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Guest opinion: Leveling the ground: Yes on Proposition 15

Original post made on Oct 11, 2020

In a guest opinion in the Oct. 2 edition, Menlo Park resident Karen Grove writes about why she supports Proposition 15, the Schools & Communities First initiative.

Read the full story here Web Link posted Sunday, October 11, 2020, 7:52 AM

Comments (18)

Posted by Local94025
a resident of Menlo Park: Suburban Park/Lorelei Manor/Flood Park Triangle
on Oct 11, 2020 at 4:36 pm

Local94025 is a registered user.

Commercial properties are valued much lower then residential. Commercial lenders keep the values down because they only lend 65 to 75 LTV and few companies lend on Commercial properties, rates are even higher. I am not sure this will bring the windfall proponents hope for. Also are we sure the money will be "extra" for schools? Like the Lottery money promised to schools. The state just reduced their contribution so it was the same in the end.

Posted by Area Resident
a resident of Atherton: other
on Oct 12, 2020 at 8:47 am

Area Resident is a registered user.

There is no way this tax increase will help the schools. Increased property taxes will be passed on to the tenants, who in turn pass it on to the consumer. Worse, it will lower any hope of meaningful wage increases for workers There is only so much money a tenant has to work with and when one costs goes up some other costs have to go down, or, passed on to the consumer. The Menlo Park Area resident will only pay so much before looking at online solutions. Many storefront are vacant now, with workers no longer employed, this will make it worse. As a final note, the idea higher taxed will translate to lower residential taxes can not be believed. "Reclaiming $770 million from San Mateo County" means taking money from property owners. Will it go directly back to residential property owners? The answer is no; it will be lost in other government spending. As proof, the lottery, intended for school use, has reduced contributions to school. This is a proposition that must be defeated.

Posted by brent
a resident of another community
on Oct 12, 2020 at 2:37 pm

brent is a registered user.

A vote for 15 is a sure open door for an adjustment to prop 13. An absolute hysterical No No!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Posted by Cmon
a resident of Menlo Park: Central Menlo Park
on Oct 12, 2020 at 2:59 pm

Cmon is a registered user.

I suggest voters spend some time on one or more of the sites that attempt to summarize issues, pros, and cons of the initiatives.

I don’t advocate for one service over another but is one that seems to be popular.

15 is complex so reviewing the full details may prove helpful.

Posted by ln
a resident of Menlo Park: Sharon Heights
on Oct 12, 2020 at 3:14 pm

ln is a registered user.

Even small businesses will be hurt by prop 15 in that most small businesses pay triple net in their leases meaning they must pay for their share of property taxes. When those taxes go up, the business is stuck and either goes out of business (do we want even more small businesses going belly up?) or they pass it on to their customers (do we want even higher prices here in CA?).

In CA we are faced with an insatiable thirst by government for tax revenues. Property tax revenue in CA since 1979 has grown over 10-fold. Property tax revenue since Prop 13 passed has grown faster than the economy of CA has grown. You are trying to kill the Golden Goose by raising business property taxes, forcing even more businesses out of CA. Maybe CA should take a slightly different approach----why not look at controlling spending instead of continually raising our taxes and cost of living? Enough is enough! Vote NO on Prop 15!

Posted by been there
a resident of Atherton: Lindenwood
on Oct 12, 2020 at 3:21 pm

been there is a registered user.

Vote NO on Proposition 15.
This will cost of us more.
1. All Commercial and Industrial properties are leased to the tenant on a tripple net basis meaning the landlord bills the tenant for all Taxes, Insurance and maintenance. Any increase in property taxes are passed on to the tenant to pay. The tenant must raise prices to pay for this increase. Ultimately you and I will pay the increase. The fat greedy landlord pays nothing.
2. This proposition also reassess farm and ranch land also. The land that grows crops and animals will cost more in taxes that will be passed on to you and me in higher food costs.
This proposition will most likely be the first huge step in increasing taxes on homeowners.
Vote NO on Proposition 15

Posted by Eldridge
a resident of Woodside: Family Farm/Hidden Valley
on Oct 12, 2020 at 4:52 pm

Eldridge is a registered user.

"Many storefront are vacant now"

Seems to be a bad time for landlords to try and raise their rent. Any landlord that raises their rent in this market is going to be vacant for a long time.

