Prop 15 Discussion with KPCC Host Larry Mantle

Please note this automated transcription may contain errors.

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richardkgreen: Good afternoon, everyone, and welcome to the price talks Lusk perspective series on election issues. We are delighted today to have a conversation about proposition.

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richardkgreen: The split roll tax and hosting our conversation this afternoon. Please welcome from Southern California Public Radio Larry mantle, Larry. Thanks for doing this.

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Larry Mantle: Professor Green. Thank you. It's such a pleasure to be able to do another election talks with

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Larry Mantle: The price School of Public Policy. It's a real pleasure for me and a pleasure to be joined by

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Larry Mantle: Two outstanding of Professor or one professor, I should say another special guest, Professor Manuel Pastore joining us from USC and also Rex Haim joining us in conversation, Professor store.

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Larry Mantle: Is Professor of Sociology and American Studies and ethnicity and these the Japan G and chair in civil society and social change. Professor Pastore also

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Larry Mantle: directs the USC equity research institute Rex time is president and CEO of the California business properties Association.

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Larry Mantle: Gentlemen, appreciate it. And of course proposition 15 would create what's called a split role on property taxes in California.

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Larry Mantle: Removing commercial and industrial properties from long standing proposition 13 restrictions on tax increases residential property would continue

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Larry Mantle: To be subject to proposition 13 limits on tax hikes Professor Pastore let's begin with you and outline why you think it's important for Proposition 13 to be modified and for commercial and industrial property to be

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Larry Mantle: Set at current market value.

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Manuel Pastor: Is good to be with you and sorry about it. I can hold enough actual have a landline and it's ringing. It's mostly political people telling me to either yes or no on Proposition 13 and all the rest of the processes of the car in a minute.

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Manuel Pastor: This is a very significant proposition, both in its substance and it's symbolic

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Manuel Pastor: Kind of what it means for sort of the transformation of California briefly for people who are not completely familiar with it proposition 13 passed in 1978

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Manuel Pastor: Rolled bad property tax assessments to 1975 on residential and commercial properties living at the assessment guy us to do more than one or the taxes to know more than 1%

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Manuel Pastor: Of assessed values and then wound up creating a situation in which the assessed values with lag behind market values because they would not be able to increase by more than 2% a year.

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Manuel Pastor: The reason why prop 13 passed was because in the 1970s with skyrocketing property values. Many people were worried about small homeowners.

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Manuel Pastor: Who might be on fixed incomes seniors etc finding their tax bills rise finding themselves, not being able to to pay and therefore not being able to stay in their house.

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Manuel Pastor: That was a problem that could have been fixed with a scalpel, for example, carve outs for seniors for low income folks, etc. In terms of the property tax assessment.

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Manuel Pastor: Instead, it was fixed with a sledgehammer. It was applied, not just to residential property, but to commercial, industrial property as well.

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Manuel Pastor: In the years since the share of taxes being paid by residential property owners has actually gone up dramatically, while the share of taxes paid

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Manuel Pastor: By a commercial, industrial property owners has gone down dramatically most dramatically and counties like Los Angeles, but all over

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Manuel Pastor: California that's partly because commercial, industrial properties don't change hands as often. And that's when the assessed value become closer to market value.

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Manuel Pastor: And it's also because in the commercial, industrial property realm. It's much more possible for someone to acquire ownership of a property without acquiring and 50% ownership of it.

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Manuel Pastor: The most significant or well known example of this is Michael Dell who's going to buy the Fairmont hotel.

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Manuel Pastor: And when he found out that the assessed value would go up backed out of the deal and restructured it to buy with his wife and some partners with nobody taking a 50% share

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Manuel Pastor: I think one of the key things is that if you go back to the late 1970s, the voters who passed proposition 13 had in their mind, protecting seniors protecting

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Manuel Pastor: Of folks on fixed incomes protecting people put their ability to stay in their houses, they did not have in their mind freezing a property taxes of Chevron Disneyland and tell or the South Coast plaza so

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Manuel Pastor: This is kind of the context in which is occurring.

