Holiday Weekend Open Thread: Pat Bates Touches the Third Rail! Why This Isn’t More Shocking.




The rightmost 50% of Pat Bates.

The rightmost 50% of Pat Bates.

Let us now praise State Senator Pat Bates.  At least a little.  At least provisionally.

Pat Bates has done something pretty extraordinary for a California State Legislator: she has tried to fix something wrong with Prop 13.  Normally, I would call that an extremely brave thing to do — but it’s perhaps a little less so given that this change was favored by Bates’ bill is supported by the Howard Jarvis Taxpayers Association, the California Chamber of Commerce, the California Business Roundtable and the California Business Properties Association.  Still, based on what appears on her page (including that legendary Bay Area Democratic legislator Tom Ammiano tried to do this before her), it seems like a good thing:

Senator Patricia Bates (R-Laguna Niguel) announced today that the Senate Governance and Finance Committee approved her Senate Bill 259 on a bipartisan vote. Her bill would correct an outdated interpretation of property “change of ownership” that has been the long running debate around commercial property and Proposition 13.

“It’s encouraging that Democrats and Republicans came together today to approve my bill to ensure that Proposition 13’s tax protections are not abused,” said Bates. “Proposition 13 exists to ensure that property taxes do not go out of control for any California homeowner or business. It does not exist to enable some to avoid paying the property taxes they legitimately owe. I hope my bill will continue to garner additional support and avoid the fate of a similar bipartisan reform effort in 2014.”

SB 259 would alter the definition of “change of ownership” in the California Revenue and Tax Code for determining the property tax base value of commercial property. Current law allows for a property to be reassessed if a majority of the ownership interest changes hands. SB 259 would require any property to be reassessed if 90 percent of the ownership interest changes hands within any three-year period.

So, if I’m not mistaken, this means that a building might have to set up some sort of arrangement like this:  Two passive trusts of 10.001% ownership would be set up and owned (beneficially) by two extremely stable financial institutions that are not likely to change ownership.  (Why two?  In case one does change ownership.  Then the other trust could be locked to the very foundation of the earth.)  I’ll presume that the bill defines ownership interest in terms of actual control, actual value, and not something that could be evaded with different classes of stock that confer the same amount of “ownership” but not the same amount of actual financial benefit, such as what would occur if Class A stock was normal ownership that gets a regular timely share of annual profits and Class B stock, that held by the trusts, would receive only a residual equity stake or something like that, value to be determined by Class A owners.

It’s true that that would prevent someone from being able to avoid triggering a reassessment by setting up two entities that each had just 50% of the ownership and only allow one to be traded.  Now, as I read the explanation of the bill, 79.998% (or 89.999% for real risk takers) could be traded a thousand times per year — or more, if, say, on a stock exchange — and so long as at least one of those trusts remains full anchored there would be no stopping it from being immune to reassessment under Prop 13.

You know — that doesn’t really sound right.  I think that maybe I need to contact Tom Ammiano’s people to see if this was really the sort of cure he thought was right for the ailment.  I’d hate to think that even a non-transactional lawyer could site down and figure out a way to evade the law, and the great-sounding principles that Sen. Bates discusses in the second paragraph of the quote from the story, within about two minutes.  That would be sad.

Happy Dr. Martin Luther King Jr’s Birthday, OJ readers, and happy holiday of the same name on Monday.  This is your Weekend Open Thread.  Talk about that, the holiday, or anything else you’d like within reasonable bounds of discretion and decorum.

About Greg Diamond

Somewhat verbose attorney, semi-retired due to disability, residing in northwest Brea. Occasionally runs for office against bad people who would otherwise go unopposed. Got 45% of the vote against Bob Huff for State Senate in 2012; Josh Newman then won the seat in 2016. In 2014 became the first attorney to challenge OCDA Tony Rackauckas since 2002; Todd Spitzer then won that seat in 2018. Every time he's run against some rotten incumbent, the *next* person to challenge them wins! He's OK with that. Corrupt party hacks hate him. He's OK with that too. He does advise some local campaigns informally and (so far) without compensation. (If that last bit changes, he will declare the interest.)