tax breaks

The Most Notorious Property-Tax Underpayers in California

Disneyland in 1978: The company is still paying property taxes at that year’s rate. Photo: Ted Streshinsky/Corbis via Getty Images

In 1978, Californians voted overwhelmingly in support of a consequential ballot measure that would forever change the state. Heralded as a “tax revolt” against Big Government, Proposition 13 essentially froze property taxes at 1975 rates, ensuring that any property is reassessed only when it’s sold. It effectively creates random subsidies based not on need but instead rewarding property owners who were lucky enough to get in early or can dodge the rules. Forty-two years on, some of California’s landowners — including many of the state’s wealthiest and most powerful corporations — continue to pay disco-era taxes on land that carries 2020 values.

Along the way, Prop 13 has decimated the state’s public-funding mechanisms, siphoning money away from parks and city services. In particular, one of the world’s great public university systems was starved, and per-pupil spending for K–12 public education plummeted to 41st out of 50 states. A new measure on next week’s ballot — Proposition 15, or Schools and Communities First — aims to reinstate fair-market-value taxes on commercial property. A statewide “yes” on Prop 15 would capture up to $11.5 billion in annual tax revenue, according to the state’s legislative analysis, including $5 billion a year for schools and the rest directly to local communities’ general use. Most pundits think Prop 15 will pass, but it’s polling right at 50 percent.

If Prop 15 does pass, most commercial properties won’t be affected, as they’ve already been reassessed and are taxed close to market value. (Businesses that own properties valued under $3 million in total will remain exempt; residential property owners will still be exempt, too.) But for a handful of corporate commercial property owners — those who have held onto multiple properties for more than 40 years or those have taken advantage of plenty of loopholes to protect themselves — the reassessed values would result in significantly higher taxes. These are just a few of the companies that have been benefiting the most from Prop 13 — and how much the state stands to gain.

The most famous: Disney
Underpaying by: At least $25.8 million per year (and probably way more)

Disneyland’s 85 acres of Anaheim land are among of the state’s most legendary beneficiaries under Prop 13; if taxed properly, Orange County would see $19.6 million or more from the world’s biggest media company each year. (And that’s just if Disneyland was assessed similarly to nearby commercial properties; it’s likely to be worth far more.) But Disney owns way more property than theme parks, and its two Los Angeles–area studios located in Burbank and Glendale are assessed at 1975 and 1999 values, respectively, denying those cities a combined $6.2 million in property taxes every year as well. During the pandemic, Disney — which was sued last year for failing to pay its employees a living wage — has furloughed and laid off tens of thousands of workers at its studios and parks citing property-related expenses, yet still paid shareholders $1.5 billion.

The most egregious: The Blackstone Group/Boston Properties
Underpaying by: At least $6 million

Yes, that Blackstone — the Wall Street investment firm known as the “nation’s largest landlord” that has purchased thousands of California rental properties — underpays by millions for its 1.1-million-square-foot corporate campus in Santa Monica. Taking advantage of a loophole that allowed them to skirt property reassessment twice as part of a merger, Blackstone bought a 49.8 percent stake in the Colorado Center for $229 million in 2007 and sold this stake in 2012 for $511 million, essentially making $281 million off a property that had last been assessed in 2005. The new owner, Boston Properties, also avoided a reassessment, meaning Colorado Center also retains rates from a 2005 assessment even though the property is estimated to be worth twice as much today. Santa Monica misses out on $6 million every year. As of the last filing, Blackstone — which is collectively one of the country’s largest Trump donors and has also spent millions to defeat rent-control measures in California — has contributed $7 million to the “No on Prop 15” campaign.