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Larry Mantle: Rex. I'm your. Why do you think that this would be a mistake for the industrial and commercial properties to be taken out of 13 controls on taxes.

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Rex Hime: Well area. First off, I want to say, I appreciate the opportunity for UC person to speak of the UFC events. So this is a great honor for me.

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Rex Hime: But to me, in order to talk about what we're talking about today, I first want to respond to a couple things manual said

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Rex Hime: I because I know he's a man who believes attacks and I'm a person who believes in facts and according to the Board of Equalization the state of California.

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Rex Hime: Which does he studies all the time. The 1979 80 homeowners paid 41.8% of property and business owners pay 58 point 16% of the property.

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Rex Hime: That was based upon the fact that was the first time after get it past the property to pass in 1978

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Rex Hime: Today, the most recent Board of Equalization not a CDP event, not a bunch of political people, but the Board of Equalization said the data shows homeowners paid 36.65% which is down.

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Rex Hime: And this is probably a 63.35% which is up. Those are the facts. Those are the facts. The other facts are that when I campaign for Proposition 13 and 1978

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Rex Hime: I can tell you that in our minds, we were talking about controlling taxes on everybody, not just home people who own homeowners.

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Rex Hime: And. And finally, I want to address the issue that he brought up about that scaly wag Michael Dell and that's a very good point. And I want to point out that about almost a decade ago we attempted with working with Tom ammiano who is an assembly member from San Francisco to fix that.

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Rex Hime: Process. He had a legislation that we introduced it was voted on in the assembly side and sitting on both sides of me where the people who are now the proponents of Proposition

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Rex Hime: And they join me in supporting this measure in fixing this a bit there was a problem because we all agreed we wanted to fix it.

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Larry Mantle: So what happened that it didn't pass

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Rex Hime: Very thank you for asking. Hillary. The once I got over to the Senate side the political people at the California Teachers Association said, wait a second.

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Rex Hime: If we remove this and we fix this. We can no longer argue about the loophole in Proposition 13 and so the same people who supported it on the assembly side going and became the opponents to me on the Senate side and they killed the bill.

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Larry Mantle: So in other words, you're saying they wanted to have this

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Larry Mantle: To campaign on us creating a split role and so that helps sell the case, they didn't want to solve that sub sections of the of the problem. Professor pest or can you respond to that.

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Manuel Pastor: Well, first I want to

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Manuel Pastor: Keep the olive branch going between. You see, and he was see my kids went to UCLA hierarchy that it's because they knew I could get free tuition at USC. So they wanted to make sure that their parents suffered through

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Manuel Pastor: College. I think you're pointing to something that I wish had passed at that time as well so that we would be not talking about this particular loophole that I think most people agree on, but rather talking about

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Manuel Pastor: Two fundamental problems with not having a split crawl system because it's just a question of the sort of Michael Dell example. And of course, has ranked knows there's several others as well.

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Manuel Pastor: But it's also a question of whether or not you've got two properties side by side in a market which are paying remarkably different taxes.

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Manuel Pastor: And that's tremendous economic efficiency when you've got one piece of land that's valued and it's going to have a legacy

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Manuel Pastor: Property Tax value and another that's valued at its market value that's a classic kind of economic inefficiency and it has caused a shortfall in revenue in this tank.

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Manuel Pastor: It's estimated and this is probably where there is some agreement to that and probably 15 passes, it's somewhere between six and 11 and a half billion dollars.

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Manuel Pastor: Of either enhance revenue, you're looking at from that perspective or increased taxes if you're looking at from that perspective. So, current state which needs to be investing in education.

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Manuel Pastor: And other sorts of things to be able to move forward into our economic future. That's revenue that's really needed

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Larry Mantle: But Professor Mr. What would you say to those to say California is already over looking at overall tax is

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Larry Mantle: A comparatively high tax state. And so because of Proposition 13 controls on basis and in property taxes.

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Larry Mantle: Other taxes have gone up much more than in other states to compensate for that. So you got a high income tax here you've got higher sales taxes than in many states.

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Larry Mantle: You've got Property Assessment, you've got other ways that the government raises revenue. So what would you say to those who said, well, when you look at total taxation, the Satan's plenty of revenue to work with.

