!

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Posted by no on C boomer
a resident of Menlo Park: The Willows
on Mar 18, 2010 at 1:55 pm

The issue is only exasperated by commercial properties and their lower turnover rates. the key is to reevaluate the commercial properties and bring them up from 1978 levels to today's values and assessments. Fat chance that the money controllers will ever let fair taxation get off the ground. Prop 13 is how I was able to afford a home in the first place, 20+ years ago.

I refuse to vote for a measure that merely applies a band-aid to the problem. Do not be fooled, the root of this funding issue is Prop. 13 and until our Legislature addresses and attempts to fix the problem, I refuse to reward poor leadership with agreeing to repeated tax increases. by the time I might be able to sell my house in the Willows, there will be an automatic $2500 parcel tax on top of the property sales tax -- for a 2b1b house, there won't be many buyers attracted to this tax-heavy burden little home, making my next egg virtually worthless.

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Posted by Drew Eckhardt
a resident of Menlo Park: Linfield Oaks
on Mar 18, 2010 at 2:38 pm

Prop 13 should be replaced with something more along the lines of Colorado's TABOR (Taxpayer Bill of Rights) which limits the total tax retained by the governments to be the highest of the last five years adjusted by the state's inflation and property growth unless approved by the people.

This allows:

1. Taxes to rise at the necessary rate to preserve services in times of high inflation like the 1980s with their double digits.

2. Mobility into and out of the state, since new or returning residents have the same lower property taxes as the ones that stay.

3. Property taxes to decrease in real dollars for people staying in their homes as the buildings depreciate and more expensive homes get built on the more expensive remaining land. I paid about $1500 in property taxes for each of the six years I owned in Boulder, CO.

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Posted by Phidda
a resident of another community
on Mar 18, 2010 at 7:38 pm

Great analysis! Leave Prop 13 alone for residential property, but revoke it for commercial property, entirely.

Also, revoke Prop 58, and stop allowing the family trust as a vehicle to avoid taxes. That should keep long time residents in their homes while promoting other property to its highest and best use.

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Posted by WL
a resident of another community
on Mar 18, 2010 at 10:54 pm

Good one, Colorado TABOR Fan! Revoke Prop 13 for commercial property like farms and small businesses and revoke Prop 58 and up the taxes on those long-time California families and jack up those property taxes! Property owners should pay more taxes for the bloated union pensions and the hordes of illegals and newbies (from Colorado?) who want more government services and freebies! From each according to their ability; to each according to his need and Californians don't need all the Prop 13 protection they have now! California doesn't need Prop 13 (just the Colorado "TABOR) to protect Californians from tax-crazy politicians in Sacramento and the local union tax-eaters!

Thanks for letting us know about how Colorado works, but I'll stick with not changing Prop 13 and I will vote against any politician who tries to get around it and raise my taxes.

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Posted by UL
a resident of Menlo Park: Linfield Oaks
on Mar 19, 2010 at 10:56 am

This is all eye-opening, but I don't think I see the Menlo Park
picture here. Central Menlo hasn't ever been 50% commercial, so how
can it have dropped to 33%? Also, how much of the change is affected
by all the new subdivisions here (between Middlefield and Laurel) and
Seminary Oaks? And while we don't have many big businesses here in
Central Menlo, there is SRI, which has been here since the sixties or
earlier. What is the situation with SRI? (Though maybe it isn't SRI
any more, I know that now a lot of it seems to be Stanford Hospital?)


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Posted by Lee
a resident of Atherton: West Atherton
on Mar 19, 2010 at 11:19 am

This has been very interesting. I am a rental landlord and I live here so I see both sides. (My rental property is residential and I realize that this article has been about commercial but I would like to raise the question.) I am also paying very low property tax. I am also following the Prop C discussion and will vote for it because I have three tenants' children who go to public school.

But I would have to raise rents if my property tax went to 100% of market value. I also know that I am getting better rents than if the property was not in a good school district because there would be less demand. And when I think about it when I have an opening my rates are the market rate, but once someone is in there it is very hard to raise the rent very much. (And sometimes if I think it will be a very good tenant I will not even charge my listing rate, but I realize that is my decision is really a business decision, but it helps when there is room for me to lower the rate, which I realize is a little unfair to newer landlords who are paying more tax.)

