Letter to the Editor: Burbank Businessman Requests NO Vote on Proposition 15

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Letter to the Editor:

UMe Schools

It is very beneficial for people in our community to engage in dialog about important matters that effect our city, and the more well informed we are, the better we can jointly address these issues. I agree completely with much of what local school advocates have been saying recently about our schools. Specifically, many local school advocates are saying “It’s time for large property owners to pay their fair share to support public schools,” and I completely agree that large property owners must pay their fair share to support public schools, but the fact of the matter is that business related properties (office, retail, industrial, investment properties, etc.) currently pay 55% of the property taxes in Burbank, and home owners pay 45%. That imbalance is growing every year as huge new commercial projects like the Worthe/Warner Bros. ”Second Century” project and Overton Moore “Avion” come on line, and the percentage of property taxes that are paid by business increases every year while the percentage paid by homeowners goes down every year. This is simple math……

Local school advocates are saying that “good schools are fundamental to an equitable society of educated citizens”, and that we need to do everything in our power to ensure our schools remain excellent. And again, I completely agree. Burbank schools are incredibly important and fundamental to what makes Burbank, Burbank.  Burbank schools are fantastic and need to be properly funded.  And these are not just empty words. My family and I have been actively involved in community engagement in Burbank for decades and have contributed an enormous amount of time, effort and money to a wide range of community causes, including many in support of education right here in Burbank. So again, I am on the same page with what local school advocates are saying regarding the value of the BUSD to this community.

What I don’t understand is why local school advocates would support Prop 15 because what it guarantees is so little in new funding to the BUSD as to be ridiculous. When I addressed this measure with school officials last year, they were dismissive that it held much promise of substantive increased funding for Burbank. What Prop 15 guarantees to the BUSD is $100 per student per year (see Section 8.7.(a)3), and that’s it. That’s about $1.5M per year. There is no reason to believe that Burbank will get any more than this statutory minimum. The state has never given Burbank an even break in funding going all the way back to Serrano. There is no reason to think they will now. We were supposed to get a bonanza from Lotto money; how did that work out? Further, Burbank gets about $11,054 per student from the State (2019) while districts like LA ($14,757) and Fresno ($13,225) get much more; how is that fair? And what evidence is there that this would change if Prop 15 were to pass? If Prop 15 is expected to be such a wind fall for districts like Burbank, why did it not include a meaningful new funding guarantee? $1,000 per student per year? $2,000 per student per year? Why? Because it’s not happening. Read the actual text of the proposition. The guaranteed funding under Prop 15 is $100 per student per year.

So the bigger issue here, in my opinion, is not whether business and investment properties should pay more than 55% of the property taxes that it already pays, but rather, 1) how do we fix the fundamentally flawed state funding format for education in the state where districts like Burbank always get the short end of the stick, and 2) how do we address the deficient overall funding allocation for education in California in general. As you know, in spite of being one of the highest costs states to live in, California ranks among the lowest states in per student funding for education. In 2016, the average funding for students in the State of California was $11,495 per student, while New York spent nearly double ($22,366 per student) and many states like Connecticut and Massachusetts spent 50% more than California, but Prop 15 does not necessarily change this, especially for Burbank.

BurCal Apartments8715

Finally, the inability of our community of late to be able to engage in meaningful and mutually beneficial decisions that lead to long terms success for this community is disappointing. Last year the Burbank Chamber of Commerce reached out to the BUSD and recommended that the BUSD undertake a standard “parcel tax” in the exact form that had been used routinely across the state to provide additional funding to school districts like Burbank for decades. Chamber members even offered to fully fund an enormous community outreach campaign that would have virtually guaranteed the success of the parcel tax, and which would have brought in nearly $10M a year in new, unrestricted revenue to the BUSD. The BUSD rejected the Chamber’s offer to support a standard parcel tax that was commonly and successfully used across the state in favor of an alternative tax that is rarely used and has a much lower rate of success. As you know that effort failed. Twice.

Proponents of Prop 15 say, “there are provisions in the measure to protect small businesses”, but what does that mean? It means nothing because it’s really not true. Take an actual small business and run a desk top analysis of the real impact that Prop 15 will have. I have randomly selected an RV sales and leasing facility that has been in Burbank for about 30 years, for example, which has a current taxable assessment of $1.5M and their property tax due (before direct assessments) is $15,000 per year. The property taxes are paid by the tenant, not the owner. Under Prop 15, the property will be taxed at its “full cash value” which will be based on its underlying value and highest and best use, not as an RV dealer, and I suspect the new tax (before direct assessments and school bond assessment, etc.) will be about $100,000 per year; can a small business like this RV dealer absorb a $85,000 per year increase in property taxes? No.

