The airlines try (again) to squeeze a bigger tax break out of California

In Sacramento, as in other state capitals, one can expect a bad idea to rise from defeat year after year, especially if there's big money at stake. So it's perfectly logical that the nation's airlines are back this year with another attempt to whittle down a property tax bill that comes to about $90 million industrywide.

The airlines come armed, as usual, with an arsenal of bogus arguments. These have been mustered in support of a bill introduced by Sen. Bob Hertzberg (D-Van Nuys), which received a committee hearing last week and will have another round Tuesday afternoon. The measure would allow airline assessments to be appealed to Superior Court for trial de novo, which means the court could examine the assessment process from start to finish. It sounds innocent, even righteous. But it's not.

Hertzberg maintains that his bill, which was cooked up by the industry, is just a way to level the playing field for our downtrodden airlines. The state's county assessors say it's a huge deal that would tip the balance of power in assessment disagreements heavily toward the airlines, to their great profit. Since the airline industry is gung-ho in favor of the bill, it's a fair bet that the assessors are right.

Here's the background.

As I reported just about this time last year, the airlines that carry passengers or freight into, out of or within California are subject to state property tax from the moment they cross the state line until they leave. Last year, the calculation of the fleets' value and their time in-state came to about $9 billion, yielding property tax of about $90 million.

The money was divided mostly among the 11 counties with major airports. Because it was genuinely burdensome for each county to do its own aircraft appraisals, the assessors and airlines worked out a system in 2005 in which each airline was assigned to a "lead county," which appraised its fleet and turned the calculation over to the other counties, which figured out how long each aircraft spend within its borders and sent out a bill. Los Angeles, for instance, handles American Airlines and FedEx, and Santa Clara does Southwest.

Squabbling over the valuations of aircraft, which are exempt from Proposition 13 and thus subject to annual reassessments, has been fairly constant, as have been industry efforts to turn the whole matter over to the state Board of Equalization. The airlines have argued that it's better for everyone to have assessments handled by a single, central agency than by a dozen individual counties. But there are grounds for suspicion that they just think the board would be a pushover, unlike the county assessors. Efforts by the airlines to shift assessments to the Board of Equalization failed in the Legislature in 2003, 2004, 2005 and last year.

This time, they're trying a different tack. They're willing to leave appraisals in local hands, but they're asking that assessments be fully subject to de novo review by the courts. 

At a hearing last week before the Senate Governance and Finance Committee, which he chairs, Hertzberg described the local assessment process as one infected by such a fundamental "conflict of interest" that judicial review is the only fair solution. The airlines, he said, "feel like the deck is stacked" against them. He said that aircraft assessments have been a "real bone of contention," leading to "all sorts of challenges." He said, "These airline folks are sitting there, being played." He argued that the industry should have the same rights of court review de novo as utility and railroad companies, which like the airlines own property that crosses county lines. 

"It makes my skin crawl when one government agency is prosecutor, judge and jury," he told me Tuesday. 

Let's examine Hertzberg's points.

First, appraisal challenges are hardly unusual at the county level, or unique to airlines. Santa Clara County is locked in a disagreement with Apple over the valuation of its huge new headquarters, with $54 million in tax revenue at stake. Second, while it's true that the airlines resemble utilities and railroads in their multicounty sprawl, there's a big difference: Utilities and railroads are assessed by the Board of Equalization, a situation that has existed since about the turn of the last century. While county assessments can be appealed to independent county assessment appeals boards, board assessments are appealed to the board itself. That's a clear conflict of interest, and that's why those industries have the right to Superior Court trials de novo. The assessors say Hertzberg is vastly overstating the existence of conflicts of interest at the county level. 

Other taxpayers do have the right to take assessment appeals to court, but only within limits. The court can examine only the record produced during the assessment and appeals board process, not start from scratch. That's not a subtle distinction. " ... The cost to counties of a full-fledged trial in Superior Court for each assessment appeal would be enormous," Santa Clara Assessor Lawrence E. Stone told Hertzberg's committee. "Depositions, interrogatories, legal briefs, discovery, cross-examinations for every appeal is unsustainable and unwise." The costs of litigation would bust county budgets but would be money well spent for the airlines, which would have $90 million at stake.

Even worse from the assessors' standpoint is that the airline giveaway would set a precedent. "Every industry in California would be in line next year, saying they want the same deal," Stone told me. 

Like Hertzberg, the airlines have asserted that the change in the law would be no big deal. But Kathryn Rees, a Sacramento lobbyist for Southwest, gave the game away at the hearing by claiming that the change would "forestall and potentially reduce litigation." Why? Because it will "force everyone to do their job ... as technically accurately as they can." Translated, this means the airlines would expect the assessors to cut them more slack in the hope of avoiding threatened litigation. That means lower assessments, less tax revenue and a larger burden on all other taxpayers. 

That's what this is all about — not "fairness" for the airlines, but granting them a big, multimillion-dollar bargaining chip. The Legislature should say no —again.

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