For an illustration of Prop. 13’s vexing inequalities, which are getting bigger and bigger with time, let’s visit one of Orange County’s most charming and historic neighborhoods: Floral Park in Santa Ana.
A posh house on Heliotrope Drive was purchased in 1972 for, wait, $30,000. Today, the county assesses that house at $292,000, while Zillow estimates its market value at nearly $1.3 million, and the owner pays a modest $3,636 a year in property taxes.
A similar charming home on Heliotrope Drive was purchased in August for $1.36 million. The new owner will pay almost $15,000 a year in property taxes, about five times more than his neighbor, for exactly the same services.
If people foresaw such disparities in the residential market when the tax revolution rocked California more than 40 years ago, its full impact on commercial property was much harder to fathom. Orange County’s largest property tax payer for the 2021-22 year was, as always, Irvine Co., investing more than $191 million; and next, as always, was Walt Disney Parks & Resorts, shelling out more than $73.3 million, according to data from Treasurer-Tax Collector Shari Freidenrich.
For everyone in the county, total property taxes billed in 2021-22 were $7.8 billion for real property and $275 million for personal property (mobile homes, boats, etc.).
While the numbers paid by the big OC bouncers may seem huge, reformers say they’re not enough.
“Disney and the Irvine Company are grossly undervalued, just on land,” said Lenny Goldberg, a consultant and director emeritus of the California Tax Reform Association, which advocates the changes to Prop. 13.
Because commercial properties are only reassessed when A) a single buyer assumes at least 50% ownership and/or B) there are physical improvements to the property (new building, new parking lot, etc.).
“So if three buyers buy 100% of a property, no ownership change occurs. If a publicly traded corporation’s stock transactions occur every day and 95% of the company changes hands over time, but no buyer buys more than 50% of the stock, no change in ownership occurs. explains a California Tax Reform report. Association made in 2010.
Both Disney and Irvine Co. owned vast tracts of land in the late 1970s when Prop. 13 passed. So the value of that land is set based on those disco-era prices and you can only see a 2% a year, the same dynamic that meant a lower tax bill for the Floral Park house purchased in 1972.
Yes, business improvements like new parking lots, hotels and other developments prompt a reassessment by the tax collector’s office, but that only underscores the imbalance, Goldberg said. To wit: when he did the research for a report on Disney and Prop. 13, the Mouse was paying taxes of $6 or $7 per square foot on his older property, and about $120 per square foot on his new developments.
“That’s an undervaluation by a factor of 20. And the same is true for Irvine,” he said.
We asked Disney and the Irvine Co. to share their thoughts on this, and both refused.
Change in progress?
There was no such reticence from Patrick Murphy, director of resource equity at the Opportunity Institute, a Berkeley-based nonprofit.
“I teach at the University of San Francisco, and last night I was talking to a group of 20- and 30-somethings about Prop. 13 and the different property taxes paid for identical houses on the same street, depending on when they bought, and I was they look like I’m crazy,” Murphy said.
“It’s like if you go to Target, get in line to pay, and the cashier asks you, ‘When did you come to California?’ You’d ask why, and they’d say, ‘Because I have to decide how much sales tax to charge you.’”
California is one of the few states that protects commercial and residential properties from large tax increases, he said. “I would go so far as to call California protectionist,” Murphy said. “If I’m already in the state and I have a business, I have an advantage over a business that’s just trying to get in.”
There is also an element of social justice. A recent study by the Opportunity Institute and Pivot Learning found that white homeowners get annual property tax breaks that are more than 80% higher on average than the exemptions given to black homeowners, and more than double the tax breaks that Black homeowners get. Latin owners receive.
“Whiter, richer, older people benefit more. It’s just demographics,” Murphy said. “But it is not fair.”
Yes, Prop. 13 is important so that Granny can stay in her home, but many argue that there are ways to adjust it to be more fair while also protecting her. Murphy expects California’s younger residents, who hope to be homeowners one day, to be a growing force for change in the years to come.
That moment may be closer than many think. In 2020, Prop 15 would have removed many commercial properties from the protections of Prop 13. It failed, but not by much. Statewide, 52% of people voted against (Orange County was predictably more reticent, with 60% voting against), but the winds of change are blowing.
“It’s something we’re committed to, building that evidence base so people understand how it works,” Murphy said. “People who support keeping the status quo in ‘Just Go,’ ‘Prop. 13 is the third rail of politics’, blah blah blah. It has really become more of a social problem, like legalizing marijuana and same-sex marriage, than a fiscal problem.”
And, as we have clearly seen, young people are in favor of changing the status quo.