Supply and demand.

Posted by Stan
a resident of Portola Valley: Los Trancos Woods/Vista Verde
on Oct 12, 2020 at 6:14 pm

Stan is a registered user.

Its every populist's dream to hit the corporations for more tax lucre but far too many people fail to peel away the layers of the onion and look at where the corporate money actually comes from Much of it comes out of the pockets of the citizens of our state.
When it comes to rental properties, which I think constitutes ~40% of housing in CA, Prop 15 is going to be nothing short of a disaster for many low income resident living in apartments.
Take for instance a situation where an apartment long owned by the same person or corporation and where the property tax component of the monthly rent is about 5%. Now increase the assessed valuation by say a factor of 5 (1/2 the amount touted in the article by Ms Grove.) All of a sudden, with everything else being equal, to maintain the same (often meager) margin on operating this apartment house the rent needs to be increased to cover the new expense. Lets just say this apartment was on the low end for the Bay area renting at $2500 a month. The property tax recovery part of that rent which was $125 per month will now be $625 per month for a total rent of $3000.
So what's the poor renter supposed to do. Come to your door and ask you to pay the extra $6000 per year. I doubt you'd agree or even be able to see the connection between foolish ill thought tax grab schemes and the reality of of the term "No good deed goes unpunished" though I also doubt you would be in the economic situation you've caused to that renter.

Posted by Eldridge
a resident of Atherton: Lindenwood
on Oct 13, 2020 at 5:52 am

Eldridge is a registered user.

"often meager margins" ?

Silicon Valley's top property owners, from the Merc

Google, $7.5 billion.
The Irvine Company, $5.9 billion.
Jay Paul Co., $3.5 billion.
Cisco Systems, $3.4 billion.
Essex Property Trust, $3.1 billion.
Intel Corporation, $2.5 billion.
The Sobrato Organization, $2.5 billion.
Prometheus Real Estate, $2.0 billion.

"often meager margins" ?

"a situation where an apartment long owned by the same person or corporation" is MOST DEFINITELY NOT operating on meager margins while getting market level rents from their tenants.

If you have a 10 unit building, owned for 40 years, collecting $2500 a month per unit (your number)- how on earth is your cost basis not near zero compared to the building next door just purchased or built?

My families' buildings have the normal expenses, and yes, they seem high when it's time to write the check. But the net is far from "meager".

Posted by Stan
a resident of Portola Valley: Los Trancos Woods/Vista Verde
on Oct 13, 2020 at 12:15 pm

Stan is a registered user.

Well - perhaps I'm doing it wrong. I operate an ADU on my property which cost ~$250k to build 20 years ago for a father in law(not including any value of the land it sits on). It rents full or partly furnished and all utilities paid. When I add up the costs over time for maintenance, utilities, repairs, replacement of appliances, etc not including any value of my time expenditure let's just say as a financial investment it stinks. If I'd put that money into Tesla stock years ago let's just say I wouldn't be having to act as my own property manager. Or, perhaps you don't manage your properties to the same high quality standard that I maintain. Even on a more pragmatic basis at a 7% ROI (average ROI of the double tax free bonds I sold to build it) over the same period it would be worth almost 1M. Not even close
Just trying here to give a real world example of why prop 15 will discourage some important forms of investment in housing.

Posted by Cmon
a resident of Menlo Park: Central Menlo Park
on Oct 13, 2020 at 1:07 pm

Cmon is a registered user.

Another reminder on suggestion to read the specifics of the proposals, and expected impacts. Whether you agree or disagree, good to be an informed voter.

Posted by Eldridge
a resident of Atherton: Lindenwood
on Oct 13, 2020 at 5:18 pm

Eldridge is a registered user.

"Well - perhaps I'm doing it wrong. "

And perhaps I'm not familiar with that end of the market. Does an ADU even fall under Prop 15?

- Exempts from taxation changes: residential properties; agricultural land; and owners of commercial and industrial properties with combined value of $3 million or less.

Posted by PH
a resident of Woodside: Emerald Hills
on Oct 13, 2020 at 6:02 pm

PH is a registered user.

Yes on 15. Web Link

Equilibrium rents are determined by supply and demand not costs.

