Special Interest May Be Hitching a Ride in State Reform Plan
The great thing about a 2,500-page blueprint for the
reorganization of state government, if you are an industry
lobbyist, is that it presents an infinite number of
cubbyholes in which to hide benefits for your clients that
you can't secure any other way.
Consider the bright idea embodied in recommendation GG 19
of the California Performance Review, the majestic
reorganization plan ordered up by Gov. Arnold
Schwarzenegger after his inauguration and unveiled to great
fanfare earlier this summer.
On the surface, the recommendation â€" one of a
dizzying 1,200 in the plan â€" looks laudable.
It would centralize the tax assessment of commercial
aircraft, now handled piecemeal by the assessors of about a
dozen counties with major airports, under the state Board
This fleet is currently valued for California tax purposes
at $9 billion, producing $90 million a year in property
taxes, so it shouldn't be a surprise that there's a secret
history behind the proposal that makes it seem not so
innocent. (That wouldn't be an isolated glitch in the
Performance Review, which has been accused by state
analysts of overstating its claim of $32 billion in
potential state savings by as much as $22 billion.)
To start with, there's the fact that the major forces
behind the proposed change are Southwest
Airlines Inc., UAL Corp.'s United
Airlines and the Air Transport Assn. of America, the
airlines' lobbying group.
They say it's all about making state government more
efficient. "The main thing is administrative convenience,"
says James Hultquist, the association's managing director
for taxes. "It's better for airlines and the state
to have a centralized approach."
Who can argue with that? The county assessors, that's who.
Says Lawrence Stone, the assessor of Santa Clara County
(home of San Jose International Airport): "This is a
back-door tax break for the airlines."
The airlines expect the Board of Equalization to be much
more indulgent than the counties, he says, contending that
they hope for a reduction of as much as 10% in their
combined bills right off the bat. Assessors also question
how much red tape the change would actually save. While
airplanes represent the bulk of airline assets, plenty of
airline property, from ticket kiosks to landing rights at
local airports, would still be assessed locally.
It turns out that California assessors and the airlines
have been waging a pitched battle over taxes for years. As
a class of property exempt from Proposition 13, aircraft
are subject to annual reassessments, based on a complex
formula involving flight schedules.
State law further requires counties to audit the airlines
every four years. The assessors say their audits keep
finding millions of dollars in underpayments that the Board
of Equalization might miss because it isn't required to
conduct such examinations. Los Angeles County Assessor Rick
Auerbach notes that L.A., which as the home of LAX levied
$32 million in airline property tax last year, found an
assessment deficiency of more than $100 million alone
(worth $1 million in taxes) in its last audit of one major
The airlines justly grouse that the current system produces
too much paperwork and leads absurdly to identical planes
being valued differently county by county. A few years ago,
the parties agreed to a formula to produce similar numbers
for similar planes. The system didn't work perfectly, and
the agreement expired this year.
The assessors say that when they offered to work out a new
system in 2003, the Air Transport Assn. responded by
drafting a bill to shift aircraft assessments to the Board
of Equalization, and having Sen. Dick Ackerman (R-Irvine)
sponsor it. The bill stalled in the Legislature, but it
didn't die: It merely got reincarnated as Recommendation GG
19 of the California Performance Review.
None of this would matter if the Board of Equalization
could be trusted to treat the airlines as rigorously as the
counties. Although the airlines say they wouldn't expect to
pay less in taxes under board jurisdiction, the assessors
contend that the board has always been soft-hearted with
business. Stone observes that while overall property
assessments in his Silicon Valley county soared by 35%
during the high-tech boom, the board was reducing its
valuation of utility properties in his county by 5%.
More worrisome, he adds, is that on one issue that has
brought the assessors and airlines to blows â€"
how to tax the software in aircraft navigation equipment
â€" there are signs that the board might be
willing to accept the airlines' position, which could
reduce aircraft valuations statewide by 10% at a
This brings us to the mystery of how GG 19 got into the
reorganization report in the first place. A few clues can
be found in the report's footnotes, which list as sources
for the recommendation a letter from a Southwest Airlines
lobbyist in Sacramento, an interview with a lobbyist for
American Airlines and the airline industry, an interview
with a Southwest Airlines executive, a memo from the chief
executive of the Air Transport Assn. and an e-mail from the
association's Hultquist. As for correspondence and
consultation with county assessors, there was none.
The result is a one-sided recommendation that simply
regurgitates a proposal already killed once by the
What's scary about this case is the thought of how many
more such questionable proposals may be slumbering in the
pages of the reorganization report. Each innocuous
provision that turns out to be a possible Trojan horse for
a special interest diminishes the reorganization plan a
little bit more. Find enough of these, and Californians may
simply throw up their hands and conclude that the whole
package is just another government fraud.
E-mail Michael Hiltzik at email@example.com.
See the article on Los Angeles Times website