With the state and local governments facing large budget deficits, a group of community activists and labor and education leaders staged a series of protests on August 10 to deliver a giant $17 billion bill itemizing the ways Wall Street banks are shortchanging California residents and state and local governments. 

The organizers released a report titled, “Wake Up Wall Street: While Californians Must Choose Between Education and Public Services…Wall Street Banks Owe California Billions,” which itemizes the $17 billion owed to California.  The protests, which occurred in Sacramento, Alameda, San Francisco, Santa Clara, Los Angeles, and Fresno counties, were organized by the Service Employees International Union (SEIU) and the Alliance of Californians for Community Empowerment (ACCE).  SEIU and ACCE also authored the report referenced above. 

Kersten Communications provided research support for the report which details how banks and other Wall Street private equity firms have bought major properties in California in recent years, but are not paying the correct amount of property taxes. 

According to a San Francisco Chronicle report, during an August 10 protest at JP Morgan Chase’s offices at 560 Mission Street in San Francisco, protestors demanded to speak with a Chase representative but Chase declined to send a representative to meet with the crowd of approximately 35, whose grievances included unpaid property taxes, the costs to counties associated with blighted residential foreclosures, a decline in small business loans, and lost retirement savings due to reckless investments by financial institutions. 

 “We came here today to get Chase to pay their fair share in taxes…They foreclosed our homes and got government money and put it in their own pockets,” said Dorothy Hicks, a retired nurse from Oakland and member of ACCE, who spoke through a bullhorn outside the downtown San Francisco high-rise, according to the San Francisco Chronicle report. 

“We have all played by the rules…It’s time for banks to do the same,” said demonstrator Veronica Rodriguez out of a bullhorn at an August 10 demonstration in front of a Watsonville Chase bank, according to a report by the Santa Cruz Sentinel.  

Specifically, “under Proposition 13, properties in California should be reassessed at fair market value upon a change in ownership, but loopholes has led to banks skipping out on an estimated hundreds of millions of dollars in property tax revenues,” according to research by Kersten Communications. 

JP Morgan Chase merged with Washington Mutual Bank (WaMu) in 2008 in a deal reportedly worth $1.9 billion, but two years later many WaMu banks and other WaMu assets have still not been reassessed at current property values.  Wells Fargo and Company purchased Wachovia Corp. in 2008 for a reported $15.1 billion in an all stock deal, but many of Wachovia’s California assets have not been reassessed to date.

In a small sampling of properties in just 11 of California’s 58 counties, research provided by Kersten Communications shows that Chase owes an estimated $15.3 million in back taxes to state and local governments.  Statewide, Chase is estimated to owe tens of millions of dollars in back taxes, according to estimates prepared by Kersten Communications. 

A sampling of specific properties owned by Wall Street private equity firms and other corporations are estimated to owe $34.8 million in back taxes.  “These numbers represent just the tip of the iceberg.”  Estimates provided by Kersten Communications show that banks, Wall Street firms and other corporations are conservatively estimated to owe California $51.6 million in just 11 counties for a small sampling of properties.  Statewide, Kersten Communications estimates that banks and corporations currently owe hundreds of millions of dollars in additional property taxes. 

The report also urges banks to “step up to fix the foreclosure crisis” and estimates that the foreclosure crisis has cost California state and local governments $13.9 billion.  “Banks must agree to real and effective loan modification that includes reducing principal; and pay for blight and safety hazards that foreclosures unleash on our neighborhoods.”     

“Big banks like Goldman Sachs, JP Morgan Chase and Bank of America continue to bill taxpayers for millions a year on risky derivatives called “interest rate swap deals,” according to the report.  Since September 2008 banks have profited $1 billion through these deals that have locked local governments in at high interest rates. 

“Before the crisis hit, big banks peddled toxic swap deals to states and cities on the promise that they would be protected against interest rate spikes.  But now that interest rates are near zero, banks are refusing to renegotiate or cancel these deals,” the report states.    The U.S. Department of Justice and Attorney General in California, Florida, and Connecticut are all investigating potentially illegal behavior by the banks in connection with these deals. 

Cities such as Los Angeles, Oakland, and Frenso have filed lawsuits against the banks over interest rate swaps and other municipal derivatives and bank of America has admitted to a criminal violation of antitrust laws.