Take Black Angus restaurant here in Burbank as another example. Their current tax assessed value is $6.6M. Under  Prop 15, the property will be taxed at its “full cash value”, and I suspect the new tax will be about $210,000 per year; can the Black Angus  absorb a $144,000 per year increase in property taxes? No. Is Black Angus not paying their “fair share” of property taxes by paying $66,000 per year plus all the special assessments, including costs of the current BUSD bonds? I suggest that they are paying their fair share now, and to expect them to pay significantly more is not equitable.

These two examples are indictive of the impacts that Prop 15 will have on most businesses in the community. This is all publicly available information, so interested parties can do the research and undertake their own pro forma reassessment model and will come to the  same conclusions of the impacts of Prop 15 for most of the “small businesses” in the community. The fact is that most small businesses will pay substantially more property tax under Prop 15.

Many, or maybe even most business properties have a value of $3M or more, so those get no exemption. Further, most small business lease, rather than own their properties, and most leased business properties are owned by ownership entities that own more than $3M in property, so are all re-assessable, with the increased costs paid by the business. So for example, I own a tiny property, say 1,500 sq ft on Burbank Blvd and its worth about $600,000 (1500 x $400/ft), and I lease that to a small retailer, that tiny property will be reassessed and the tax due will increase by more than 1,000%, and the small business that rents there will pay the entire increase in property tax. Most business properties in Burbank will be subject to re-assessment, which is why I say that the claimed exemptions for small businesses are mostly illusory….

An unbiased academic study on a split roll tax by Pepperdine University School of Public Policy titled, An Analysis of Split Roll Property Tax Issues and Impacts made the following key findings:

  • Increasing the taxes of businesses…would result in lost economic output and decreased employment. The cost to the California economy of this property tax increase would total $71.8 billion dollars of lost output and 396,345 lost jobs over the first five years of a split roll property tax regime. These losses would be even greater in succeeding years.
  • The introduction of a split roll property tax valuation system would result in increased instability for local government finances, as they would become more directly susceptible to the value gyrations of the real estate market. For example, in 2008‐2009 when California property values faced the traumatic decline in the wake of the sub‐prime crisis and the market collapse (industrial and commercial values fell 6.5 percent), property taxes collected from these same properties actually rose 5.0 percent. Accordingly, an assessment format that tracks market value will make the property tax valuation system subject to fluctuations in the market in a way that it never has before under Prop 13.
  • A split roll property tax valuation system would also further undermine the attractiveness of the business climate in California. Because small businesses typically lease properties where the cost of property taxes is passed through to the lessee, this research concludes that the employment losses described above would be disproportionately concentrated in small businesses, and especially those owned by women and minorities.

In closing, we again reiterate our support for local public education, but to add a devastating new tax to business that will substantially damage the local economy and local business while not materially improving local education does not benefit this community.

Specific things to consider:

  1. Because Burbank is such a business dense community, Burbank will be harder hit by this proposition than other cities in our state because billions of dollars of commercial, retail and industrial property in our city will now be subject to periodic reassessment. My estimate is that the cost to Burbank business will exceed $100M per year. Every year. And there is no guarantee (and I suggest, no chance) that any significant portion of these funds will be returned to Burbank.
  2. Regardless of what proponents say, a huge portion of this burden will be passed on to small businesses and consumers. The so called “exemptions” for small business are mostly illusory and will not provide any real protection whatsoever to most small businesses in this community.
  3. This measure dis-incentivizes investment in sustainable technologies as it removes the tax exemption for solar facilities.
  4. This measure provides no accountability to the taxpayers.
  5. Regardless of what proponents say, this measure will drive business from California.
  6. This measure will increase prices across the state as higher property tax costs are passed on to consumers through higher prices.
  7. This measure will hurt agriculture across the state as all agricultural improvements ARE subject to reassessment under this measure.
  8. Regardless of what proponents say, Prop 15 lays the groundwork for the full repeal of Prop 13 at some time in the future.

Michael Cusumano

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