Don't Let Arsonist Professors Play With Matches or Prop 13 for Commercial Properties in California

Pasadena Sub Rosa ^ | March 16, 2009 | Wayne Lusvardi

[WayneLusvardi]

Long ago when we were children we heard our parents say "don't let little boys play with matches." Two grown up California university professors want to torch what they believe are inequities with California Proposition 13 for commercial properties.

These two professors can be likened to the two financial wizards from the University of California who invented the formula for derivatives resulting in the recent reduction of much of our financial system to ashes. But at least the professors who invented the formula for derivatives didn't intend to burn down our economic system. Not so for our two professors who want to take a flame thrower to Prop 13.

Ralph E. Shaffer and Walter P. Coombs, retired Cal Poly Pomona professors have written "Guest View: Fix Inequities in Prop 13" in the March 14 issue of the Pasadena Star News. http://www.pasadenastarnews.com/columnists/ci_11913520

Undisclosed is that Schaffer and Coombs also write for PoliticalAffairs.Net-Marxist Thought Online. Politically speaking at least, they are professional arsonists - they want to burn down our financial system and economy and the value of your house while calling it egalitarianism.

Shaffer and Coombs want the inequities in Prop 13 rectified, meaning the unequal application of assessments to properties and especially the lagging reassessments of commercial properties. They believe these inequities are discrimination that violate equal protection clauses of the law. While they don't disclose their Marxism, like true Marxists they want everything equalized in society. And fire is a great equalizer.

Shaffer and Coombs haven't got a clue what they are writing about. Let's just focus on the inequities of Prop 13 which lock in old assessments on commercial and industrial properties that don't turn over very frequently and ignore for the moment all the other gross factual errors in their guest editorial.

What would happen in California if just commercial and industrial properties were no longer protected from annual reassessments by Proposition 13? Answer: this would spark a fire that would further collapse home prices across the state and put uncountable numbers of homeowners into foreclosure as well as putting lenders in need of Federal bailout monies (TARP).

But how would increasing the property taxes on commercial and industrial properties have anything to do with home values, you say? Here's where playing with matches would start a fast spreading fire: Small Business Administration (SBA) loans are typically secured by the collateral in personal homes. If you raise the property taxes prematurely in a depressed real estate market before a commercial-industrial property would normally re-sell, the small businesses would likely default on their SBA loans triggering foreclosure actions on their collateralized residential properties.

This is because declining retail and industrial sales results in difficulty in making mortgage payments for commercial property owners; and stress on tenants in shopping centers and industrial parks in paying rent. In a downward spiraling economy and real estate market with increasing commercial space vacancies, this is a sure fire recipe for a burning the house down, or at least the the value of the house down.

As far back as October 2008, the website smSmallBiz.com reported that lenders were wary of making SBA loans because of declining collateral value, particularly the value of homes in California. http://www.smsmallbiz.com/capital/SBA_Backed_Loans_Dry_Up.html

But you ask, how much impact would SBA loan defaults have? The February 24 issue of the Wall Street Journal gives us a glimpse (see "Defaults by Franchisees Soar as Recession Deepens," Wall Street Journal, Feb. 24, 2009). http://online.wsj.com/article/SB123544165161055467.html .

According to the WSJ it is mainly retail business franchisees that are defaulting on SBA loans - read below:

[start quote]From ice-cream parlors to tanning salons, franchisees' defaults on loans guaranteed by the U.S. Small Business Administration are piling up in amounts unseen in years. A list of loans at 500 franchises shows the number of defaults by franchisees increased 52% in the fiscal year ended Sept. 30, 2008, from fiscal 2007. Loan losses totaled $93.3 million, a 167% jump from $35 million just 12 months earlier

The annual list, which shows the number of loan failures for the year and failure rates over eight years, is compiled by the SBA and published by the Coleman Report, a lending-industry trade publication based in La Canada, Calif.

The franchise brands where at least 11 franchisees defaulted on loans during the 2008 fiscal year were: Aamco Transmissions, Carvel Ice Cream, CiCi's Pizza, Cold Stone Creamery, Curves for Women, Domino's Pizza, Dream Dinners, Planet Beach tanning salons, Quiznos, Subway and Taco Del Mar [end quote].

I believe all of the above-listed franchises are found in Pasadena or the Pasadena area.

So if we compound the already existing smoldering fire of SBA loan defaults by removing the tax protections of Prop 13 at the same time what will result would be a financial fire storm leaping from rooftop to rooftop. Think of the Great San Francisco Fire and Earthquake of 1906, only burning up property values all across California.

But California newspapers seem only interested in printing guest editorials by those who can create controversy and thus boost sales and online views. They don't care to check out whether the writers are, at least metaphorically speaking, Marxist arsonists hell bent on ruining our financial system and our property values. After all, Karl Marx once wrote "the theory of Communism may be summed up in one sentence: abolish (burn down) all private property." That is why we shouldn't allow two grown up professors such as Ralph E. Schaffer and Walter P. Coombs, both from the California State University system, to have anything to do with matches or Prop 13.

[jiggyboy]

A few of us here on FR have been (occasionally) predicting for a number of years now that it’s only a matter of time before the California pols start trying to nibble away at the foundations of Prop 13.

Many people and corporations are leaving the state simply because they can. Illegals are a drain. The main taxcow remaining is the property owner.

[WayneLusvardi]

Property taxes in California will actually be increasing during the current recession due to the auto pilot provisions of Prop 13. So Prop 13 actually protects local governments from revenue losses, something its critics don’t mention.

Read: “Property Taxes to Increase Despite Falling Home Values,” San Diego Union Tribune, March 16, 2009, link here:
http://www3.signonsandiego.com/stories/2009/mar/16/1n16proptax22459-property-taxes-increase-despite-f/