The report also blames Wall Street’s reckless behavior for devastating Californian’s retirement security.  “Big banks gambled with and lost the retirement savings of hard-working Californians like nurses, college professors, firefighters, and child protection workers.”  Between October 2007 and December 2008, the top 1,000 U.S. pension funds lost $1.75 trillion, nearly are quarter of their value. 

“The losses were no accident,  In several cases, pension funds like the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) have uncovered deceptive and dishonest practices on the part of banks.  CalPERS and CalSTRS have filed class action lawsuits against banks like Bank of America and State Street Corp. to protect retirement security for more than two million Californians,” states the report. 

The report also urges banks to restore small business loans which have been significantly cut back since the financial crisis began in 2008. 

 ###

Protesters gather outside Chase bank in Watsonville in an SEIU-sponsored demonstration against the bank’s loan policies Tuesday. (Dan Coyro/Sentinel)

WATSONVILLE – Frustration with the banking industry became so great for a group of Central Coast residents Tuesday they paraded into a Chase bank and demanded payback for the financial havoc wreaked by the nation’s foreclosure crisis.

“We had a conversation with the branch manager, and he decided he didn’t want to talk to us. And he threw us out,” reported activist Erik Larsen. “(But) we’ll be back.”

Larsen was met outside by some 50 cheering people, part of an event staged in several California cities this week to highlight the alleged indiscretions of banks. Though it’s been two years since a taxpayer bailout helped rescue the industry from overly risky behavior, organizers of Tuesday’s event sought to show that bank actions are continuing to burden average American households.

A report by the Alliance of Californians for Community Empowerment, released in tandem with this week’s rallies, suggests that the financial industry is shorting taxpayers billions of dollars.

Among the group’s claims is that banks that changed hands during the bailout have not paid their updated property tax bill. No bank, according to the group, has settled up for the foreclosure toll they put on local governments for such expenses as additional neighborhood maintenance and public safety.

“We have all played by the rules,” said demonstrator Veronica Rodriquez out of a bullhorn at Tuesday’s demonstration. “It’s time for banks to do the same.”

Statewide, the cost of foreclosures on local government is $13.9 billion, according to the new report. In Santa Cruz County, banks and equity firms, including Watsonville’s Chase Bank, should have paid $734,943 more in property taxes, had their recently acquired properties been reassessed and their tax bills updated.

The Main Street Chase Bank branch manager declined an interview Tuesday, and officials at the company’s corporate office did not return phone calls.

Chase has acquired several properties owned by Washington Mutual Bank. The properties may not have been reassessed since the purchase, according to the Santa Cruz County Assessor’s Office, but county officials say reassessments of corporate property can take years and are done only with the consent of the state Board of Equalization. The companies, however, will have to pay any back taxes they owe once new property is reassessed, according to the Assessor’s Office.

Teresa Garbini was among Tuesday’s demonstrators. The Aptos resident recently had her hours cut at work and has been unable to make her home mortgage payments. The bank is scheduled to foreclose on her property at the end of the month, she says.

“I’ve been trying to get a loan modification with Wells Fargo Bank… but I’ve been denied,” she said. “How can a bank that was saved from bankruptcy by us, the taxpayers, be so insensitive to people’s needs?”

Police monitored Tuesday’s demonstration, which kicked off around noon, but the event remained peaceful.

Robert Selna, Chronicle Staff Writer

Wednesday, August 11, 2010

Community and labor organizations demanded Tuesday that banks and private equity firms pay California counties millions in overdue real estate taxes related to corporate acquisitions stemming from the economic crisis.

During a protest Tuesday afternoon at JPMorgan Chase’s offices at 560 Mission St. in San Francisco, members of the Alliance of Californians for Community Empowerment, the Service Employees International Union, and other groups demanded to speak with a Chase representative.

Chase declined to send a representative to meet with the crowd of approximately 35, whose grievances included the unpaid taxes and other issues, including the costs to counties associated with blighted residential foreclosures, a decline in small business loans, and lost retirement savings due to reckless investments by financial institutions.

“We came here today to get Chase to pay their fair share in taxes,” said Dorothy Hicks, an Oakland resident and member of the Alliance of Californians for Community Empowerment. “They foreclosed our homes and got government money and put it in their own pockets.”

