1. Commercial property assessment: is a rational discussion possible? Lenny Goldberg California Tax Reform Association www.caltaxreform.org California Apartment Owners Association

2. A flawed system Bad economics: we tax new investment heavily and fail to tax windfall land rentsthe opposite of sound economics Loophole-ridden law: easy to avoid reassessment, particularly on land; incredibly complex enforcement and law. Land use impacted negatively: increases price of land, promotes speculation Failed fiscal policy: fails to fund infrastructure, detaches revenues from economic growth, burden shift to residential property

3. The law: ships in the night Complexity of property holding: llcs, partnerships, sub S, publicly-traded, reits, ipos, etc Purpose of organization: capitalization, liquidity, income or corporate tax benefits Change of ownership: difficult to define and enforce, no relationship between assessed value and capital structure, ships in the night

4. Dell Exploits the Purchase loophole Current law allows businesses to sidestep reassessment if no one acquires a majority stake in a company that owns the property

5. Bad for New Investment(!) Increases land costsprimary area of California non-competitiveness New investor pays tax on full value of land, buildings Yearly property tax on business equipment (aka business personal property tax) Fees, exactions, mitigations: negative regulatory climate Failure to cover costs of infrastructure

6. Flawed fiscal and land use policy Failure to keep up with economic growth Shifts burden to residential property Fails to fund infrastructureshort-circuits the virtuous cycle of infrastructure investment Promotes speculation and sprawlno cost of retaining land, holding it off market

7. Burden shift to residential property in 55 of 58 counties

8. Los Angeles County Residential vs. Non-Residential Property Residential % 80.00% Non-Residential % 75.55% 69.96% 70.00% 62.67% 60.52% 62.45% 64.81% 69.09% 66.20% 60.00% 53.37% 50.00% 46.63% 40.00% 37.33% 39.48% 37.55% 35.19% 33.80% 30.04% 30.91% 30.00% 24.45% 20.00% 10.00% 0.00% 1975 1980 1985 1990 1995 2000 2005 2009 2011-2012

9. Numbers from Los Angeles

10. San Francisco County Residential vs. Non-Residential Property Residential % Non-Residential % 80% 73.16% 70% 63% 61% 60% 68% 67% 65% 58% 56% 54% 54% 50% 44% 42% 46% 46% 39% 40% 37% 35% 33% 30% 32% 26.84% 20% 10% 0% 1974-1975 1980-1981 1985-1986 1990-1991 1999-2000 2005-2006 2007-2008 2009-2010 2011-2012 2012-2013

11. The evidence Primary differences are in LAND VALUE, not buildings (50x vs. 3x) Why? Buildings reassessed when improved, land holdings held forever, or in different arrangements Shift to residential, including non-HOE single family homes, in most counties since 1978 2008 crisis slowed the trend but did not reverse it Already have a split roll State-assessed vs. county assessed Timber yield vs. complex (and nonsensical) oil valuations Business equipment (aka personal property) at full market value: small business, high-tech tax Buildings reassessed upon improvement, land not Simple system for homeowners, complex rules for legal entities

12. Thought experiment: Smart Roll Tax windfalls, not new investment: basic principle of economics, conservative or liberal Reassess commercial land on periodic basis Eliminate business equipment tax (aka personal property tax) Phase-ins, examine equity issues Best tax: land value only Every economist would agree Take tax off new investment to extent possible (buildings?) Easy to implement, good economics, captures benefits of growth, finances infrastructure

13. Is a rational discussion possible? Empirical: analyze benefits and costs of different approaches to solving these problems Fiscal policy: Revenues and offsets Allocation: cities, counties, schools, special districts, community colleges, infrastructure currently a mess, can change be discussed? (CaForward) Since the issue is going to become more prominent, will business groups join a conversation?