Tax Hike for Firms Urged

California’s largest teachers union said Wednesday that it will ask voters next year to alter Proposition 13 and levy higher taxes on commercial property than on houses to generate billions of dollars for teachers’ salaries, smaller class sizes and expanded preschools.

The California Teachers Assn. is proposing a state constitutional amendment on the November 2004 ballot to raise basic property taxes on businesses from the 1% that all property owners pay to 1.55%.

Union officials said the increase could generate $4.5 billion a year for education at a time when schools are laying off teachers, eliminating elective programs and slashing other services.

“We need money in classrooms for the teachers and the kids,” said union President Barbara Kerr, who announced the plan with Rob Reiner, the film director who is a leading advocate for children’s education and health services.

But anti-tax advocates immediately denounced the plan as an assault on Proposition 13, the landmark 1978 ballot initiative that slashed property taxes for California homeowners and businesses and is designed to keep them relatively stable if property is not sold. Opponents also argued that commercial landlords would pass their increased costs to tenants, consumers and others, straining an already fragile economy.”This is a divide and conquer strategy on the part of those who want to extract more tax revenues from all of us,” said Jon Coupal, president of the Howard Jarvis Taxpayers Assn., the group named for the homeowner advocate who led the Proposition 13 campaign 25 years ago.

That tax revolt measure capped basic property taxes at 1% of assessed property values and limited annual increases to 2% of the tax bill. However, tax bills are often somewhat higher after factoring in voter-approved assessments for local school bonds, water districts and other government spending.

Several of the state’s leading business organizations said the union proposal would drive businesses out of California and scare off potential investors. Among those expressing serious concerns were the California Chamber of Commerce, the California Taxpayers Assn., the California Manufacturers and Technology Assn. and the California Business Properties Assn.

“This is an economy killer,” said Rex Hime, president of the business properties association., which represents commercial real estate interests in the state. “No measure that could come before the voters of California would do as much harm as a split-roll tax measure.”

To blunt the impact on small businesses, the initiative would provide “personal property tax relief” for such firms, according to union documents. The union, which has 335,000 members, would not elaborate.

Aside from raising property taxes on businesses, the measure also would raise taxes on residential rental properties with assessed values above $700,000. Tax rates for rentals would slide upward, and properties above $1 million would pay the full 1.55% in taxes.

Farms, timberland, government property and historically significant land would be exempt from the tax increases.

Its supporters say the initiative is designed to raise about $1.5 billion a year for universal preschool for the estimated 300,000 4- and 5-year-olds in the state. The remaining $3 billion would be spent in elementary and secondary public schools to reduce class sizes, buy textbooks, improve teacher training and support teachers’ pay.

To sell its plan, the teachers union has teamed up with Reiner, the onetime television actor, who is chairman of a separate statewide commission that is doling out hundreds of millions of dollars in tobacco tax money for preschool and children’s services.

Reiner said the funds raised by higher property taxes would ensure a quality educational beginning for every child in California.

“If you have a good quality education system, that will draw business to the state,” Reiner said. “It’s the basis for a strong economy.”

Still, a spokeswoman for Gov.-elect Arnold Schwarzenegger said he opposes the tax increase. Instead of burdening businesses, the state should offer school districts more flexibility in how they spend state money, the aide said.

“Raising taxes on businesses is not the answer,” said the spokeswoman, Karen Hanretty. “It does not help the overall economy.”

The measure could be a litmus test for Schwarzenegger in his relations with the powerful teachers union, which contributed hundreds of thousands of dollars to his after-school initiative that won voter backing last year. One of the union’s top officials, John Hein, is a member of Schwarzenegger’s transition team.

The measure is the latest attempt to raise commercial property taxes by those who believe that businesses do not pay their fair share, thus depriving government of desperately needed revenues. An effort earlier this year to place a similar measure before voters died in the state Assembly.

Critics of the existing tax system say it protects older businesses whose properties change hands less often than homes. Proposition 13 allows taxes on a property to jump if it is sold at a higher price. That leaves new homeowners to shoulder a disproportionate share of the overall tax burden.

Union leaders said they will submit their formal initiative to the secretary of state next week.

Then they must collect valid signatures from 598,000 registered voters -- or 8% of those who cast votes in the gubernatorial election last November -- to qualify for the ballot in November 2004.