Summary: From the Times, "A group of economists supporting the split-roll measure contends that supply and demand are the primary drivers of prices, and that a higher property tax is more likely to reduce profits than lead to price increases."

Long Version:
Web Link

Voters in California will be considering Proposition 15 on the November ballot. If passed, it will raise up to $12 billion in new revenues for education and local governments by requiring that many commercial and industrial properties be assessed at fair market value. The measure does not apply to residential property or agricultural land and provides an exemption for small property owners. Under the current system, commercial and industrial property taxes in California have more to do with the date of purchase than the fair market value of what is owned. As a result, under current law competing firms may own properties with equivalent actual market values and yet pay radically different effective property tax rates.

This system is highly distortionary. Older companies charge market prices for their products while paying millions of dollars less in taxes each year than do their newer competitors. Landlords who bought property 30 or 40 years ago lease their land at market rates while enjoying extremely low property tax assessments that are based on the original purchase price. On top of this, the system causes additional distortions and tax-avoidance tactics because it encourages firms to structure real estate transactions so as to avoid reassessment.

The opponents of Proposition 15 claim its tax increases will be passed through entirely to consumers and small businesses. This is unfounded for several reasons.

First, it is the forces of supply and demand that shape market pricing. Businesses compete based on price, quality, service, and their ability to innovate. Firms attempting to raise prices above market rates must consider the risk of losing customers to their competitors. Firms do not reduce prices out of the goodness of their hearts; instead, they set prices at
what the market will bear. Large firms that enjoy cost savings over their rivals due to out-of-date tax valuations tend to take the savings as windfall profits rather than pass them on to their customers. Bringing large business properties up to the same effective rate as paid by their competitors would largely eliminate the distortions in the system. By eliminating assessment disparities, the cost of Proposition 15 would mainly result in reduced windfall profits at the corporate level. These profits disproportionately accrue to large, older firms and are a competitive barrier to new and innovative small businesses.

Second, Proposition 15’s increases will vary from firm to firm. The limitations on property tax rates set by Proposition 13 will be unchanged; and thus, the impact of Proposition 15 on any individual business will depend on the disparity between that business’s property’s current assessed value and its fair market value. Standard economic theory says that
these kinds of impacts reduce windfall profits; they do not lead to price increases.

Third, many businesses will not be affected. Sixty-five percent of all business properties will be exempt because of Proposition 15’s exclusion of owners of commercial and industrial property with $3 million or less in value. Home-based businesses, accounting for over half of all small businesses according to the California Department of Industrial Relations,
also will be exempt.

Fourth, all affected businesses will not be reassessed at the same time. Proposition 15 provides for a phase-in of reassessments over a minimum of three years.

Finally, some businesses will experience a net property tax reduction. Proposition 15 eliminates the property tax on equipment and fixtures for small businesses and provides a $500,000 a year exemption for all other businesses. For exempt businesses or businesses currently assessed at or near market value, the measure’s net effect could result
in a tax cut.

Proposition 15 will improve California’s economy over the long term. It eliminates economic distortions that hurt competition and growth. By broadening the property tax base, it will help level the playing field and provide additional funds for education and local communities.

Jesse Rothstein, Professor of Public Policy and Economics, University of California, Berkeley
Chris Benner, Professor of Environmental Studies and Sociology, University of California, Santa Cruz
Heather Boushey, President and CEO, Washington Center for Equitable Growth
Lisa D. Cook, Professor of Economics and International Relations, Michigan State University
J. Bradford DeLong, Professor of Economics, University of California, Berkeley
Ellora Derenoncourt, Assistant Professor of Economics and Public Policy, University of California, Berkeley
Christopher Erickson, Professor of Management and Organizations, University of California, Los Angeles
Robert Greenstein, President, Center on Budget and Policy Priorities
Hilary Hoynes, Professor of Public Policy and Economics, University of California, Berkeley
Sanford Jacoby, Distinguished Research Professor of Management, Public Policy, and History, University of California, Los Angeles
Rucker Johnson, Professor of Public Policy, University of California, Berkeley
Thea Lee, President, Economic Policy Institute
Lawrence Mishel, Distinguished Fellow, Economic Policy Institute
Steven Raphael, Professor of Public Policy, University of California, Berkeley
Michael Reich, Professor of Economics (emeritus), University of California, Berkeley
Emmanuel Saez, Professor of Economics, University of California, Berkeley
Joseph Stiglitz, University Professor, Columbia University; Nobel Laureate
Danny Yagan, Associate Professor of Economics, University of California, Berkeley
Gabriel Zucman, Associate Professor of Economics and Public Policy, University of California, Berkeley
Signatories (institution listed for identification purposes only)

Posted by PH
a resident of Woodside: Emerald Hills
on Oct 13, 2020 at 6:11 pm

PH is a registered user.

