Senate Committee Rejects Prop. 13 Reform and $348 Million for Essential Services

Thursday, May 6, 2021

The Senate Governance and Finance Committee today rejected Senate Bill 706 by Senator Patricia Bates (R-Laguna Niguel) on a partisan vote that would have corrected an outdated interpretation of property “change of ownership” that has been part of the long running debate around commercial property and Proposition 13 (the 1978 initiative that limited property tax increases).

“Politics has once again prevailed over common sense,” said Senator Bates. “It is clear that tax-and-spend interests are not interested in fixing a problem with Prop. 13. They would rather use the problem as a pretext to gut Prop. 13 in a future election. This cynical political strategy has been going on since 2014 and has only hurt local governments who will continue to lose $348 million each year for essential services. Californians deserve better.”

Senate Bill 706 would have changed the definition of “change of control” of a corporate entity to include situations where 90 percent of the ownership interests changes hands in a single transaction within any three-year period. It would have prevented a repeat of examples similar to the 2006 purchase of Santa Monica’s Miramar Hotel where the purchaser realized he could structure the transaction without any one entity owning a 50 percent majority share in the property.

Despite the fact that 100 percent of the hotel’s ownership changed hands, reassessment of the property did not occur, resulting in a tax loss to Los Angeles County of over $1 million annually. Had SB 706 been in effect in 2006, Los Angeles County would have reassessed the Miramar Hotel.

Democratic-controlled legislative committees previously killed similar bills from Senator Bates: SB 1319 (2020), SB 1237 (2018), and SB 259 (2015). The BOE estimated that SB 1319 could have generated $348 million annually in new tax revenue.

SB 706 is also similar to a 2014 bill authored by former Democratic Assembly Members Tom Ammiano and Raul Bocanegra. Their bill, AB 2372 (2014), cleared the Assembly with bipartisan support, only to die in the Senate.

California’s voters rejected Prop. 15 (2020) last November that would have created a “split-roll” to separate commercial and industrial property from Prop. 13, which would have caused massive tax increases for many job creators. Prop. 15’s supporters framed their effort as ending abuses, when in truth their real goal was to eviscerate Prop. 13’s tax protections.

Even the Los Angeles Times’ editorial board, which endorsed Prop. 15, wrote after its defeat:

“If Proposition 15 was too ambitious a first step, here’s a more modest one: closing the loophole that allows businesses to game the system and avoid being taxed on the full value of the properties they buy. Bills to do so have been unable to gain any traction in Sacramento in recent years, despite the stories of deep-pocketed buyers of commercial property coming up with schemes to prevent newly purchased buildings from being reassessed.”

Senator Bates authored most of the bills that “have been unable to gain any traction in Sacramento,” with SB 706 being the latest casualty.