Posted on 08/14/2003 11:38:18 PM PDT by BurbankKarl
Schwarzenegger Adviser Buffett Hints Property Tax Is Too Low
Targeting State's Proposition 13 Is Unlikely Republican Stance By JOSEPH T. HALLINAN Staff Reporter of THE WALL STREET JOURNAL
Warren Buffett, the billionaire financial adviser to Arnold Schwarzenegger's campaign for California governor, strongly suggested in an interview that the state's property taxes need to be higher.
Mr. Buffett, the chairman of Berkshire Hathaway Inc., took on California's famous Proposition 13, which has limited property taxes there since 1978. As an example, he pointed out the difference between his own property-tax bills for homes he owns in California and Nebraska.
His home in Omaha, he said, is valued at roughly $500,000. His current yearly property tax bill on that home: $14,401.
In California, he owns a Laguna Beach home valued at $4 million, or eight times as much. The annual property taxes on that home are just $2,264 -- a fraction of what he pays in Omaha.
More to the point, said Mr. Buffett, the taxes on his Omaha home rose $1,920 this year, compared with $23 on the Laguna Beach home. Mr. Buffett attributed the scant jump in California to the restrictions of Proposition 13, which generally limits property-tax increases to 2% a year, no matter how much the value of a property appreciates.
Mr. Buffett stopped short of saying he would urge Mr. Schwarzenegger to seek a reversal of Proposition 13 to increase property taxes -- a move that would almost certainly be attacked by many of Mr. Schwarzenegger's fellow Republicans. But he left little doubt that that is where he is leaning.
"This property-tax illustration, that tells you, you can draw certain conclusions from that," said Mr. Buffett. Noting that tax assessments also vary widely, he said of the tax system, "In effect, it makes no sense."
"But you've got to look at everything," he added. "I took the job yesterday. And it's going to be his [Schwarzenegger's] policies. Any advice I give is going to be to him."
The state has been roiled by financial troubles tied to the economic downturn and the recent state energy crisis, factors fueling the effort to recall Gov. Gray Davis. Standard & Poor's Corp. has downgraded California bonds to a triple-B rating, the worst in the nation and two notches above junk-bond status.
Proposition 13 limits on property taxes aren't directly responsible for California's current fiscal problems, which had the state facing a deficit of $38 billion for the fiscal year that started July 1. But in general, the limitations on property taxes have forced state government to rely on other taxes, such as the personal income tax, and to engage in complicated maneuvers to reallocate the state's revenue and help entities that faced funding gaps, especially schools. Even with those constraints, state spending grew faster than inflation in the 1990s, but then leveled off and is down this year.
Mr. Schwarzenegger, like other candidates, has vowed to improve the state's fiscal picture. But suggestions that tax increases could be an answer could represent a problem for Republicans and the Bush White House, who have pursued tax cuts as the best way to improve the economy overall. Democrats are sure to leap at the contradiction, and the Buffett comments may likely to deepen the biggest fear of many national Republicans: that the moderate views of Mr. Schwarzenegger, for all his appeal as a candidate, could spark infighting within the party.
Sean Walsh, a spokesman for the campaign, said, "The proposals and courses [Mr. Schwarzenegger] chooses will be his own." The campaign announced late Thursday that Mr. Buffet and former Secretary of State George P. Shultz will co-head an "Economic Recovery Council" to advise the campaign, and he said that Mr. Buffet's voice would be one among its members. "The breadth of economic and financial views will be presented to Arnold," Mr. Walsh said.
In the interview, Mr. Buffett also said people approached Berkshire Hathaway and other financial firms a few months ago on behalf of the state of California, seeking to secure buyers for the state's bonds if necessary. "California was looking in the financial market for, in effect, a 'put,' or guarantee, by financial institutions that they would be able to come to market with bonds about nine months hence," said Mr. Buffett.
A spokesman for the California Treasurer said the department had "no knowledge of any state representative approaching Mr. Buffett." Steve Peace, California's director of finance, said investment bankers might have initiated such a discussion, but not with any official authorization by the state of California. He said the bond issue most likely involved -- a $10.7 billion limited sales tax bond -- has not yet been issued.
Mr. Buffett said that in the discussion with Berkshire Hathaway, the state was willing to pay 0.75 percentage point, or about $80 million, to firms such as Berkshire if they would agree to buy between $10 billion and $11 billion in bonds.
"That's a lot of money to pay for a put," said Mr. Buffett. "It's a couple bucks for every citizen of California." Just a year earlier, said Mr. Buffett, the fee for such a put was just 0.18 percentage point. "I thought about doing it," he said, but decided against it. Berkshire, he said, owns no California bonds.
Mr. Buffett's comments come a day after he startled many political observers by jumping into politics in the nation's biggest state, especially on the side of a Republican candidate. He is usually associated with Democratic causes. "I don't worry about that," he said. "I vote for far more Democrats than I vote for Republicans. But I vote for plenty of Republicans."
