Steve Yeater, Associated Press
Los Angeles Mayor Antonio Villaraigosa laughs while taking questions from members of the Sacramento Press Club after speaking at their luncheon in Sacramento, Calif., on Tuesday, Aug. 16, 2011.
SACRAMENTO, Calif. — Los Angeles Mayor Antonio Villaraigosa on Tuesday challenged Gov. Jerry Brown and state lawmakers to think boldly in repairing California's finances and pursue a "grand bargain" that would link property tax reforms to an overhaul of public pensions and K-12 schools.
The Democratic mayor said he was willing to provide political cover to the governor and lawmakers by suggesting changes to Proposition 13, the 1978 ballot initiative that rolled back property taxes and capped their increases. A pillar of California's direct democracy, the initiative is seen as untouchable in the state because it so popular with the electorate.
"I'm here to shine a light on a dark cloud hanging over California," Villaraigosa said during a speech to the Sacramento Press Club. "I'm here because I believe there's an opportunity for a grand bargain, but it's going to mean including broad stakeholders to acknowledge that we need to fund government. That we need to make government more efficient."
Villaraigosa's comments came against a backdrop of fiscal gloom. Lawmakers closed an 18-month, $26.6 billion budget deficit this year primarily with spending cuts and the hope that tax revenue would continue to rise in a rebounding economy. The rebound has stalled and tax revenue has since reversed, leading to the prospect of even deeper cuts to higher education, public schools and other services at the beginning of the year.
The mayor said the current taxing and budgeting systems are insufficient and are cutting too deeply into the state's safety net, schools, universities and infrastructure.
He advocated the governor and legislative leader convene a commission on tax reform. He suggested that a major component be a split tax roll, in which caps remain for residential properties but are lifted for businesses. He estimated that such a move would raise between $2.1 billion and $8 billion a year, money the state could invest in education and lower property taxes for homeowners.
He said the impact on business would be softened if the changes are phased in gradually.
"You don't have to agree with every one of my ideas to acknowledge that a grand bargain is the only way out. A big solution is the only way forward," he said.
Villaraigosa said Proposition 13 was intended to protect homeowners from skyrocketing property taxes, not provide a tax-giveaway to corporations.
Any attempt to change the initiative will be met swiftly by opponents and advocated of limited government. Anti-tax advocates and business groups moved quickly Tuesday to criticize the idea as an attack on small businesses.
Jon Coupal, president of the Howard Jarvis Taxpayers Association, said Villaraigosa's proposal makes no sense at a time when businesses large and small are struggling and the state has the nation's second highest unemployment rate. A group of concerned Los Angeles business leaders issued a letter to Villaraigosa urging him to drop the proposal.
"There's a correlation between a favorable tax-and-regulatory climate (and) economic development," Coupal said. "What he is suggesting is making that tax-and-regulatory climate worse for business, which will hurt California's employment situation, not help."
Brown's spokesman, Gil Duran, said the governor has not had a chance to speak to the mayor directly about his proposal but looks forward to hearing the mayor's ideas.
"Like Gov. Brown, Mayor Villaraigosa believes both sides must stand up to the ideologues and do what's best for California," Duran wrote in a statement.
Former Republican Gov. Arnold Schwarzenegger had convened a bi-partisan tax commission to try to smooth out the fluctuations in state revenue but its proposals never gained traction.
Proponents of the split tax roll say Proposition 13 has shifted the property tax burden from commercial property owners to homeowners. Lenny Goldberg, a lobbyist with the labor-backed California Tax Reform Association, said businesses, particularly those that invest in commercial real estate, are often able to evade property assessments when there's a change in ownership.
For example, Goldberg said the famous Beverly Hilton Hotel in Beverly Hills was not reassessed when it was bought out by the Blackstone Group, a private equity firm. The property's value is still assessed far less than neighboring properties.
"It's time to address the unfairness inherent in a system that allows Wall Street hedge fund managers to devise complex real estate investment trusts that give the super-rich a free pass on the taxes every ordinary homeowner in California has to pay," Villaraigosa said.
Pro-business groups like the California Taxpayers Association say small businesses wouldn't be able to absorb rent increases at commercial buildings, shopping centers and business parks if split roll were enacted.
Any major changes will be daunting.
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Proposition 13 can only be changed by a two-thirds vote of the Legislature or through an initiative process approved by voters. In 2009, San Francisco County Assessor Recorder Phil Ting failed to obtain enough signatures for an initiative that would have placed the split roll question before voters.
The mayor also backed an effort to allow local school districts and local governments to raise taxes on a majority vote, rather than two-thirds. Coupal said the mayor's ideas are nothing more than a push by labor to increase taxes.
"Unless they've changed their tune, we believe the public employee unions just want more revenue and that's pretty clear in their agenda and that's contrary to what businesses and families want," Coupal said.