So I am curious what is fair. If it is $8000 each child (and my property tax is a fraction of that times three children) that is $24,000 that is paid so the children can go to school here. And the school problem seems to be overcrowding so I am contributing to the crowding without contributing to paying for it. And I hope you appreciate that I am being honest. But here is the question, $24000 is $2000 a month which is much more than the extra I get from a good school district and much more than they would pay in tax if they bought a small home and no one would complain because they would be owners not renters.

But I think it would be fair if I paid something more than I am. (And I now realize I can contribute to the Educational association and I will.) But I also think that every landlord who has tenants kids in public school, so I am just wondering if maybe there is something in between no Prop 13 for residential rental property and maybe an amount like $4000 a child and if your tax on that property is not at least $4000 a child then maybe you should pay that if it is not more than the assessment would be at market.

I hope someone has a good idea that is fair for everyone, not just some of us taking advantage of others (and making problems for the very angry poster who lives across the street from the school).

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Posted by Jennifer Bestor
a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 19, 2010 at 2:38 pm

UL, thank you for your question.

I am going to answer the first part -- what precisely does the shift look like for Menlo Park -- then go away and analyze SRI separately. That may take a few hours.

Looking only at the Menlo Park City School District (effectively central Menlo and West Atherton), from 1985 to the present, I found a shrinkage of commercial/industrial property in the secured tax rolls, from 21% to 10% of the total roll (including fixtures and personal property declared on the secured roll); or 19% going to 9% when I looked at land and buildings minus exemptions only.

Where did a shrinkage of half the commercial contribution to public services come from? This demands a thoughtful multivariate statistical analysis that I’m trying to find time to perform. For now I’m giving you my gut, based on various pivot tables of both residential and commercial parcel numbers and values.

There appear to have been five factors. In no particular order:

a) net conversion of commercial land to single-family residential uses (especially in the greater Linfield Oaks area)
b) lack of commercial turnover, hence an increased concentration of commercial properties at the low end of the assessment scale
c) a slower appreciation of commercial property compared to residential
d) net conversion of other land (either exempt [Seminary] or residential rental) to single-family residential
e) the decreasing value of the fixed $7000 homeowner’s exemption

The first, (a) conversion of commercial to residential land, has contributed something over 1% of the change by reducing low 1978-basis commercial land by a little, but adding current-basis residential housing onto the residential side of the equation. Note that two previously exempt parcels have become high tax-paying commercial (Glenwood Retirement Inn and the modern office building at 1000 El Camino), as well as infill around the downtown, all of which reduce the net change.

The lack of commercial turnover (b) has been the focus of much of this discussion and the article. About half of the shift (5%) appears to be the effect of Prop 13/58 – a proportional lack of turnover. Remember that residential is 31% pre-1985 basis, 33% from 1985-1999, and 36% from the last ten years. Commercial is 40% pre-1985, 40% from 1985-2000, and 20% from the last ten years. (Commercial is very pear shaped, while residential is cylindrical.)

For those reading from Palo Alto, Santa Clara County as a whole, which publishes its figures, also had a top-heavy SFR/condo at 48% for the last 10 years, while their commercial is more hourglass than ours, with 33% pre-1985, 26% in between, and 41% 1999-09.

Most interesting to me is (c) -- residential property selling in the last ten years is currently assessed (including many declines below purchase price) at 15.7 times 1978 assessed values. Commercial is at 9.1 times. So, the 20% that turned over in the last decade did so at 60% of the appreciation on the residential side. Which damped the commercial contribution of recent basis property, though had a net effect of less than 1%.

Why? (Yes, yes, business-unfriendly California, etc.)

My first other thought was is the uneven playing field playing a role in this? Why pay full value for an asset when the competitor next door has a permanent, growing $10,000+ tax advantage over you? Natural risk aversion with ones money would make one think long and hard about offering the same amount as one might if, say, the tax basis moved with the property. I wonder if, while Prop 13 seems to have driven residential prices up, it has damped commercial sales prices down by insinuating a tax barrier to entry. If so, removing it would have the unexpected consequence of raising commercial property values.

A second thought (thanks, GvG) is that property is, in fact, changing hands and for higher prices, but is doing so within the shells of LLCs. For a standard 5000 sf Menlo commercial lot, a tipping point would exist at around $1,200,000 where it would be more financially advantageous for a purchaser to take a 1978 tax basis than to put the building (often 50% of the total) on the books and depreciate it over 30 years for an income tax savings $10K or less.

