CITY HALL — The City Council formally threw its support behind a movement to remove protections for businesses built into a property tax measure that has come under intense scrutiny upon revelations that loopholes in the law give advantages to corporations able to exploit them.
The change to long-standing Proposition 13 could bring new money to city coffers at a time when the council has been forced to make cuts and trim down major construction projects to balance its books after the 2008 economic collapse.
It would also solve what some see as a fundamental inequity in how the law treats corporations over individuals, who must pay higher taxes upon the purchase of a property whereas businesses have found ways around that restriction by obscuring when a formal change of ownership has taken place.
The reform championed by the council Tuesday night focused on regular reassessments of commercial properties to avoid the messy business of figuring out when they had changed hands under the law.
“What is true here is that corporations that can exist in perpetuity can hide a change in ownership where an individual cannot,” said Councilmember Gleam Davis. “It’s time to take a look at that and, in light of other priorities, bring money into the state and local treasuries.”
Prop. 13, a measure approved by voters in 1978, capped taxes on both residential and commercial properties by reassessing the value of the home or business only after it had been sold in an attempt to protect from rapidly rising land values.
The change was popular amongst homeowners at risk of being forced out of their houses by out-of-control property taxes, but has often been pointed to as the source of California’s budget problems since local governments, schools and even the state relied on property taxes to provide services.
That conversation jumped to the front of people’s minds in recent weeks when the Los Angeles Times reported that billionaire computer magnate Michael Dell saved roughly $1 million a year in property taxes by exploiting a loophole in Prop. 13 when he purchased the Fairmont Miramar Hotel in Santa Monica for a reported $200 million.
Dell brought on his wife and two investment advisors as partners, ensuring that no single person controlled more than 49 percent of the hotel and skirting the requirement to reassess the property, meaning that the luxury hotel continues to be taxed at its 1999 value of $86 million, the Times reported.
The Los Angeles County Assessor’s Office has filed a lawsuit against Dell.
Had the hotel been taxed at its full value, Santa Monica could have received another $170,000 a year, said Councilmember Kevin McKeown, one of three council members who brought the issue forward.
He’s also called on the City Manager to discover if owners of other large properties — specifically the Yahoo! Center, Arboretum and Water Garden — have benefited from similar tactics.
“Clearly something needs to be done,” McKeown said. “We’re not going off on a tangent here. This is a mainstream thing and something I want Santa Monica to be on board for because, in a way, we became the poster child for abuse in the L.A. Times.”
Not all agree that Prop. 13 is to blame for the situation, however.
The Howard Jarvis Taxpayer’s Association, founded by Howard Jarvis, Prop. 13’s staunchest ally, holds that the problems highlighted by the Fairmont Miramar purchase have little to do with Prop. 13 and more to do with tax law, said Kris Vosburgh, executive director of the association.
The organization has given a nod to the Assessor’s Office, saying that it did the right thing by going after the hotel, Vosburgh said.
“While we think taxes should be limited, we’re for people paying their taxes that they justly owe under the law,” Vosburgh said.
The Santa Monica Chamber of Commerce has also taken the position against wholesale changes to the law.
“Santa Monica’s unique character benefits from many long-standing, locally-owned businesses,” said Carl Hansen, director of government affairs with the chamber. “Regularly reassessing commercial properties would create a substantial burden for small business owners.”
Sheila Kuehl, director of the Public Policy Institute at Santa Monica College, has been keeping an eye on the conversation and research surrounding Prop. 13 before it resurfaced as front page news.
The Public Policy Institute held two panel discussions about the measure, one in 2011 and a second in February, examining the impacts of the law and the growing calls for change.
Kuehl’s not sure that an effort to reform the law could win today, even with the outrage sparked by the L.A. Times coverage, but it’s a good start, she said.
“I do think that more people are aware of the unintended consequences of Prop. 13,” she said. “I’ve never spoken to anyone who intended businesses to be able to escape paying taxes on their full market value.”
Move to Amend
The City Council also backed a resolution calling for an amendment to the U.S. Constitution that would restrict the rights of corporations and prevent them from funneling cash into elections.
The resolution supported the Move to Amend Campaign, a nationwide effort that attacks corporate personhood, the concept that a corporation has the same rights under the Constitution as an individual and therefore the right to express itself in politics using copious amounts of cash.
The movement came in reaction to a 2010 U.S. Supreme Court decision regarding Citizens United vs. the Federal Election Commission, which further cemented the rights of corporations as individuals in American law. The court’s decision opened the doors to unlimited campaign spending on behalf of companies.
It would constitute a return to fundamental American values, said Cris Gutierrez of Santa Monica Neighbors Unite.
“Corporations were not meant to be ‘we the people.’ They were not part of the establishment of our Constitution,” Gutierrez said. “We have to regard the distrust that our founding fathers had for corporate power.”
The wording of the measure continued to rankle Davis, an attorney and the sole council member who voted against the resolution.
Corporations do serve a purpose outside of the context discussed in Move to Amend, she said.
“This doesn’t exempt nonprofits, it doesn’t protect unions and I’m not sure that it’s necessary,” Davis said. “The reason to adopt this resolution is to express our opinion that corporate money should not have undue influence on politics, and we’ve already supported that.”