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Guest Opinion: Where did the other $713 million go?

Original post made on Aug 21, 2020

Proposition 15 will only distribute $139 million -- 11% of new revenue -- to schools and community colleges in the county. Palo Alto Unified will get just $1 million. Mountain View and Los Altos schools get $2 million, combined.

Read the full story here Web Link posted Friday, August 21, 2020, 6:52 AM

Comments (20)

Posted by Tax Revenue Diverted
a resident of Community Center
on Aug 21, 2020 at 10:27 am

Tax Revenue Diverted is a registered user.

This sounds really bad. Since such a small percentage of the money will go to education in Santa Clara and in particular, Palo Alto schools will only get $1 million I'm planning to vote against Prop 15.

Posted by Kathy
a resident of Evergreen Park
on Aug 21, 2020 at 10:36 am

Kathy is a registered user.

No on Prop 15. Leave Prop 13 as it is.

Posted by pacsailor
a resident of Gunn High School
on Aug 21, 2020 at 10:46 am

pacsailor is a registered user.

Another thing that is not made very clear, the leases for majority of the commercial properties are called net leases, which means that the tenant pays his/her share of the property taxes, insurance and property maintenance, based on the square footage of the leased space. This means that the property tax increase will be passed on to the tenant who will pass it on to the customers, and these customers are us who live in this state.

Posted by commonsense
a resident of Professorville
on Aug 21, 2020 at 12:00 pm

commonsense is a registered user.

People don't like prop 13 because it limits income to the state...that almost has, and soon will, the highest state income tax in the country - 16+% after the coming increase. It will also be the highest per capita. Time to get the state's finances in order, including schools. The terrible schools (state wide, not PA) is an embarrassment.
Web Link

Posted by Sacramento is a Hot Mess.
a resident of Another Palo Alto neighborhood
on Aug 21, 2020 at 12:59 pm

Sacramento is a Hot Mess. is a registered user.

Local control is important. We are electing a majority of our City Council and our School Board this year. Remember to pay attention to local elections this year!

Sacramento is a hot mess, and the seat of our state government is becoming increasingly hostile to the Bay Area cities--no thanks to people like Mayor Fine who bad mouths our community every opportunity he gets. State legislators are increasingly trying to move control for land use and other decisions to the state and away from local government. Despite upzoning and development incentives that our Council has passed, developers hold off submitting housing proposals as they are lobbying Sacramento for greater incentives and power. They are just holding out for legislation that will deliver even bigger profits.

Pay attention to the details of how our state representatives are voting. Grill them in candidate forums. Read the legislation they have voted for. See SB35, for instance. Read the fine print on ballot measures, and if you don't have time to do that, vote NO.

Most Palo Altans are not crazy rich. Many may have relatively high incomes, but these dual income families still struggle to make ends meet because of painfully high mortgage payments and rent. I'm looking for candidates who offer a more balanced view than just build, build, build housing. I want to hear about comprehensive plans for creating community that incorporates schools and community services. I want to see a funding plan for that vision. I want candidates who have government experience that demonstrates they can be effective. This is going to be a tough year financially. We need some people who can manage a complicated city budget and be thoughtful policy makers.

We are going to need local legislators who can represent our community's strengths and needs in a positive way in Sacramento. We need to educate ourselves more deeply so that we can make better choices on November 3.

Posted by Claude Ezran
a resident of Leland Manor/Garland Drive
on Aug 21, 2020 at 3:25 pm

Claude Ezran is a registered user.

This article is extremely murky and does a poor job of explaining the various flows of money . It does not even answer the question it poses in its headline. It seems to be written with the hidden agenda of trying to scare people off so that they will not vote for Prop 15. I would not rely on it to make such a decision. Prop 13 is fundamentally unjust because corporations have not been paying their fair share compared to homeowners. Prop 15 fixes that without changing anything for homeowners. Maybe it is not perfect, but it does represent important progress. I plan on voting for Prop 15. Furthermore Prop 15 is endorsed by a very impressive list of our state and local elected officials see: Web Link and also by the CA Democratic Party.

Posted by Jennifer Bestor
a resident of Menlo Park
on Aug 21, 2020 at 4:57 pm

Jennifer Bestor is a registered user.

I apologize. Let me try again. Per proponents' research: $1,217 million of new revenue is forecast in Santa Clara County. $504 million will be distributed to local governments (county, cities, etc). This leaves $713 million unaccounted for.