The worst discrimination record: Los Angeles Country Club
Underpaying by: $1.6 million

Golf courses, requiring many acres of land often acquired many decades ago, will be facing a particularly harsh reckoning if Prop 15 wins. One of the biggest wake-up calls will be to the Los Angeles Country Club, considered to be one of the most exclusive in the U.S. Just the land itself, a 295-acre property next to Beverly Hills and surrounded by some of the priciest homes in the country, is valued at over $3 billion, meaning the club should be paying at least $2 million in annual taxes. Instead it pays $360,000, a figure handily covered by three of its annual six-figure memberships. Prop 13 is not just subsidizing the costs of a private club only accessible to the wealthiest Angelenos — it’s giving out a tax break that was granted to the club at a time when it explicitly banned women from joining and had no Jewish or Black members.

The most amenable: Facebook
Underpaying by: Not nearly as much as its competitors

Nowhere are Prop 13 disparities more apparent than in Silicon Valley, where the tax rates of tech giants across the street from each other are subject to wildly different rates. Intel has owned its Santa Clara property since 1970 and is still paying taxes from 1975. Apple’s $5 billion spaceship, built in 2017, is assessed at fair market value, more or less, in Cupertino. (Most of the land is or was owned by Silicon Valley’s billionaire commercial landlords, John Arrillaga and Richard Peery, who capitalized on Prop 13 by snatching up farmland and converting it into office parks starting in the 1960s.) If all the tech companies in town were on contemporary footing, Santa Clara County would rake in $1 billion annually in tax revenues, about double what it currently receives. Say what you will about Mark Zuckerberg, but he’s come out in favor of leveling the field, citing the need for public services and schools (although a strongly worded letter from California’s NAACP chapter, which opposes Prop 15, says if Zuckerberg really wanted to support local communities, he should do so directly). But perhaps, because his relatively new campus expansions are already paying closer-to-market-rate rent compared to the Intels of the Valley, he’s feeling generous: His charity has kicked in just under $11 million to the “Yes on 15” campaign.

The most environmentally destructive: Chevron
Underpaying by: $100 million 

Part of what Prop 15 funds would help pay for are upgrades to transportation that provide alternatives to cars, projects that are often underfunded — sidewalks, bike lanes, public transit. Yet many of the state’s most auto-dependent land uses rely on Prop 13 to keep operating dirt cheap: parking lots, car dealerships, and yes, oil companies. That’s what a group of protesters were arguing earlier this month when they marched on the Chevron refinery in Richmond, California, which is underpaying its taxes to Contra Costa County by an estimated $4.2 million per year while becoming the region’s biggest polluter. In fact, Prop 13 helps Chevron avoid about $100 million statewide on its many properties, including refineries, oil extraction sites, and gas stations.

The loopiest: South Coast Plaza
Underpaying by: At least $26 million

The Segerstrom family built South Coast Plaza on the site of a lima bean farm in Orange County in 1967. They still own it. Last year, decades after agriculture gave way to Anthropologie, the family paid $4.8 million in taxes on a property assessed at $456 million but valued around $3 billion (although with something like a mall, there’s really no way of knowing for sure unless the property sells). An investigation by LAist looked at the way the land has been carved up into parcels that have avoided a reassessment of the entire property, meaning that the Saks, assessed in the 2000s, is paying five times more taxes than the Macy’s, even though they’re both similarly sized anchor stores right next to each other. The Segerstroms have paid $500,000 to fight Prop 15.

The best-known: Donald Trump
Underpaying by: $3.3 million

The Trump Organization holds a 30 percent stake of San Francisco’s Bank of America building, a 52-story skyscraper it bought jointly with New York’s Vornado Realty Trust in 2007. Over the past 13 years, the owners have managed to evade $164 million in taxes, or about $11 million per year. In many California cities, according to a report by 48 Hills, large out-of-town investors hold onto real estate that allows them to reap lower tax benefits over time. And even if either party needed to get out of the deal — if, hypothetically, the people who run the Trump Organization had their assets seized — Vornado’s majority stake means that a reassessment would not be triggered unless Prop 15 passed.

The Most Notorious Property-Tax Underpayers in California