Hicks, a retired nurse from Oakland, spoke through a bullhorn outside the downtown high-rise. Earlier, the building’s management called the San Francisco police to ask the protesters to vacate the building’s elevator bank area. The group reluctantly complied after police officers explained that they might be cited for trespassing.

Allegations that banks have failed to pay real estate taxes while simultaneously receiving government bailouts are not isolated. In April, San Francisco Assessor-Recorder Phil Ting announced that his office would open an investigation with the goal of forcing banks to pay taxes from multibillion-dollar mergers. At the time, Ting estimated that the city was owed $1 million in real estate taxes.

Financial crisis

The backdrop for the claims is the financial crisis, which hit a tipping point in autumn 2008.

In late 2008 and early 2009, some of the nation’s largest banks acquired failing institutions. Under state law, real estate owned by a company that is acquired is subject to transfer tax and property reassessment because the property is considered to have undergone an ownership change.

Transactions cited by Ting were JP Morgan Chase’s acquisition of Washington Mutual, Bank of America’s appropriation of Merrill Lynch, and Wells Fargo & Co.’s acquisition of Wachovia.

In response to Ting’s announcement in April, JPMorgan Chase spokesman Gary Kishner said the bank had submitted the proper paperwork to the state of California documenting ownership changes and would be filing the changes with counties and paying transfer taxes.

On Tuesday, Ting said that his office’s inquiry remained active and that he might announce results in the coming weeks. Ting noted that notifying the state of ownership changes is not sufficient and that each county must be alerted. He said his office has been working with the banks in question for the past several months to straighten out discrepancies.

County assessments

Also on Tuesday, Kishner maintained that Chase pays its county assessments. He did not have an immediate answer about whether Chase was current on its payments in San Francisco.

The California Tax Reform Association recently compiled property assessment data from 11 of California’s 58 counties and estimated that private equity firms and banks owe approximately $50 million in back taxes. That figure does not include transfer taxes.

The tab owed San Francisco, according to the association, is about $11.8 million. Ting said he planned to contact the association about the disparity between that figure and the city’s research. He said that some tax payments may not have been captured by the association because they were still moving through the administrative process.

Any underpayment should be accounted for, according to Paul McIntosh, executive director of the California State Association of Counties.

“Every dollar that is owed in taxes to California counties is important right now, so delinquency by these financial institutions is a significant issue,” McIntosh said.

E-mail Robert Selna at rselna@sfchronicle.com.

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/08/11/BUN71ES0A8.DTL

This article appeared on page D – 1 of the San Francisco Chronicle

DEMONSTRATION: State is owed $19 billion for their actions, officials say.

With the state facing a $19 billion budget shortfall, community activists and labor and education leaders will gather today outside a major bank in downtown Los Angeles to deliver a giant $17 billion bill itemizing the ways Wall Street banks are allegedly “cheating California residents.”

California homeowners are paying a growing share of state’s property taxes, while corporations’ property tax bills have shrunk, according to a report issued Thursday by advocates of raising commercial property taxes.

In 1978, voters approved the landmark Proposition 13, which capped property taxes, for businesses and residents alike, and said land values would only be reassessed when property changed hands.

Assemblyman Tom Ammiano, a San Francisco Democrat who is carrying legislation to beef up property tax collections on businesses, said California companies today engage in a game of “three-card Monte” to skirt reassessment.

“The big boys and girls are laughing at us,” Ammiano said.

In Los Angeles, residential property accounted for 53% of the property taxes paid in 1975. In 2009, that figure had mushroomed to 69%, according to the report.

Lenny Goldberg, executive director of the California Tax Reform Assn., which wrote the study, said a broken property tax system has allowed companies like Chase, which purchased Washington Mutual in 2008, to avoid paying higher property taxes on all the bank branches’ land.

“We’re leaving tens of millions, if not hundreds of millions, on the table,” Goldberg said, as the state faces an estimated $18.6-billion budget deficit.

Ammiano’s AB 2492 will be heard in committee next week. Read the hefty 124-page report here.