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Manuel Pastor: Well, I'm not sure that's the case that the state has plenty to work with. I think one thing that practice and I might agree on is we've got a pretty dysfunctional tax system in which

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Manuel Pastor: You know, under kind of person who likes progressive income taxes but it creates a lot of volatility in terms of the income flow to the state.

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Manuel Pastor: Because wealthy people's income goes up and down with the stock market people have proposed things like a service sales tax on services.

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Manuel Pastor: That's a little bit more stable, but it tends to be very aggressive. One thing we do know is there's only eight other states.

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Manuel Pastor: That have the same kind of limitations on commercial and industrial property tax assessments those eight other states include Arizona, Iowa, Michigan, Oklahoma, Florida, South Carolina.

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Manuel Pastor: To other states, Arizona, and Florida. There are limits or that you can increase the assessment, more than 10% a year sort of protecting against hyperinflation these rules in California or more than 2% a year. This is a highly dysfunctional way to get property.

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Larry Mantle: Rex Haim. What about the argument that, you know, property taxes. Historically, particularly before 13 gave local control.

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Larry Mantle: For that revenue is created could go into local schools and that that's appropriate because the businesses that are doing business. There are the homeowners that are doing business there.

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Larry Mantle: That you know they're they're invested in these local services, whether it's firefighting please or schools and the property taxes are the most direct and fairest way for that to be accumulated. And so why isn't, why isn't rolling back this part of

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Larry Mantle: A good way to do that.

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Rex Hime: Well, I think we talked about

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Rex Hime: Why isn't this a good way to do this talk about the groups that have come together to oppose this better.

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Rex Hime: It's not your traditional business books, it's, it's not a bunch of people who belong to California business partners association of a change

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Rex Hime: Rather, it's a breath of of opposition that ranges from the NAACP Tao sharpens group all the way across the California Farm Bureau all the way across to the Howard Jarvis Taxpayers Association and includes

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Rex Hime: A huge swath of folks in between. And you've got to wonder why and why have even private sector unions.

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Rex Hime: Come out and oppose the measure that supported by their private public sector partners as a Union side.

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Rex Hime: Something that they're pushing. It's because when it talks about creating more tax revenue.

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Rex Hime: That's all it does. It creates more tax revenue. It says 40% goes to schools 60% goes to local government.

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Rex Hime: That's after it pays for itself to be implemented, which is why the California assessors have a posted because they say it's going to cost a billion dollars to implement

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Rex Hime: And 400 to $500 million a year thereafter, to keep it working. So the question is, why is it opposed by all these folks local government had a chance to support this. The legal California Cities refuse to endorse.

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Larry Mantle: Why answer that question because we're short

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Larry Mantle: On time Rex.

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Larry Mantle: Record. Please answer that question because we're short on time. Why don't they support it.

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Rex Hime: They don't support it because the money brings with the Rural Counties Association come out against it because it's the first time.

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Rex Hime: That a property tax credits winners and losers. This property tax goes to the state and gets redistributed.

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Rex Hime: It does not go back to the regular counties that came from. Secondly, there's no guidance, if it said 40% of education.

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Rex Hime: Goes to education 60% of local government. And here's what it's going to do. We're going to reduce class size we're going to hire more teachers because of the other

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Rex Hime: You might have seen a great number of the business community say yes, maybe something we should be doing, but it doesn't do any of that.

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Rex Hime: Instead of has this what most people would reach and most political observers, I agree in California that this is going to be used to do nothing more than backfill the pension deficits that exists for the CTA and the SEIU that's

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Larry Mantle: It, but those, those are payments that are going to have to be made right so is is that long to use additional property tax revenue from commercial and industrial properties, that's going to have to be paid out of public coffers at some point.

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Rex Hime: If that's the purpose they should articulate that and let the voters of California decide how they want to approach this deficit and insurance.

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Larry Mantle: Right, Professor Pastore your, your response to that.

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Manuel Pastor: Well, first, Al Sharpton as not associated with the N double A CP

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Manuel Pastor: Which takes a little bit to the lack of familiarity with the breweries.

