The candidate's wife was in the news recently because there were unpaid property taxes on a condominium in San Diego, one of 3 she owns there. (Turns out that the bills had gone to the wrong address for 4+ years; they have since been paid in full.) The story is relevant here only because it highlights one of the perverse aspects of California's Proposition 13.
Her late parents bought the new 1429 sq ft 2BR oceanfront condominium 36 years ago in 1972. In 1978, Proposition 13 rolled back the assessed valuation to its 1976 level, and since then, has capped the annual increase in assessments at 2% per year (occasionally a bit less, when inflation was very low). Its 2008 assessed value is $140,855. That suggests that its 1978 valuation was about $71,000.
At Realestate.com, I selected La Jolla, condominium, 2+ BR, 2b, <1500 sq ft, and came up with 68 properties, ranging in price from $2,895,000 to a low of $319,900; the lower-priced ones were clearly a distance from the ocean.
Googling La Jolla Shores Condo, and looking at 2BR homes of approximately the same age and size, I find a smaller condo with an asking price of $1.345 million, at 8263 CAMINO DEL ORO.
So, if I'm correct, Mrs. McCain's condo's assessed value is just over 10% of its 2008 value!
The fellow who purchases that property today would pay nearly 10 times as much in taxes as Mrs. McCain's trust is paying! The annual property tax for 2008 is $1,742, based on an assessment of $140,855 (1.237%; 1% is the maximum property tax under Proposition 13, but local voters can approve parcel taxes by supermajorities, which is the likely source of the other .237%). That's $33 per week, or under $5 per day, paid to the commons, to support schools, libraries, public works, emergency services. What a deal!
Please understand: I am not criticizing Mrs. McCain. Rather, I am criticizing the perversity of Proposition 13. Winston Churchill put it this way 99 years ago:
Now what had the landowner done for the community; what enterprise had he shown; what service had he rendered; what capital had he risked in order that he should gain this enormous multiplication of the value of his property? I will tell you in one word what he had done. Can you guess it? Nothing. ...
I hope you will understand that when I speak of the land monopolist I am dealing more with the process than with the individual landowner. I have no wish to hold any class up to public disapprobation. I do not think that the man who makes money by unearned increment in land is morally a worse man than anyone else who gathers his profit where he finds it in this hard world under the law and according to common usage. It is not the individual I attack, it is the system. It is not the man who is bad, it is the law which is bad. It is not the man who is blameworthy for doing what the law allows and what other men do; it is the State which would be blameworthy were it not to endeavour to reform the law and correct the practice. We do not want to punish the landlord. We want to alter the law.
But Cindy McCain, in her role as daughter, was permitted to keep her parents' Proposition 13 favored assessment. The news stories say that her elderly aunt lives in the condo. (Siblings do not get privileged status under Prop 13.)
According to news articles, Eliot Spitzer lives rent-free in a NYC apartment owned by his father (a real estate investor) , and his father pays an annual gift tax on the amount the rent would be (about $250,000, if memory serves). I wonder whether Mrs. McCain's family trust charges the elderly aunt market rent on the property, or pays a similar tax on whatever discount they give her.
It seems to me that if Mrs. McCain, as her parents' daughter, has inherited their favored basis, and then uses it to provide housing to someone else, the "take care of the poor widow" concept of Prop 13 is sort of being turned on its ear. The newcomers to La Jolla are subsidizing wealthy Mrs. McCain and her elderly aunt. Aren't they nice to do so?
The market rent on a condo that sells for $1.35 million might be 5% of that value per year. 5% of $1.35 million is $67,500 per year, or $5,625 per month. Are annual property taxes of $1,742 ($145 per month) all that the landlord owes to the local commons for the services received from the community? That's 2.57% of the income for the community, 97.43% for the landlord.
Is Mrs. McCain, as daughter and therefore eligible for Prop 13 protection, reporting the annual gift to the aunt of $67,500 (assuming that the aunt is paying her no rent, which may not be the case)? Gift Tax laws permit each individual to give $11,000 or so per year to an individual without having to report the gift for estate/gift tax purposes; I'm sure her tax attorneys know this (Bernard Spitzer's certainly do.)
[Assuming the tenant spends 25% of gross income on rent, such a condo would require an annual gross income of $270,000.]
Is this any way to run a community?
Get rid of Proposition 13!
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