– Shane Goldmacher in Sacramento

By Phil Marshall, Published May 10, 2010

Democratic Assemblyman Tom Ammiano of San Francisco will introduce a bill into the California Legislature today that could close tax loopholes in Proposition 13. Some believe industrial and commercial property owners are using the loopholes to avoid paying their fair share of taxes. Others, however, believe the problem is overstated and that the bill will only hurt the state’s economy.

AB 2492 seeks to redefine the codes that determine how property is assessed and taxed. Currently, under California tax codes property value is reassessed every time there is a change in ownership. When a home or business changes ownership a new tax rate is established based on what the existing market value is. However, a report released last week by the California Tax Reform Association found instances, statewide, of companies that are paying the rates of the former property owner.

The report stated, “We have found major changes of ownership in major properties which have gone without reassessment. The ones we examined are predominantly those of private equity buyouts, corporate purchases of companies and bank mergers which have avoided reassessment.”

According to the report, at least five Long’s Drug properties have not been reassessed since the 2008 buyout by CVS. One store in Oakland is paying a property tax rate based on its 1975 assessment.

There are other examples. When Shell Oil merged with Pennzoil in 2002 it acquired daughter company Jiffy Lube, but the report found that many Jiffy Lube properties have not been reassessed since the 1980s. One Contra Costa County station is still listed as last changing hands in 1995.

According to California Tax Reform Association, the tax codes have contributed to the larger effects of Proposition 13 and moved the bulk of taxes away from commercial and industrial property owners onto residential property owners. The 1978 proposition set a baseline amount on property, and restricted taxes to an increase of no more than 2 percent annually regardless of what the surrounding real estate value was. Originally the idea was born out of a desire to keep long-term home owners from getting priced out of their homes. But many believe the lasting effect was that large firms benefited because they had a slower turnover rate than homeowners.

To that, the California Tax Reform Association report found that Alameda County’s residential taxes increased from 55 percent in 1973 to 74 percent in 2009. Likewise, Contra Costa County’s residential tax burden has increased from 48 percent in 1970 to 74 percent in 2009.

The new bill aims to reform the current codes so that there are better definitions of ownership. For instance, when a corporation, partnership, or other legal entity obtains control of more than 50 percent of the voting stock, the purchase or transfer of that stock would constitute a change of ownership. In addition, the bill would require the State Board of Equalization to notify assessors of when a change in ownership has occurred.

Lenny Goldberg of the California Tax Reform Association said that reformers are only going after the most egregious cases. He said Ammiano was forced to amend his bill to make it more palatable to legislators. “This is going to be part of an organizing effort that will take place over the next two years,” said Goldberg. It’s his association’s hope that the report will attract more people who are interested in researching these issues and will join the cause.

However, opponents argue that the bill would merely increase the cost of doing business in California. “If you’re increasing the tax on employers, it will do the opposite of what the desired effect is,” said Kyla Christoffersen, policy analyst with the California Chamber of Commerce. “A robust economy is the answer.” In addition, she believes the tax burden on residential property is overblown, and says about two-thirds of the taxes in California come from the non-residential sector.

Indeed, more taxes during a recession can be a dodgy proposition. Increased property taxes would raise the overhead for a company, which would ultimately be covered by higher prices on the shelves. The higher prices could drive down consumption and raise unemployment.

A 2008 Field Poll found that a split-roll property tax gets mixed reactions based on how the question is posed. “Voters are divided if this means increasing the property taxes of business and commercial property (47 percent approve and 44 percent disapprove).” The poll also found “voters approve 61 percent to 28 percent if this means lowering the property tax rates of residential property owners.”

Say what? How can it be that one of the world’s largest wineries (E&J Gallo of Modesto) based right here in California can skate its way out of paying hundreds of thousands of dollars in annual property taxes or a conglomerate configures a stock purchase of Mammoth Mountain and ends up not paying $4 million a year in property taxes.

If you read the OC Watchdog blog about “Your tax dollars at work,” you might get the same reaction depending on whose side of Proposition 13 you’re on. The now infamous Prop 13 sailed to victory in the 1970′s during a time of inflation when property taxes were costing people especially older people their homes.

But take a read of this:

E & J Gallo bought Louis M. Martini in 2002. Gallo got 1,765 acres of some of the best vineyards in Napa and Sonoma counties, worth an estimated $75 million. But get this: Since Gallo split the purchase among 12 family members  so that no one person owned more than 50%, the property was not reassessed for tax purposes. 