Yes on 15. End the commercial property transfer loopholes.

Tax bases for commercial properties do not rise with the same frequency as those for residential properties. There are two reasons.

1.) Many of the most lucrative and under-taxed commercial properties are held by corporate titans whose ownership tenure lasts much longer than the life time of the average residential homeowners. One example is United Airlines which enjoys a vast land holding in San Mateo County. Others are obvious: Oracle, Apple, Intel, etc.

2.) There is a loophole in transferring commercial property which is exploited by design. Most commercial property is held by a shell business entity. Rather than selling the underlying property, owners sell the shell entity using a gimmick called a "structure purchase."

"... buyers of commercial property have found a way to avoid this reassessment. Instead of buying the property, they buy the legal entity that owns the property. Under rules set by the Board of Equalization, a change in ownership of such an entity doesn’t trigger a new assessment of its properties unless more than 50% of the entity is acquired by a single person or business."

Hence if I wish to buy commercial property X, I might enlist my wife and cousin so that three of us buy the shell entity that owns X, none of us buying more than 49% of the shell entity. Or I might create three shell entities wholly owned by me, each of which buys no more than 49% of the ownership entity.

This is America. Its child's play for tax attorneys to exploit the BOE tax loophole to allow commercial properties to be transferred to new owners without reassessment.

Posted by ln
a resident of Menlo Park: Sharon Heights
on Oct 14, 2020 at 8:58 am

ln is a registered user.

@PH and, if those august economists went back to basics, they would also know that when you tax something more, you get less of it (supply), therefore having demand be greater for a smaller supply. Therefore RAISING PRICES! Simple economics. So, no matter how much you write or copy from a pro prop 15 website, basics are basics, and prices will go up if taxes go up. It is inevitable.

Posted by Domino Falling
a resident of Menlo Park: Downtown
on Oct 14, 2020 at 3:00 pm

Domino Falling is a registered user.

In these parts, commercial property valued under 3 million is hard to come by. Imagine the squeeze on small residential landlords hit by the double whammy of propositions that simultaneously raise taxes and enact rent control. Ouch

Posted by JR
a resident of Menlo Park: Central Menlo Park
on Oct 16, 2020 at 12:13 pm

JR is a registered user.

One would assume that landlords in this area who have owned for decades and have lower property taxes are still charging market rents for their units. So, prices are already “high”. If they choose to increase again to cover higher taxes, and if those rents are well above market, tenants will move. Similarly, if upkeep is diminished and quality deteriorates, tenants will move. These are simply the market forces and supply and demand. Many comments seem to suggest that legacy owners keep their rents Unnecessarily below market because if their lower property taxes. Highly doubtful.

Posted by sr21
a resident of Atherton: West Atherton
on Oct 17, 2020 at 8:01 am

sr21 is a registered user.

Just want to give a different perspective here. I am a landlord. I have a property in San Francisco with very low property tax. There are 4 tenants. A lamp store , frame shop , maternity store, art deco art store. Because my property tax is low I have been able to maneuver them through the pandemic. No rent while they are closed and 500 dollars a month for now. If prop 15 passes I will be losing too much money to keep them as tenants. Most property owners in California are small property owners just like me. There are many stories in the news of landlords who are just like me.I love shopping at the local Mom and Pops. Many will be gone and replaced by chain stores as the property tax increases are passed through. Jobs will be lost in the short term .That is why the NAACP and Golden gate restaurant association amongst many others have rejected prop 15. If you want to go after the big fish vote no and rewrite the bill for the next election and target them. By the way property taxes do increase 2% a year compounded. An easy solution would be to gradually raise that thresholdto 3 or 4% a year. Then the change is less disruptive and with the benefit of compounding you will eventually get to market property tax.

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