Panel Calls for Revisions in Prop. 13

In a report scheduled for release today, a bipartisan commission recommends that California return to using full market value in setting property taxes if the current assessment method required by Proposition 13 is overturned by the U.S. Supreme Court.

If implemented, the panel’s proposal would very likely boost the taxes of longstanding property owners while reducing the burden for the most recent buyers.

Citing examples of the huge differences in taxes paid by neighbors owning comparable property, members of the state Senate-appointed commission concluded that the property tax system established 13 years ago under the voter-approved initiative is fundamentally unfair and should be changed.

“The very existence of a $17-billion tax system in California that operates unfairly is reason enough to offer improvements to it,” the report concludes.

Seven of the 18 commission members concluded that Proposition 13 is so fundamentally unfair that it ought to be changed immediately, even if the U.S. Supreme Court does not throw out the current system of assessing property. Barring court action, the landmark 1978 taxing measure could be modified only with approval of two-thirds of the voters.

The high court recently agreed to review a challenge to the assessment method filed by the R.H. Macy Co. But the firm withdrew its appeal amid criticism from other businesses and the threat of a customer boycott. However, the court could decide to review a similar pending case filed by Stephanie Nordlinger, a Baldwin Hills homeowner.

The advisory panel, which is made up of legislators, business and labor leaders, was created last year by the Senate in anticipation of a court review of the proposition. Its findings will be forwarded to the Senate for possible legislative action. No similar panel has been formed in the Assembly.

Aware that a sudden shift to taxing property at full market value could result in severe hardship, the commissioners recommended a variety of ways to ease the impact on large numbers of California homeowners.

However, the commissioners were deeply divided on how this could be accomplished and recommended three alternatives for the Legislature to consider if the high court eventually tosses out key provisions of Proposition 13.

One possibility endorsed by the commission is to split the tax rolls--applying a lower tax rate to homes than to commercial property. Under Proposition 13, all property is taxed at the same 1% rate with the exception of bonded debt that differs from county to county.

But five commission members were adamantly opposed to that proposal, which would result in an immediate $5.9-billion tax increase for businesses in the state while lowering rates for homeowners.

Another approach endorsed by the full commission would increase the homeowner’s property tax exemption from the current $7,000 to $50,000.

Still another would immediately increase the assessed value of all commercial property to full market value, but phase in the increase for homeowners, such as adding 4% to their assessments the first year, 6% the second, and so on, until the assessment reached market levels.

The commission was in general agreement that local voters should have authority to increase property taxes with a simple majority vote. Under Proposition 13, voters can impose certain special taxes beyond the 1% limit, but only if the added tax is approved by a two-thirds vote.

Under Proposition 13, property assessments in the state were rolled back to their 1975 levels and could be increased no more than 2% a year. But whenever a piece of property changes hands, it is reassessed at its current market value. Nordlinger, for example, bought a $170,000 home in 1988 and found herself paying five times the taxes of many of her neighbors.

The commission offered a number of proposals that members generally agreed should be enacted, whether or not the high court throws out the Proposition 13 method of taxing property. Those include:

* Taxing property at full market value when ownership is transferred to a child by inheritance. “The inequity is clear,” said the commission report. “One young family buys a new home and is assessed at full market value. Another young family inherits its home, but pays taxes based on their parents’ date of acquisition.”

* Changing the way business property is assessed. When there is a change of ownership in a home, the property is reassessed at market value. But when a publicly traded business has a turnover in stock ownership, its property taxes are based on its earlier, lower assessments unless more than 50% of the stock is sold to one buyer, the report said.

Members of the commission include Robyn Phillips, an economics professor from UC San Diego and the head of the committee; Kirk West, president of the California Chamber of Commerce; Maureen G. DiMarco, Gov. Pete Wilson’s secretary of child development and education; Jack Baugh, vice president of Operating Engineers Local Union No. 3; state Sens. Gary K. Hart (D-Santa Barbara), Ruben S. Ayala (D-Chino) and Marian Bergeson (R-Newport Beach), and David E. Anderson, former chief executive officer of GTE California.