Of this $713 million, $53 million covers local overhead costs (assessor/appeals). Then, $660 million heads off to a statewide education fund in Sacramento. Only $139 million comes back to Santa Clara county schools, community colleges, and the county office of education. The remaining $500+ million is distributed elsewhere in the state. Every year.

Please -- ask proponents and supporters to publish their statewide reconciliation of expected revenues and expenditures by school district! I have been requesting this since early 2018 — when this initiative was first proposed.

Why? Because you can't take half a billion dollars from Santa Clara residents — “for their schools” — then dimple up and say, “my bad,” when they realize their most stable, reliable source of school funding is gone … for ever. This initiative authorizes removal of property taxes, across county borders, in the constitution, for the first time. The only do-overs will be at the ballot box.

How will we ever pass another parcel tax or school funding measure, if PTAs, local officials, and activists never showed voters the full picture of what this initiative would do? Speakers at the meeting uniformly assumed the money stayed in the county. Please — go listen to the July 21st board meeting. This section starts at 8:14:30.

Close the loophole. Absolutely. Search my name and "Prop 13" and you'll see I've spent a decade trying to do this. Over-reach and, in the process, break voters’ trust in school funding? Now that will harm local homeowners irreparably. And California.

Posted by Name hidden
a resident of Downtown North

on Aug 21, 2020 at 7:19 pm

Due to repeated violations of our Terms of Use, comments from this poster are automatically removed. Why?

Posted by Bill Glazier
a resident of Old Palo Alto
on Aug 21, 2020 at 8:17 pm

Bill Glazier is a registered user.

This looks to me like someone using the 'cover' of an education leader to do the business of the commercial real estate industry in trying to defeat Prop 15. The 'astroturfing' of the first 3-4 comments on this thread reinforces this thinking.

Commercial Real Estate has benefitted far too long from Prop 13. Whether this new tax money goes directly to Palo Alto (which has benefitted for a very long as a Basic Aid District in ways that are fundamentally very unfair, to be quite honest) or to the State to redirect based on need, is not especially relevant. More money in the pot is a good thing for Education, and hopefully smart leadership in Sacramento will direct it appropriately.

It is time for the people who have made billions of dollars on commercial real estate in the last 30+ years to pay their fair share.

Posted by Scott Young
a resident of Fairmeadow
on Aug 22, 2020 at 12:07 am

Scott Young is a registered user.

What a hit piece. Having commercial properties pay fair market value tax assessments is the right thing to do! [1] Corporations selling properties wrapped in legal entities so their tax assessments don’t readjust should be near-criminal instead of the status quo. [2] Ideally, all the money goes to the county instead of just 60%. But even so, it is net new revenue for schools and taxing commercial entities appropriately, instead of increasing sales taxes or other taxes on the most vulnerable members of society, is the fair thing to do. Maybe it will also encourage local politicians to build more housing instead of office spaces so people can live near where they work instead of destroying the environment through lengthy commutes. Who doesn’t want less traffic? Please support prop 15 and don’t listen to the wealthy special interests trying to derail it. Read the details of the bill and see who is really in support and who is in opposition. [3] I understand wanting all the money to stay local, but the fact 40% goes to the state is no reason to vote against this initiative that helps children and forces some of the richest people and companies to pay their fair share of taxes. This article almost fooled both me and my wife. Do the research and don’t be mislead.

[1] Web Link
[2] Web Link
[3] Web Link

Posted by SRB
a resident of Mountain View
on Aug 22, 2020 at 7:53 am

SRB is a registered user.

@Scott Young. Agree reads like a hit piece that also ignores basic nuances in school financing:

1. No distinctions in piece between basic aid and revenue limit districts. As I understand it, Prop 15 doesn't really change the way revenue limit districts are funded. Only 80 out of 1,000 California school districts are basic aid, yet the piece lumps all districts as equally impacted.
2. Piece fails to acknowledge that state funding for schools would go up for ALL districts (including the 80 or so basic aid school districts) based on number of students most in need.
3. By large, basic aid districts are wealthier than revenue limit districts. I don't have a problem with taxes being a form of redistribution.

Posted by Jennifer Bestor
a resident of Menlo Park
on Aug 22, 2020 at 9:25 am

Jennifer Bestor is a registered user.

Thank you to everyone who has cared enough to read all this! @Messrs. Glazier & Young, thank you both for taking the time to comment.

I appreciate that you both feel it’s fine for 40+% of the new revenue raised in Santa Clara County to leave — four times as much as remains for local schools.

