San Francisco, a city known for its iconic skyline and vibrant streets, is also a focal point in California’s ongoing debate over property taxes. Buildings like 45 Fremont Street, a prominent fixture in the city’s financial district, stand as silent witnesses to the complexities of Proposition 13, and the potential impacts of Proposition 15. For years, numerous commercial properties in San Francisco, including landmarks such as the Bank of America building on California Street, have navigated a system that allowed them to avoid property tax reassessment by strategically dividing ownership to fall below the 50% threshold of total value. This legal maneuver, perfectly within the bounds of Proposition 13, has become a point of contention, particularly as California considers significant changes to its property tax laws.
Proposition 15, a measure that appeared on a recent November ballot, directly addresses what has been termed the “third rail” of California politics: Proposition 13. Enacted in 1978, Proposition 13 dramatically cut property taxes for both homeowners and businesses. While initially intended to protect individuals, especially seniors on fixed incomes, from soaring property tax bills, its implementation has created loopholes that have disproportionately benefited large commercial property owners. The original intent of Proposition 13 was to provide relief to homeowners facing rapidly increasing property taxes, preventing them from being priced out of their homes. Spearheaded by Howard Jarvis and Paul Gann, the proposition rolled back property assessments to 1976 levels and capped annual increases. However, the rules established to implement Proposition 13 inadvertently opened avenues for property owners to circumvent reassessment upon changes in ownership.
Former Assembly Speaker Willie Brown, who himself played a key role in drafting the legislation to implement Proposition 13, has acknowledged this oversight. Brown stated that the Legislature should have stipulated that “any time there is a change in the ownership of the property through any means, that constitutes a transfer for reassessment purposes.” Despite recognizing this issue, Brown opposed Proposition 15, highlighting the deeply divisive nature of property tax reform in California.
The implications of these loopholes are significant. A well-known example involves Michael Dell’s purchase of the Fairmont Miramar Hotel in Santa Monica in 2006. To avoid property reassessment, Dell structured the ownership, granting his wife a 49% share, thereby staying under the threshold that would trigger reassessment. This strategy, though challenged in court by Los Angeles County, was ultimately upheld by a California Court of Appeals, allowing Dell to maintain a lower tax bill based on a 1999 assessment.
Should Proposition 15 be enacted, studies indicated a substantial increase in revenue, particularly for Bay Area counties. A study from the USC Dornsife Program for Environmental and Regional Equity projected that San Francisco could see an additional $733 million in property tax revenue annually. Santa Clara County was estimated to gain $1.2 billion, and Alameda County $652 million. These figures underscore the potential financial impact of Proposition 15, especially in high-value real estate markets like San Francisco, where buildings in areas like the 45 Fremont Street vicinity contribute significantly to the city’s tax base.
Proposition 15 proposed allocating 60% of the new revenue to local government services and 40% to schools. While public opinion polls indicated a close race, the proposition aimed to address the perceived inequities in the current property tax system and generate substantial funds for public services. The debate surrounding Proposition 15 and its potential impact on properties throughout San Francisco, from iconic structures like 45 Fremont Street to countless others, reflects a broader conversation about fairness, tax policy, and the future of California’s economy.