The only proof I see of this in the data is that about 20% more parcels in Menlo Park are LLCs or other potential investment vehicles than in 1978. This could be just the nature of how things are held these days, but it’s plausible that at least a few have legally changed ownership without a change in assessment. And certainly suggests a future trend.

The (d) net conversion of exempt (Seminary) land to residential was good for another 1%.

And the final 1% appears to be the result of the declining value of the homeowner’s exemption. $7000 compared to the average assessed value of a home in 1985 in our district ($144,000) was about 5%. Today, that would be the equivalent (average assessment of $1.1M) of $50,000.

Hope this wasn’t too much info. Do note that it means, for the area covered by the school district, that my proposal for change would only increase overall property tax collections by 5%, unless more land changed hands at higher (assessable) prices. Thanks for asking.

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Posted by Margo McAuliffe
a resident of Menlo Park: Linfield Oaks
on Mar 19, 2010 at 5:31 pm

I moved to Menlo Park in 1970, purchasing a 4 BR, 2BA house for $37,500. I have benefitted greatly from Prop 13 over the years, despite moving twice. I am a retired MA teacher who would be priced out of my house if I were paying the rates of my neighbors. In a way I'm caught in Catch 22. My salary at MA was meager to say the least, in part because Prop 13 kept the taxes low.

Despite my having benefitted from Prop 13, I opposed when it first came up and I still oppose it. My own children attended MP schools and MA. I remember the hype that retired folks would be forced out of their homes, and that was absolutely true. But there is not reason why the tax code couldn't include one's age and economic status in calculating property taxes. There could have been other fixes, including ways to fairly tax businesses as well as property owners. EVERYONE benefits from good schools, even those who have never had children. I believe in paying a fair share and I believe that businesses should share the burden fairly.

If Prop 13 is ever to be repealed, it will have to be fashioned in a way that protects retirees as well as spreading out the burden. The reality is that older people do vote, however unadvisedly. You can't blame them for opposing huge tax increases to be paid out of retirement funds based on lower earnings of the '80's and '90's.

FYI I will be voting YES on the latest bond proposition for schools.

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Posted by Mavo
a resident of another community
on Mar 20, 2010 at 3:00 am

Excellent article... thanks for the great research on this piece! As a native Californian, and a young voter in 1978, I was vehemently opposed to Prop 13 for this very reason! Others also saw how this proposition was a ruse for big money interests to cut THEIR commercial property taxes by claiming it was helping Grandma keep the family house in retirement. They do the same thing now when they heavily hype and promote the mere crumbs the working class get in tax cuts, while the and their rich friends reap huge tax benefits each time they cut taxes.

This colossal mistake made by California voters kicked off a whole era and led directly to the destructive Reagan Revolution! For 30 years now we have watched as our public services have been cut, our schools turned into 2nd class institutions, our once proud UC system that was virtually free in the 1970's now charges our kids almost as much as private universities... and on and on it goes! When does this "me generation" madness STOP? I fear people will not wake up until we truly have a TOTAL meltdown! And that meltdown may not be far off if we continue down this road.

The tax laws could easily have been written to take into account a retired person paying a bit less to stay in their house... without the insanity of making Prop 13 across the board. It is fiscal insanity, not to mention immoral for one home owner to pay 500% more in property taxes than his neighbor ... when they both may have the SAME financial ability to pay!

Nobody LIKES to pay taxes... but we need to recognize the need to adequately fund our common public services so we all live in a civilized society with an educated population. And that "necessary evil" we call taxes, once adjusted for one's ability to pay, should be levied equitably. Prop 13 was the BIGGEST mistake in the history of our state and now we see the consequences coming home to roost in the 21st century. It took 30 years but these greedy shortsighted "cut MY taxes!" "government is bad" idiots have ruined our state... and our country!

I almost weep when I see what these short-sighted selfish fiscal conservatives have done to our once great state! We used to have the BEST public schools in the country... the BEST public university system in the WORLD ... and we funded massive public works projects that benefited ALL Californians like the California Aqueduct project. Is any of that possible today? And we have a hand full of these idiots in Sacramento that hold the entire state hostage every year because the will NOT raise taxes to fund anything. Is it even possible for a democracy to function properly if the minority can control the purse strings so completely?