Bill, I can understand that you feel Palo Alto (and Mountain View-Los Altos and Sunnyvale and Menlo Park and South San Francisco and Fremont Union High) have benefited for too long from a system that funds their schools with local property tax rather than depending on the state’s general fund. I would respectfully note that their property owners also pay 30¢ on their school dollar into to the county Educational Revenue Fund, for the sole benefit of less-advantaged districts within the county. (Sadly, Sacramento redirects most of that fund to pay its own debts to local governments.) May I also note that these are the only districts keeping up with the local cost of living, which parallels property values? And the only ones approaching adequacy on a national basis?

The measure will certainly prevent the formation of new basic-aid districts (Cupertino, East Palo Alto, Milpitas) and will pull existing ones with commercial/industrial bases back into the flat statewide funding formula . Only the richest residential ones — LAH, Woodside, Hillsborough, Saratoga — will escape over time.

My expectation of Prop 15’s proponents was simply that they would be transparent to voters — not hiding the effects of the language they crafted. The authors chose to do it this way — with far less difficulty, they could have kept the money within a county, then simply redirected it to the poorest districts in each county — sorting out the legislature's misdirection of ERAF. But they did not.

I am still waiting, however, for why it’s OK to do this without telling voters about it?

Is it because it rights the wrong of commercial property owners gaming the system?

Please look at Prop 15 proponents’ own, published research. Table 4, “Distribution of Average Revenue Gains by Base Year," shows 25.8% of the new revenue coming from properties with a base year before 1990 — one quarter — less than $3 billion. In 2015, I testified to Assembly Revenue & Taxation committee, in strong support of closing that loophole, which gave special advantage to corporate ownership. (links below)

Or perhaps you think every property before 2000 should count, even though the third decade is when property owners of all kinds recoup their new-buyer premiums under the current system? That would increase the total to just under half — 49.7%. So, at most, $300-600 million of the $1.2 billion raised in Santa Clara County comes from C/I properties gaming the system.

The remainder — 50.3+% — comes from changing the rules for one group. (Note again, this is proponents’ published data, not mine.) I am not sure how changing the rules for one group constitutes “fair share.” I suppose we could declare that red-heads have to play rugby under soccer rules or that all businesses beginning with the letters T - Z now operated under ‘right to work’ laws. After all, more people play soccer than rugby and more states have right to work laws than don’t.

But I don’t understand why these changes are so extraordinarily important that it's OK to secretly change the school funding system — and not tell anyone.

I’m an education researcher. I noticed the missing $713 million because I've spent 12 years digging through how education funding works, and why property taxes keep getting taken away, particularly from our poorer districts. This is how. (By the way, if this is “cover,” it’s pretty deep. Please, read my Weekly/Almanac Guest Ops on Ravenswood and regional costs, local redevelopment and how it stripped money out of poorer schools, etc.

And finally — before we declare that this will be a boon to residential building, note that it has just made commercial property MUCH more valuable to politicians … local ones AND now Sacramento, given that local property tax would help fund schools hundreds of miles away.

FYI, if it’s residential you want in this area — Prop 19 is worth your attention. It doesn’t attack basic-aids or try to change school funding. It will free up family homes close to work for young families, while allowing seniors to move to Monterey, Mendocino and Tahoe without penalizing their destination counties. And toss a few pennies into the fire prevention pot.

Again — if this proposition passes — with local voters aware of what they are deciding — great! They will have recognized its local costs and agreed to bear them. Otherwise, I look forward to your participation in every parcel tax battle for years to come.

Proponent Research:
Web Link
My presentation to Assembly Revenue & Taxation:
Web Link Bestor Presentation.pdf

Posted by Jennifer Bestor
a resident of Menlo Park
on Aug 22, 2020 at 10:04 am

Jennifer Bestor is a registered user.


You may be confusing the first version of this initiative (#17-0055) with the current version. The prior version allocated school funding based on need. The current version (#19-0008-Amendment-1) allocates based on the local control funding formula found at section 42238.02 of the Education Code and, per the LAO’s fiscal analysis, allocates primarily based on the number of students.

In the proposition, the added Section 8.7 of Article XVI of the California Constitution, under paragraph a(2)(A), states, "Any school district or charter school that qualifies as a "basic aid school district" or "excess tax entity" under subdivision (o) of that section shall have subtracted from its proportionate share of the Local School and Community College Property Tax Fund the amount by which the sum calculated in subdivision (j) of that section exceeds the amount calculated pursuant to subdivisions (a)-(i), inclusive, as each of those provisions read on July 1, 2019.”

