It's not always politics that makes strange bedfellows, but urgency. That's what's driving the sudden popularity of an effort to reform Proposition 13 by eliminating what has long been one of its most flagrant loopholes for commercial property owners.
They appear to be worried about a rising tide of public discontent with business maneuvers to avert reassessments of their property under Proposition 13. But there are signs that the change won't make much difference in the ability of businesses to take advantage of the rules.
The reform, sponsored by Assembly Democrats Tom Ammiano of San Francisco and Raul Bocanegra of Pacoima, would shut a loophole that allowed commercial property buyers to carve up ownership shares so no individual buyer acquired a stake of more than 50%. Keeping below that threshold averted a reassessment that could lead to a tax increase on the property.
Under the new rule, a commercial property will be reassessed whenever 90% or more of the property is sold or transferred over a three-year period, no matter how many owners are involved.
The reform would avert maneuvers like the one staged by computer tycoon Michael Dell and his partners in 2006, when they carefully structured their $200-million purchase of the Fairmont Miramar Hotel in Santa Monica so each would stay below 50%.
As my colleagues Jack Dolan and Jason Felch reported, a firm owned by Dell acquired 42.5%. The trust of his wife, Susan, acquired 49%. And a company set up by two of Dell's investment managers acquired the remaining 8.5%. They reported that no ownership change triggering a reassessment had occurred, saving an estimated $1 million a year in property taxes.
The problem, as Lenny Goldberg, executive director of the California Tax Reform Assn., explains, is that change of ownership is a lousy metric to apply to commercial property; there are too many ways for businesses to structure transfers of commercial buildings to avert the ownership rules. It's not so easy in the residential market, where homes typically are bought and sold by individuals or couples.