Prosper California Tax Reform Initiative

Assessor Explains Practicality of Reform Proposal

frank — Thu, 21 Jan 2010 01:14:39 +0000

An experienced public assessor, Ted Gwartney, MAI, explains why the proposed tax on the rental value of land parcels can be accurately determined based upon readily available information and, therefore, is a practical measure to implement. Mr. Gwartney is a former Sacramento County Deputy Assessor, British Columbia Assessment Commissioner and currently serves as Assessor for Greenwich, CT.

“Assessors deal with the market selling value of real property — land and improvements – on a daily basis. The rental value of real property is directly related to the market selling value of real property. Thus, it will not be difficult for assessors to switch over from assessing the selling value to assessing the rental value of property, and the rental value of land, in particular. California’s public assessors are already separately determining the value of the land from the value of the improvements (buildings) for each taxable land parcel in the state. ”

“Many residential properties are leased to tenants rather than used by their owner. Current evidence of the rental value of homes can be found in local newspapers, on the internet and on the multiple listing services of realtors. Rents from comparable houses will be used to value homeowner property not rented to others.”

“For commercial properties, assessors capitalize the net rental income from property to determine the market value. Assessors and real estate agents make surveys of typical rentals, vacancies, expenses and capitalization rates. Prospective buyers considering a commercial property take into account its current net rent and whether that net rent can be increased by making improvements to the property or by improving its management.”

“The tax reform initiative provides for a new system of reporting rental information to California’s public assessors as new rentals occur. This will insure that the valuation of land rent will always be current. A tax based on the rental value of land will be relatively simple to administer.

“Assessors will be asked to estimate the monthly rental value of properties rather than the market value (selling price). Appraisers, agents, owners and tenants think in terms of a rental value as a percentage of market value or, alternatively, think of market value as a multiplier of the rental amount. In today’s real estate market, excellent evidence of rental values exists. Annual gross rent multipliers typically fall within a range of from 12 to 24 times the annual gross rent for single family homes depending on desirability, demand, type, quality, characteristics, condition and location.

In terms of a percentage of market value, a range of 4.5% to 8.5% would be typical for single family dwellings. In my opinion, a 6.5% rental rate of return on the market value of real property could be an appropriate state-wide average with individual variation by area, location and demand.”

“Assessors are familiar with estimating local land values as a proportion of total real property value. Urban centers have the highest proportion of land value while agricultural or rural areas have the lowest proportion of land value.

Within a given California county, the ratios vary by neighborhood. For example, a study updated to 2009 showed the average ratio of land to total property value as 65% in Los Angeles 65%, 40.6% in Sacramento 40.6%, 33.1% in San Bernardino, and 73.7% in San Francisco.”

Assessors will find practical and efficient methods of assessing the rental value of land for taxation just as they now separately assess the selling value of land for the same purpose. Because of improved and more current information, the assessment of land rental value should become easier and less costly than the assessment of the selling value of land. I am confident that California’s public assessors will find it very feasible to accurately assess the rental value of land.”

How to finance California’s water projects

frank — Fri, 01 Jan 2010 22:00:54 +0000

Gov. Arnold Schwarzenegger and the Legislature recently placed an $11.1 billion bond measure on next November’s ballot to finance water-related projects. The Tax Reform Initiative provides a common-sense method of paying off these bonds.

Los Angeles Times correspondent George Skelton quotes California Treasurer Bill Lockyear and writes as follows:

“Farmers essentially want subsidized water — subsidized by the rest of the state,” says Lockyer, a longtime legislator from the east side of San Francisco Bay before being elected attorney general and then treasurer. “Guess I don’t blame them for asking, but shouldn’t users pay, then add it to the cost of their products?”

The agriculture lobby argues that much of the bond money would be spent for “public benefits,” such as Delta environmental restoration. Even so, under the bond provisions, taxpayers could wind up paying for up to half the cost of building new dams that would store water mostly for farmers.

http://www.latimes.com/news/local/politics/la-me-cap17-2009dec17,0,5941984.column

Construction of these water projects will raise land values — both its rental value and its selling value — tremendously in the areas benefiting from the new water supply. Collection of 75% of this increase in rental value will recoup much, perhaps all, of the construction cost involved. This is the revenue that should be used to pay off the bonds sold to raise the funds necessary to build the project.

The water itself could be sold in auction-style bidding to water districts which, in turn, will charge their customers for the water. The proceeds of the sale of the water should more than pay for the operating costs of the project and will likely also cover much of the interest on the bonds. Even when landowners must pay for water they receive, an assured supply of water makes possible many uses of the land which are not possible in the absence of a reliable water supply, thereby greatly increasing both its productivity and its value.

If much of the increase in land value resulting from the construction of the water projects financed by the people of California is not collected by means of a tax on land values, the owners of the land benefitting from the new water supply will be enriched at public expense. The 75% tax on the rental value of land proposed by Prosper California will collect the largest portion of the land value created by all public services (law enforcement & public safety, education, parks, libraries) and publicly-financed infrastructure (water projects, roads, highways & bridges, ports, airports, etc.). Without these publicly financed services and infrastructure projects, California’s land would have little value rather than its enormous current value.

Initiative in circulation – Read Secretary of State’s press release

dana.janssen — Mon, 28 Dec 2009 20:00:55 +0000

The California Secretary of State’s press release can be found here:

http://www.sos.ca.gov/admin/press-releases/2009/db09-089.pdf