Among Mr. Schwarzenegger's competitors for the governor's seat is a longtime acquaintance of Mr. Buffett, former baseball commissioner Peter V. Ueberroth, who sits on the board of the Coca-Cola Co. with Mr. Buffett. Mr. Buffett said he hadn't known Mr. Ueberroth would be a candidate. Referring to Mr. Ueberroth and former Los Angeles Mayor Richard Riordan, another candidate, he said, "Peter is very able. Dick Riordan is very able. But Arnold, he's a very smart fellow. He has brains and muscle. Some of us have neither."
Through Berkshire, in which he controls about a third of the shares, Mr. Buffett has billions of dollars invested in the state of California. Those holdings include about $2.67 billion in stock of San Francisco based Wells Fargo & Co., along with other businesses, such as See's Candies and MidAmerican Energy Holdings Co., the nation's third-largest owner of natural gas pipelines. MidAmerican does substantial business in California. Its Kern River Gas Transmission Co. operates a 926-mile pipeline from Wyoming to the San Joaquin Valley near Bakersfield, Calif.
"The truth is California has got very serious financial problems," Mr. Buffett said. "It's an economy that's the size of France and there's no way the U.S. is going to have a healthy economy if California continues to have the problems it has . . . I've got a selfish interest in this country doing well, no doubt about that."
Mr. Buffett said his preliminary assessment of California showed that the state's budget had depended on billions of dollars collected in capital gains taxes, much of it generated by the bull market of the late 1990s. "In effect," he said, "they set their financial planning based on a financial bubble." Now that those gains are gone, California's budget must be balanced by money from elsewhere.
"You're going to have to get it in balance -- and get it in real balance. And it is not in balance now," said Mr. Buffett. "And they have to do whatever is necessary on spending or taxes to get it in balance.
I'm trying to recall: Did Schwarzeneggar say something about "cleaning house in Sacramento", or did he say "clearing people out of their houses in Sacramento". Both Arnold and Buffet are savy Real Estate people. They KNOW what would happen if prop. 13 is repealed, and most likely, stand to cash in on it (i.e. they have substantial liquid assets to buy in on a foreclosure-rich market).
Color me skeptical.
SFS
Hardly.
He is a bigtime Democrat and Hillary-worshipper.
When he dies, his billions go to Planned Parenthood to help them destroy what's left of the rebublic.
No, he is a registered Democrat, and certifiably "big-government" guy (like his buddy ol' Bill Gates). He's especially a "big government" guy when he can profit from it at the taxpayer's expense ...er.. just like ALL Democrats!
SFS
The latter purchaser paid what that home was worth to him. Purely voluntary, nothing unfair about it.
Absolutely. Without lowering taxes and/or holding the line on spending, Republicans have NOTHING keeping us together as a party. If he can't deliver even this much, he won't be getting very many votes at all.
The thing about advisors is that he can listen to all of them and follow or ignore their advise as he sees fit. Arnold is a fan of Friedman and anti-socialist. I wouldn't worry about him raising property taxes or any other taxes.
I think he will pleasantly surprise people, especially Republicans and conservatives.
This bears repeating.
Buffett symbolically balances Kudlow and Friedman. That Buffett shot off his mouth is part of the package.
The Schwarzenegger infatuation with Friedman is a matter of long standing record:
In 1980 Friedman broadened his audience further with the publication of a book, "Free to Choose," and an accompanying PBS television series. Millions of people watched "Free to Choose" and came to understand how markets work. One viewer, a young actor named Arnold Schwarzenegger, said in 1994: "In Austria I noticed that people would worry about when they would get their pension. In America, they would worry if they were going to meet their potential. Friedman's books explained to me how a dynamic capitalist system allows people to fulfill their dreams."
And since their neighborhoods normally have lower assessments, property tax revenues would fall.
Should have more red lines than just that. Abortion, guns, the homosexual agenda, education...
If we did, the pols would get burned a few times, learn the lessons, and back off.
Property taxes went up 50%.
Go figure.
Sheessssh, it's late. That was a foolish statement. What was I thinking??!
Prop 13 limits the property tax to 1% of the valuation, frozen until the property turns over or improvements over $10,000 are made on it, when it can then be reappraised. There are a couple of ways they've worked around this hard barrier (special purpose tax districts for parks, etc.) and there's an increase permitted for inflation, but generally speaking, taxes remain about what they were when the house is purchased.
However, not only will the appraised value be "unfrozen", but the 1% limit would be voided as well. While 1% (plus special assessments) of $475,000 might be about $5,000, if the rate was raised to between 2-3% (as I believe it was in New Hampshire when I was on the East Coast for a year; I could be wrong), then the new property tax rate could be as high as $12,000-15,000 a year.
Now, THAT'S a cool piece of change that could fill in that nasty $38 Billion (illegal!) deficit, and provide Billions more for new Arnold-programs!
SFS
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