A new UC Davis report concluding that commercial property tax could raise $3.3 billion for the state has politicians and interest groups perking their ears.
The UC Davis Center for State and Local Taxation report, issued in mid-February, said the state would reap the equivalent of 10 percent of the governor’s projected budget deficit if California citizens were to allow industrial and commercial property to be taxed at 1 percent of market value.
Report co-authors are UC Davis economics professor Steven Sheffrin, director of the UC Davis taxation center and dean of the Division of Social Sciences, and Terri Sexton, associate director of the taxation center and an economics professor at California State University, Sacramento.
Sheffrin and fellow UC Davis economics professor Hilary Hoynes also lent their professional advice on the state budget crisis as two of the 14 UC and Stanford economists who wrote a letter to the governor and the Legislature saying temporary tax increases should be part of the state budget solution.
Those showing interest in the center tax report include major statewide business and employee-group lobbyists, government agencies and legislators.
Sen. Martha Escutia, D-Norwalk, will use the report as support for her bill to close loopholes in commercial property tax laws, said Wendy Umino, principle consultant in Escutia’s office.
"If the professors’ report shows $3 billion could be saved through changes in Proposition 13, then Sen. Escutia’s bill could find perhaps half that amount, or even $1 billion," Umino said.
Another legislator interested in the report was Sen. Gloria Romero, D-Los Angeles, who chairs the Senate Democratic Caucus.
The report, just issued through the University of California’s California Policy Research Center, was requested by the California Senate Office of Research last summer. "We were asked to look at how much money the state loses by keeping industrial and commercial property under the current Proposition 13 limitations," Sheffrin said. "Many think the Proposition 13 protection is more appropriate for homeowners."
State voters would have to approve a constitutional amendment to Proposition 13 to allow a split tax roll. Under Proposition 13, which passed in 1978, all property assessments were rolled back to 1975 values.
Subsequent assessments could increase only by a maximum of 2 percent per year until the property was sold, at which time it would be reassessed at market value.
Property values have increased on average faster than 2 percent per year, and the current assessed value of real property in California is significantly below market value.
"Hence property-tax revenues statewide are significantly less than what would be collected if property were assessed at market value," the report says.
The report looks at the true market value in Los Angeles County, which accounts for about a fourth of the state’s industrial and commercial properties. From that $840 million valuation, Sheffrin and Sexton made an estimate for the full state, Sheffrin said.
The $3.3 billion is about 10 percent of the governor’s projected deficit, he said.
Although business owners will probably be concerned about increased costs of taxation, Sheffrin said California’s 1 percent property tax is still very low in comparison to other states.
Sheffrin and Sexton have done similar property tax projections in the past. The Legislature asked them to update their findings at a policy roundtable hosted by the Senate Office of Research and the California Policy Research Center last summer, Sheffrin said.
A copy of the report can be found on the Web at http://www.ucop.edu/cprc/publist.html.