In other words, any basic aid that would have gotten money under the new distribution scheme only gets it to the extent it exceeds current property tax funding. There are, incidentally over 100 basic aids now, since property tax has grown while school funding has stagnated.

The qualified language goes on in subparagraph (3) to allow, "(3) Notwithstanding the above, no school district or charter school shall receive from the Local School and Community College Property Tax Fund less than $100 per unit of average daily attendance…” Hence the $100 per student in my calculations. (Slightly more, BTW, for the new basic aids — e.g., Cabrillo, Redwood City, in San Mateo County.)

Before counting those chickens, however, every school district has to look at its current share of business personal property tax. Because every business (big and little) has just been granted that, under the added Section 3.1 of Article XIII of the California Constitution, “an amount of up to five hundred thousand dollars ($500,000) of combined tangible personal property and fixtures, per taxpayer, is exempt from taxation.” More is exempted for certain defined “small” businesses — including, in my district, venture capital firms and medical imaging offices. So districts will be losing real money from all those fancy furnishings in the VC offices along with 3D dental imaging equipment and the like. You can find these amounts for your district in the Santa Clara County Assessor’s excellent annual reports.

And, finally, note that ALL commercial property (with some small property exceptions) is moved out of the current assessment and allocation system, by the added Section 2.5 of Article XIII A of the California Constitution. Then, in the added Section 8.6 of Article XVI:
"SEC. 8.6. (a) The Legislature shall provide by statute a methodology, based on historical experience, for determining the additional revenue generated in each county each fiscal year as a result of the application of the tax rate specified in subdivision (a) of Section l of Article XIII A and the application of Section 2.5 of Article XIII A. … [All] additional revenue resulting from the application of the [1% general levy] and the application of Section 2.5 of Article XIII A shall be allocated and transferred by the county auditor as follows:

(1) (A) First, to the Local School and Community College Property Tax Fund created pursuant to Section 8.7 of this Article, in an amount equal to the school entities' share of property taxes as determined pursuant to Chapter 6 (commencing with Section 95) of Part 0.5 of Division 1 of the Revenue and Taxation Code, as that chapter read on January 1, 2020."

This is how all commercial property tax revenue gets put under control of this initiative’s provisions, how the legislature gets to decide how much foes into the statewide fund, and how it gets there.

But don’t trust me! Go read the eight pages of actual constitutional language (not the first four of good intentions, but the real stuff). Please.

Posted by Claude Ezran
a resident of Leland Manor/Garland Drive
on Aug 22, 2020 at 12:54 pm

Claude Ezran is a registered user.

@Jennifer Bestor, I am disappointed that after complaining about some of the issues (very minor to non-existent in my personal opinion) that you perceive in Prop 15 you have not stated clearly if you are still going to vote for it because overall it still does good things for California, or are going to oppose it and side with the Howard Jarvis Taxpayer Association and big corporations. You should let your readers know where you really stand instead of cultivating ambiguity.

Posted by Scott Young
a resident of Fairmeadow
on Aug 22, 2020 at 2:34 pm

Scott Young is a registered user.

Jennifer, I respect your dedication to education but I still disagree with much of your analysis. I too would like more money to stay local as I feel that local is often a better shepherd of resources. But the idea that this is unfair because the burden falls on a small number of commercial property owners is backward. That is fairness! A quote from the analysis you linked, “The large share of revenues coming from a small percentage of commercial properties results in large part from the fact that those properties are the most under-assessed, meaning that they have the larger gap between their assessed and market values.” So those commercial property owners can charge far higher market value rents than they pay in their share of taxes. Fixing that is the opposite of unfair. California shouldn’t mimic feudal England with land right grants to large commercial property owners through ever-diminishing taxes. Fixing the unequal tax-burden between rich, middle-class, and poor should be a top priority for our state rather than infighting about how the money is distributed. And if we want to lower taxes, let’s do that, but equally across the board and not through special treatment for the richest among us.

Posted by Jennifer Bestor
a resident of Menlo Park
on Aug 23, 2020 at 7:09 am

Jennifer Bestor is a registered user.

Claude, Proposition 15 is a hot mess that will hurt the schools that educate California's least advantaged kids. I will be voting against it *despite* the HJTA.

(A) It arrogates all growth in schools’ commercial-industrial property tax to its own mechanisms. It cannibalizes current funding streams from commercial/industrial areas. This will hurt kids in San Jose and East Palo Alto, not in Saratoga or Los Altos Hills. And it will grow exponentially. Redevelopment sucked funding out of poor schools in just this manner — and still is, despite its dissolution in 2012.