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Manuel Pastor: Hell, is there a part of that.

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Manuel Pastor: The big argument that's being presented is that this is going to hurt, small business. And those are kind of voices that are being

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Manuel Pastor: Brought out into the public, but what prop 15 authors have done is to create an exemption.

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Manuel Pastor: In terms of assessment for property owners who and less than $3 million of property in the state of California and also an exemption on the first

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Manuel Pastor: 500,000 of basically equipment or business property personal business property that a business owns and one of the studies that was commissioned by the Silicon Valley Community Foundation.

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Manuel Pastor: Thought that this could actually be a net gain for most small businesses who would wind up gaining not being taxed on the tax side on the property tax hike side and also gaining from

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Manuel Pastor: The break on business property, indeed, what's estimated is that about 90% of the revenues are going to be coming from about 10% of the properties

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Manuel Pastor: What's being put out into the public are small business owners and what's actually the big money behind us is golf courses and who are the big beneficiaries of this are going to be

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Manuel Pastor: Great Again Chevron, I might. My joke is that it's a little wonder that Disneyland is the happiest place on earth its property tax assessments.

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Manuel Pastor: Except for the property improvements are pretty close to where they were in 1975. So that's I think the image to have in mind about who's really going to be shouldering the burden.

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Larry Mantle: In Professor Pastore that the comment from Rex calm about

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Larry Mantle: That it's not clear where the money would go

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Larry Mantle: Is there any language that's that's here that designates specifically beyond just generalized 40% for education.

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Manuel Pastor: No, there isn't an most normally in because kind of measure, there isn't that kind of specificity. When you think about a bond measure even it says something like, we're going to build schools. It doesn't always specify exactly where the money's coming

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Manuel Pastor: Issues of accountability are important. And one of the things for us to think about is if this passes.

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Manuel Pastor: What are the kinds of accountability mechanisms that need to be put in place. One of the reasons why I think prop 13 path in the first place.

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Manuel Pastor: Was there was already a dissociation going on between local property taxes and local schools. And people began to resent property taxes being paid and say we're not necessarily going

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Manuel Pastor: To their own schools thrown kits to challenges that we are one California and elsewhere, investing in all of our children. It's going to be hard to have that kind of productive and educated workforce that I know that business wants. And I know that everybody wants to the state.

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Larry Mantle: Rex calm, you were talking about the cost to assessors to to reassess properties. Why would that be more expensive than the current assessment process is our properties not regularly reassessed in California, the

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Rex Hime: Way the current system works is that the county assessors basically have a computer program.

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Rex Hime: And they click the button and it does the 2% increase and sends out the bills.

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Rex Hime: They're now going to have to go out and reassess roughly 650,000 commercial properties in California.

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Rex Hime: So that is quite a challenge that they have to face and and I do want to say, you know what, when you talk about increasing

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Rex Hime: You like to pick on Zealand and you like to talk about Chevron and the fact the matter is the majority of taxes in California are not paid by Disneyland and Chevron.

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Rex Hime: The majority of taxes, property taxes in California or small business owners in the LA Basin alone over 45% of the small of the properties are owned by small people and not small people small owners and

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Rex Hime: And so there's two things in the measure that are kind of really hokey, number one, they talked about how they want to protect the small businesses.

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Rex Hime: And they say, so we're going to delay the implementation on small businesses for two years. You don't have to your tax until 2025

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Rex Hime: What happens there is the property owner gets the new assessment goes to the county assessor after having gone through and prove that 50% of his property or property is rented by small businesses who qualify the employee definition they didn't have to terminate.

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Rex Hime: Hold up, making this new property tax hit you until 2025 and the proponents say they're doing that. So the small business owners can relocate

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Rex Hime: Well, if you're a small business, we've been great at the corner of element, whatever, and you sell Thai restaurant food and people come by every afternoon and pick it up on the way home.

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Rex Hime: They're not going to move to three blocks away or four blocks away or a mile away because their customer base. They have a business. They have their customers. So this is a specious argument that they're going to give small businesses two years to relocate

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Larry Mantle: Next time,

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Larry Mantle: Since since this is going to be affecting such a high percentage of commercial properties.