So, because of how commercial property is assessed according to Prop 13 (also called a loophole by many, defined as a “means of escape”), that $75 million worth of property is still valued at less than $14 million — which costs the state hundreds of thousands of dollars a year in property taxes. By the way, Gallo’s annual sales is estimated at $2 billion.

And Mammoth Mountain. Take Intrawest of Vancouver. It obtained a majority of the stock of the popular ski resort area in 1997. But the deal was structured in a way that there was no “change in control” as far as Prop 13 was concerned, so no reassessment. And that cost Mono County $4 million in annual property taxes.

If you really want more of this, take a look at the recently released report by the California Tax Reform Association (CTRA). It contains a list of “Company Buyouts and Mergers Which Escaped Reassessment.” They include properties acquired by Burger King, Washington Mutual, Hilton Hotels and more.

The CTRA says the law should be “changed to make sure that obvious changes of ownership, such as private equity buyouts and corporate takeovers, trigger a reassessment.”

There’s a bill in the Assembly AB 2492, sponsored by San Francisco Assemblyman Tom Ammiano, which would close the loophole  for commercial property owners. It would be put to a vote, but then people generally cringe when they hear of tax increases.

No one, especially seniors, should ever be forced to leave their homes because of escalating property taxes (the reason why Prop 13 was passed in the first place). Perhaps there should be a system of tax credit for senior citizens or a cap for people of a certain age, suggests Professor Steven Gill,  San Diego State University accounting professor.

“Anytime you create a rule there will always be a handful of lawyers who will find a way around that. Generally speaking, we should be able to count on our legislature to develop a property tax revenue system that meets the state’s revenue needs but also takes into consideration our ability to pay,” adds Gill.    

But given the dysfunctional state of our  legislature it’s like talking to a wall.  
   
  
 

Democratic lawmakers are determined to close tax loopholes they say cost state and local governments hundreds of millions of dollars each year, as they search for ways to trim California’s enormous deficit.

     A report by the union-funded California Tax Reform Association found that the share of property tax paid on residential property has increased since two-thirds of voters approved California’s landmark Proposition 13 tax law in 1978, while the share paid on commercial property has decreased.

     In Contra Costa County, for example, taxes on residential properties now make up 73 percent of property taxes collected, up from 48 percent in 1978.

     Democrats and unions say many corporations are using loopholes when they buy and sell properties to avoid having them reassessed and their property taxes go up.

     ”The system is an incredible mess,” said the association’s executive director, Lenny Goldberg. “People are constantly changing their share of ownerships, figuring out ways to avoid reassessment.”

     Republicans strongly oppose efforts to tinker with the system. They see such moves as an effort to undermine Proposition 13, the initiative that capped property tax increases and remains popular with voters.

     Under the current system, when property changes owners, its land value is reassessed and the new owner pays taxes based on the new value, which is often higher.

     But it only applies when a person or legal entity obtains more than 50 percent of the property, allowing corporations to structure sales to avoid a reassessment. For example, three new owners can join together to buy a property so none owns more than 50 percent, allowing them to continue paying lower taxes.

     A bill by Assemblyman Tom Ammiano, D-San Francisco, AB 2492, would redefine an ownership change to 100 percent of a property being sold, regardless of the number of new owners.

     The CTRA report said many major properties have gone without reassessment in the last 30 years, such as when a a group of investors including Goldman Sachs and Bain Capital acquired Burger King in 2002. The group avoided having any of its San Diego County franchises reassessed; one hadn’t been reassessed since 1985.

     ”We’re leaving millions of dollars on the table every day by these really arcane, inapplicable rules,” Goldberg said.

     While many homeowners are taxed at a rate of $5 to $6 per square foot of land, corporations pay pennies per square foot, said Assemblyman Pedro Nava, D-Santa Barbara.

     But Republicans whose votes are needed to reach the two-thirds legislative approval to pass any tax increase are opposed, along with the California Taxpayers Association. The group says the switch would increase taxes on business owners and that CTRA is relying on false data.

     ”To imply that Proposition 13 has shifted the tax burden to residential property is an incredible sophistry,” the group wrote in a newsletter.