I was educated by our once great public school system and our once great public university system. And it gave me the foresight and critical thinking skills, even as a young man in 1978, to see what Prop 13 was... a greedy money grab by powerful monied interests! Now that we have a whole generation of kids who have NOT had the same excellent public education I received, I wonder if they even have the critical thinking skills to figure out what has happened or how to fix it. I hope they are not ALL being taken in by these "fiscal conservatives" who are actually stealing the middle class lives of them AND their children with their short-sighted "cut taxes" philosophy! I already wonder where the young students are that should be out in the streets protesting this travesty! Maybe they are too buried in their iPods and watching American Idol to realize their state and nation is being destroyed!

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Posted by Menlo Voter
a resident of Menlo Park: other
on Mar 20, 2010 at 8:21 pm

As a young voter in 1978 I was opposed to prop 13. I was primarily opposed because the arguments of pro prop 13 people was that it would get our legislators' out of control spending under control. Yet nowhere in prop 13 is there anything that controls spending, only income. I'm hardly prescient, but predicted then that the legislature would go right on spending money and run the state into bankruptcy. Well, we're just about there folks. Prop 13 didn't do anything to control out of control spending did it?

Let's not forget the idiotic voters that continue to vote for propositions that have mandated spending with NO way of mandating where the money will come from. This is especially damaging in a down economy.

The fact is that prop 13 needs to be adjusted and the proposition process needs to be fixed as well, so we can't keep voting mandated expenditures into place without madated income. That translates to taxes. Guess how many of those mandated spending proposals will get voted in if they are accompanied by the appropriate tax increases necessary to fund them? Yep, zero.

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Posted by Karina Salenger
a resident of another community
on Mar 20, 2010 at 9:32 pm

Here's a thought that is related, albeit a bit off subject; perhaps an idea worth surfacing:

What if people who benefit from inheritance via Prop 13 are required to pay a "redistribution" tax that would go directly to teachers salaries and classroom budgets in low income school districts thereby allowing those schools to attract better teachers.

Otherwise, we are growing the divide between the haves and the have-nots and making it harder and harder for young people who do not benefit from inheritance of property to make it in the world, arguably increasing prison costs and draining our schools of money.

I do not own property, do not have children, have never used government assistance, and work full time. However, it makes me mad that the people who benefited from low or no-interest student loans several decades ago, more affordable housing, good job prospects in the 60s and 70s, and are benefiting now from Medicare and Social Security, are also benefiting from Prop 13.

Call me heartless, but I don't feel badly if an older person has to move into a smaller home because they can't afford the property tax at the propertie's current market value. Theoretically, they could sell their expensive house and use their money to pay for the property tax on a smaller place. People have to move all the time for all kinds of reasons. Tough!

It is my opinion, that if you are alive and kicking you should be required to contribute to society, especially if you are benefiting from it by utilizing medicare and social security. Why do the benefactors of Prop 13 feel so entitled? Is it so they can pass something on to their children? Fine. I get that. But if we are going to allow this perpetuation of property ownership then we should balance it with providing subsidies for those who have not and will not benefit from property inheritance.

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Posted by cynic
a resident of Menlo Park: Downtown
on Mar 21, 2010 at 9:08 am

Karina, that is an interesting thought, but in practice not very viable, just adding convoluted layers of bureaucracy onto those that already exist.

I agree that people who can not afford the taxes should not stay in their houses. No one is putting them on the street! A young family trying to buy a tiny house near the freeway does not get property tax subsidies -- why should we give those subsidies to long-time residents living in big houses with lots of land?

Whether government should be forced to live within its means is a separate issue. Putting an end to prop 13, especially for the commercial sector, would help get rid of an inequity that forces new property owners to pay not only their share but the taxes of their neighbors too.

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Posted by new guy
a resident of Menlo Park: Downtown
on Mar 22, 2010 at 7:42 am

So you buy a house, live in a neighborhood all your life, then just because the city needs more money to pay for a 250K manager and staff, you have a sell and leave. This is why prop 13 passed.

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Posted by cynic
a resident of Menlo Park: Downtown
on Mar 22, 2010 at 8:36 am

New guy, the city does not establish or collect property taxes. Time for a refresher civics course?