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Larry Mantle: Isn't this going to affect most businesses, essentially, in the same way so that the competition on the business side is going to be largely level because

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Larry Mantle: Everybody is going to have to figure out how to incorporate additional costs to be able to pay the higher taxes. So why would this necessarily be causing businesses to move over to go out of business.

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Rex Hime: Because their rent is going to be the taxation and California is passed through the triple net leases or through other type of arrangement with them their lease. So a property.

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Rex Hime: Lisa Kennett now it's going to make up an amount x amount of money and then the past of Proposition 15 occurs and the landlord gets another bill he has to distribute that money out to his tenants. So those tenants are all going to get a higher building what they're paying now.

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Larry Mantle: But they're all going to get it. That's my

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Larry Mantle: Point, doesn't this mean that the playing field is essentially level.

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Rex Hime: Me.

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Manuel Pastor: Let me say a couple things here.

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Larry Mantle: Professor store.

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Manuel Pastor: What sort of used to discussions versus debate so racks is going to be surprised, but I'm going to help them with something here.

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Manuel Pastor: Which is that the other reason why the assessors are saying this is important. This process.

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Manuel Pastor: Is because assessing commercial, industrial property is harder than assessing residential property because residential property.

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Manuel Pastor: Is you know so much similar to the property right next door to it and residential, commercial, industrial property is going to take a longer time to assess

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Manuel Pastor: Now, I believe in the ingenuity of the Silicon Valley. I think there's going to be an app, similar to, so that's going to do a lot of this, there's a market it's being created for her.

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Manuel Pastor: On the issue of the triple net what a call triple net leases, which is for X was saying where costs get passed through one of the things to notice and it's in the beacon economic study

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Manuel Pastor: on small business effects that was commissioned by the Silicon Valley Community Foundation is if you have to pee properties right next to one another.

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Manuel Pastor: Their market rent generally does not differ depending on what the tax assessment is it's actually just set by the market.

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Manuel Pastor: And if you see the property tax assessments going up on one of those properties. The ability of that property to them and charging a whole lot more than the property was charging next door.

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Manuel Pastor: Is going to be limited by the market itself so Pekin economics estimates that you might see a one to 2% one time increase in rents as a result of the property tax adjustments that might take place.

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Larry Mantle: Are you concerned professor about the timing of this that we're going through all the economic disaster of

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Larry Mantle: Related to the pandemic and we don't know about the future of so many brick and mortar locations and restaurants in the like.

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Larry Mantle: That implementing this. Now, even with a three year lag time that we just don't know what kind of economy that we're going to happen and what kind of job losses could potentially occur from this

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Manuel Pastor: When I give the REX a chance to answer to Tucker's super quick, which is

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Manuel Pastor: First, this is something that should be thought out and not so much as a short term measure as a long term effects to those of us who see this as a problem, who see that properties.

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Manuel Pastor: Side by side been dramatically unequal assessments is inefficient who think that it's an equitable, etc. And so it really is more of a long term structural shift to it as a short term revenue game. And in that light. The fact that it's a three are

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Manuel Pastor: tricked into doing it that there are some has x was pointing out

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Manuel Pastor: Slower on ramps for small businesses, etc. Make me less concerned. But the issue that you're raising I will be more concerned about other kinds of taxes that have been proposed in this atmosphere that I think might have an anti competitive effect in the short term.

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Larry Mantle: Rex I'm, how would you see this playing out in the numerator.

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Rex Hime: Allegedly analysts offices indicated that they expect job washing California between 80 and 130,000 people. I happen to think back to your question about the pandemic and the timing.

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Rex Hime: We should not be putting more taxes on the small businesses will not be putting 100,000 people out of potential jobs in California.

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Rex Hime: And and I don't have the same competence and Silicon Valley.

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Rex Hime: Because they can be able to fix the ED situation. And I think it's embarrassing that in California.

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Rex Hime: We have a system where we kind of grouped up the tracking on the pandemic. On top of that, and then we have an ED system and employee development department.