     Seth Unger, a spokesman for Assembly Republican Leader Martin Garrick, R-Carlsbad, said the Democrats’ bill could end up costing the state tax income as property values decline.

     ”This could actually almost encourage those businesses to create a legal entity to reset their property tax base,” Unger said.

     Nava laughed at that idea. He said most of the corporations targeted by the bill haven’t been assessed for decades.

     ”To make the argument that the state of California would lose revenue because commercial property has gone down in value since the passage of Prop. 13 is absurd,” Nava said.

     The Assembly Revenue and Taxation Committee will take up AB 2492 Monday.

     Some of the other bills the Legislature will hear next week include:

•  Animal abusers may soon join sex offenders and arsonists on the list of publicly registered felons under a bill scheduled for a hearing Monday in the Senate Appropriations Committee.
•  SB1277, by Sen. Dean Florez, D-Shafter, would make California the first state in the country to require any individual over 18 convicted of felony animal abuse to register with police. An offender’s home address, photograph and place of employment would be posted online for a 10-year period after their conviction.
•  Phone books would become the next victims of the digital age under a bill scheduled to be heard Monday by the Senate Appropriations Committee. SB920 would allow Californians to opt out of receiving the classified and alphabetical phone directories known as yellow pages and white pages.
•  Companies that produce the directories would have to provide a toll-free number and a website with instructions on how to decline future delivery.
•  The bill’s author, Sen. Leland Yee, D-San Francisco, says the more than 78 million phonebooks distributed annually in California are wasteful, costly and increasingly irrelevant, thanks to the Internet.
•   Republicans are promoting their job creation proposals in hearings before the Assembly Revenue and Taxation Committee on Monday and the Senate Revenue and Taxation Committee on Wednesday. Their proposals include offering tax credits for vehicle and equipment purchases, research, capital gains, job training, and for employers that hire veterans, parolees, or the unemployed.

Copyright Associated Press

First Published: May 9, 2010 10:22 AM PDT on NBC Bay Area

PD Editorial: Old Prop. 13

KENT PORTER / The Press Democrat

Dan Walters, Sacramento Bee, Published May 11, 2010.

Proposition 13, the famous – or infamous – property tax limit passed by voters in 1978, requires property to be reassessed upon a “change of ownership.”

For homeowners, that’s an easily understood provision. When one buys a house, its base tax value is pegged at its sales price.

When it comes to commercial property, however, change-of-ownership rules adopted by the state three decades ago are anything but simple. If business property changes hands entirely in a single transaction with a single buyer, the rules governing homes also apply – but business deals are typically more complex.

If no one buyer purchases more than 50 percent of the property at any one time, it generally does not constitute a “change in ownership.” Business deals in California are frequently structured to avoid reassessment.

That, say critics, is a giant loophole that artificially depresses commercial property taxes, thus costing local governments – and indirectly the state – untold billions of dollars.

Altering Proposition 13, which many public employee unions and other liberal groups support, would require a ballot measure that it’s generally believed would be impossible to pass. But for decades, those groups have dreamed of altering the rules governing “change in ownership” so that taxes on commercial property would increase.

In theory, it could be done with a vote of the Legislature and a governor’s signature, but numerous attempts have failed.

There’s another effort afoot in Assembly Bill 2492, by Assemblyman Tom Ammiano, D-San Francisco, that would broaden the definition of “change in ownership.” And advocates are wielding a 122-page study by the California Tax Reform Association, alleging that commercial property’s share of property taxes has declined steadily in the past 32 years, while the portion borne by residential property has risen.

There’s reason to be skeptical of the study. It includes apartments and other rental property in the residential component, not merely owner-occupied homes. It also does not offer any underlying data on actual rates of residential and commercial construction since 1978 that could affect changes in proportionate tax burden.

Business groups such as the California Taxpayers Association are dwelling on those factors, contending that the report’s data and conclusions are skewed, and that it’s an initial effort at undoing Proposition 13′s tax limits. “The report is so full of holes that it should have been printed on Swiss cheese,” Cal-Tax said.

The battle was rejoined Monday at an Assembly Revenue and Taxation Committee hearing, and after a sharp debate, the Democrat-dominated committee approved Ammiano’s bill. But for all the verbiage, it was probably a futile gesture. The measure would require a two-thirds legislative vote, and Republicans are solidly opposed.

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