Individual homeowner property taxes are tied to the value of the property, and should increase or decline with the market. Right now, there are gross inequities thanks to Prop 13. My neighbors pay 4x as much property tax as I do, and I do have kids in the public schools.

If you can't afford to live in a neighborhood, you have to move. Happens all the time. There are people who bought houses a few years ago who realize they can't afford them and have had to sell and buy a cheaper home or rent.

Without Prop 13, everyone pays in accordance with the market value of the home. If you retire and your taxes rise above your level to pay them, then, yes, you have to sell. Why should the rest of us pay your share because you didn't put money aside for your retirement?

2 people like this
Posted by palo alto parent
a resident of another community
on Mar 22, 2010 at 8:37 pm

Retirees do not have to be forced out of their homes because of taxes. Many parts of the country allow people over 65 to defer their property tax for as long as they live in their home, until they pass away. The property tax accrues as a lien against the home. Yes, there is less to pass on to the heirs, but so what.

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Posted by Joe
a resident of Menlo Park: other
on Jan 4, 2011 at 7:14 pm

Prop 13 is the best thing to happen in California. The then Govenor Jerry Brown, the one that Bankrupted the Oakland City schools when he was Mayor now wants to destroy Prop 13. The recent million dollar retirement the manager of the city of Bell California was a direct result of Jerry Brown policies. This man should be quickly recalled from office before he causes any real damage.

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Posted by anonymous
a resident of another community
on Jan 5, 2011 at 9:17 am


Post again when you come back to planet earth.

In the meantime, how about some links supporting your fantasies?

The Bell manager, whose tenure was from 1993, served Bell during which of Brown's administrations? uh-huh: none of them. 1993 was Pete Wilson (Meg's immigration adviser.) And Arnold did what exactly to control Bell?
Web Link

A link for the bankruptcy being Governor Brown's fault, please.

Any quotes from Brown to back up your fantasy about prop 13?

Recall? Wow. Jerry won because Meg was just another Arnold. And he won "going away"; he destroyed her because he supports working Californians over millionaires.

You really pine for the days of Arnold?

Really, post again, with some links instead of fantasies.

2 people like this
Posted by korgar
a resident of another community
on May 16, 2016 at 12:12 am

6 years on, nothing has changed. The "landed gentry" are *truly* entrenched in CA.

Here in 2016, prop values are at a level *no one would have believed* at the time this was written, and *rents* are now *even higher* (because once even a dump in Menlo is $1.6M, you just *can't* buy... how the hell can anyone save that kind of money?)

So rent is now 50, 60, 70%+ of net income. And landlords just keep up the NIMBY BS, blocking *both* creation of new inventory *and* sane revision of prop 58 *and* any sort of rent stabilization, and just keep on buying Bentleys and stockpiling cash. The state needs *badly* to crash and burn. I pray daily for an economic collapse in this region that just *wipes out* real estate value, gets these city councils put in jail for corruption, and with any luck fully puts most of the commercial landlords out of business permanently

6 people like this
Posted by St Ma
a resident of Menlo Park: other
on May 16, 2016 at 9:37 am

Remove the commercial loopholes that allow the attached property taxes to be passed on to new owners. Leave the residential side alone - not because it shouldn't be tweaked, but because it is political suicide anyway.

The largest commercial property owners funded the campaign for 13, and have been paid back a million fold.

Don't believe that? Think it is hyperbolic? Look at them. Do the math.

They did.

4 people like this
Posted by Luis Louie
a resident of Atherton: other
on May 16, 2016 at 1:15 pm

Prop 13 has to change and be updated.

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Posted by Jack Hickey
a resident of Woodside: Emerald Hills
on May 16, 2016 at 4:23 pm

Jack Hickey is a registered user.

Some reading material on the subject.

Web Link

Do you want to see the 2/3 vote for parcel taxes reduced to 55%? Look what happened to our bonded indebtedness when school bond threshold was reduced to 55%.Web Link
Support the Howard Jarvis Taxpayers Association. And, vote NO on Measure AA.

2 people like this
Posted by Y Pie
a resident of Atherton: other
on May 16, 2016 at 7:13 pm

Drop the commercial loopholes. They will not effect rents.

Rents are what the market Bears. Two apartments next to each other rent for the same, regardless of cost structure or tax

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