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Rex Hime: That is nothing but great heartache and dislocation production California who paid into a system and expected to have that system work for them.

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Larry Mantle: So how does that relate to this.

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Rex Hime: He was a boy, do you have trust in the Silicon Valley. And I said, I don't have necessarily

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Larry Mantle: Okay. All right. But you've got all the added expenses that schools are are undertaking because of code. We don't know for how long, schools are going to have to have additional personal protective equipment.

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Larry Mantle: We don't know what the impact on classroom teacher, student ratios is going to be going forward. And as we know all of our public districts are undertaking huge additional expenses associated with this.

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Larry Mantle: If there's not going to be additional revenue that's coming in this probably isn't a short term issue if if you don't have a split role, what are the way our schools going to be able to fund themselves.

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Rex Hime: Well, first off, there's no guarantee that that's where the money is going to go, Larry. I'll go back to that in the back to the issue of accountability on these

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Rex Hime: Having been the CO chairman of every single school been measured for the last 2530 years in California at the state level, I can tell you that we built in accountability.

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Rex Hime: And that was really important, but we don't know where that money is going to go. There's no guarantee it's going to be used for class size or addressing the PPS or whatever. And so that's the like I said earlier on.

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Rex Hime: Had this been a measure that was saying this is what we're going to do. There might have been a different response from the community and I want to point out that

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Rex Hime: Some of these monies are just who knows where they're going. I guess that's it.

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Larry Mantle: All right. Okay. Professor Pastore. What about for the

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Larry Mantle: Person who's maybe a retiree owns one commercial property and they're you know this this is essentially what their whole retirement is based on and

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Larry Mantle: Now they find themselves having, you know, being socked with a with a big property tax bill how, you know, how are those individuals going to cope with this.

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Manuel Pastor: Well, that can be a challenging situation if they own more than $3 million in property.

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Manuel Pastor: That they own more than $3 million in property value, then they're probably somewhat comfortable position to be able to soar that kind of a shock. I do want to say something about what just got

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Manuel Pastor: Lifted up a little bit too, you know. I graduated from college in 1978 and I was asked to give the college speech was UC Santa Cruz, so nobody was actually wearing a cap and gown. But I was asked to give the college speech.

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Manuel Pastor: And I know that when I should have done was to thank my immigrant parents for all their hard work and I think the State of California for supporting me

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Manuel Pastor: But instead proposition 13 at just best, and I gave a graduating speech about I was going to ship wreck to state of California in terms of its fiscal

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Manuel Pastor: Health for decades to come. And in that very time we move from being among the top 10 and

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Manuel Pastor: States in terms of our spending K through 12 per student to be now number 39 which is a little bit better than we were five or six years ago.

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Manuel Pastor: So that's been a problem. But what prop 13 did to just I think create an era of magical thinking because what happened was the property taxes were slashed Governor Brown, the first

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Manuel Pastor: Round and Jerry, Jerry Brown backfill that with the budget surplus and it gave everyone the impression that you cut taxes without cutting services are cutting education. I'm hoping that we're growing up as California

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Manuel Pastor: And we're realizing that if we want a first class educational system, we're going to have to pay for it. Part of it is what's going to happen with

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Manuel Pastor: Part of it as a variety of other things in which all of us, including folks in my own position are going to have to take on some of the burden of making sure we're making the investments we need for the future. All right.

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Larry Mantle: Gentlemen, we are out of time, but I want to thank you both so much. That's Professor man well per store of

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Larry Mantle: USC and also my thanks to wreck time the President CEO of the California business properties Association.

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Larry Mantle: If you enjoyed our conversation about proposition 15 just want to remind you that the election talk series.

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Larry Mantle: Is available on the USC price school website you can look as well at the proposition 21 conversation.

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Larry Mantle: That I did with professors Richard green and Gary painter that's on the website as well as other special talks about the election that's coming up, of course, to provide you with some additional information.

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Larry Mantle: And you'll also find links that are shared in the chat feature for this. So thank you so much. So, good to have you with us for another one of these election talks.

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Manuel Pastor: Thank you. One thing I think we both agree on voat.

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Rex Hime: Absolutely