(B) Instead of simply setting a Prop 13 time limit on commercial properties, it spends $500 million to impose a different assessment system. That’s $500 million to collect $12 billion — compared with $800 million to collect the current $65 billion. And assessors say it will be impossible to accomplish in less than five years.

(C) At least half of the Proposition 15 revenue represents a new tax on business. But instead of a state wealth or income tax that is equitably distributed to local city and county governments, here we have San Francisco expecting $500 per resident, while Fresno gets at most $50. Los Angeles $200, while Kern (Bakersfield) will be lucky to see $50. Santa Clara $200, while San Benito may get $25.

Proposition 15 is a hot mess. Its authors plunged into three obscure, complex systems — assessment, allocation, and school funding — none of which they understood. They’ve spend three years (four versions) bolting new clauses, exclusions, and exemptions onto a misguided foundation.

Their luck? Neither their opponents nor their supporters appear to understand the systems either. My personal agony? I do.

Posted by Jennifer Bestor
a resident of Menlo Park
on Aug 23, 2020 at 11:02 am

Jennifer Bestor is a registered user.

Scott, thank you for your willingness to read the material!

Again, I agree that commercial property owners should not get a free ride. Capping Prop 13 limits at around 25 years for commercial properties makes perfect sense in terms of civic fairness and leveling the economic playing field. I have been demonstrating this publicly for a decade now.

But that’s not what is on the ballot.

What is on the ballot — and expected to justify removing schools’ local property tax without any transparency — is a trebling of that.

The vast majority of commercial owners are playing by the rules. In Santa Clara County*, 44% of commercial properties have been reassessed to market in the past 10 years — a significantly higher percentage than single family/condo at 39% or multifamily/apartment at 35%. Stretching back to 1999, it’s 64% commercial, 63% single-family, 58% multifamily residential.

It’s only by rewriting the rules that proponents can claim “under assessment.” Look at the "Ratio of Assessed to Market Value" graph in that document! It only shows 9.5% of commercial properties within 80-100% of market value. But wait! Locally, 4.4% of commercial properties change hands every year* — statewide 3.3%. 9.5% divided by 4.4% means … every three years, companies should expect a property tax increase of 20%/80% = 25%? Not 3 x 2% = 6% like everyone else in the state?

To me, this is like someone popping a couple of fourth-generation antibiotic tablets for a sore throat — because they can’t be bothered to have it swabbed and cultured. It may fix the sore throat, but perhaps the collateral costs deserve to be considered.

California voters have every right to decide they want a wealth tax on commercial property owners. And to pick a very expensive administrative path to levying it. And to break the constitutional protection that keeps property tax where it’s raised. And to redistribute it from counties that happen to have large allocations to education to those that don’t. And to cut property tax funding to schools.

But only if they know, that is what they are doing. Otherwise, it’s not democracy. It’s feudalism by initiative.

* Santa Clara Assessor’s Annual Report (page 12)
Web Link

Posted by Eye opening
a resident of Fairmeadow
on Aug 23, 2020 at 12:45 pm

Eye opening is a registered user.

@Jennifer: Thank you for your thoughtful and detailed column and comments. Your perspective is clearly very informed and taught me many things I didn't know. I will be voting against Prop 15 because we can and should do much better. There are much simpler solutions that are both fairer and less costly and complex. But I don't know how to help convince other people - it's not a sound bite.

Posted by No more taxes for CA Legislature
a resident of Community Center
on Aug 23, 2020 at 2:08 pm

No more taxes for CA Legislature is a registered user.

I support the general idea of taxing businesses but not for a poorly written ballot measure like this which means Palo Alto and Palo Alto schools will get almost nothing. Also, given the Pandemic, now is not the time to be hammering businesses with new taxes. Also, given that Sacramento and in particular Mark Berman (your Palo Alto rep) are busy trying to destroy our lovely single family neighborhoods (e.g. SB 1120), I'm not voting for this.

Posted by Mike-Crescent Park
a resident of Crescent Park
on Aug 26, 2020 at 5:37 pm

Mike-Crescent Park is a registered user.

Several commentors make the claim “it’s time commercial property owners pay their fair share.”

Never mind that the definition of “fair share” is never enough money. This state has racked up a huge surplus so I guess someone is already paying their fair share.

But the commercial owners will NOT BE PAYING this huge increase if this prop passes. We will. The commercial property tax increase will be passed to the leasees. And the leasees will pass it to the consumers. That is us!

So who do you want “punished” in this tax increase? Prop 15 will hit us the consumers. Collateral damage.

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