By Benjamin Mark Cole with the Los Angeles Garment and Citizen
Recognition from the LA Times.
The huge country clubs of Los Angeles — situated on some of the world’s most valuable land but protected from property tax hikes since 1978 and the passage of Proposition 13— may be improperly enjoying that tax loophole, according to Los Angeles County Assessor Rick Auerbach.
In response to written and telephoned questions, Auerbach recently said that he is not sure if country clubs deserve their protected tax status, adding that he is uncertain whether the issue has ever been fully tested in a court of law or even by thorough regulatory review.
Auerbach, a 37-year veteran of the assessor’s office and something of a don of property tax experts in Southern California, said he has referred the question of whether Los Angeles’ country clubs should face reassessment to the State Board of Equalization (BOE). The BOE issues property tax regulations based on state tax code, and those rules are ultimately sanctioned by the state court system.
A BOE spokesman recently confirmed that the matter is under review.
[Los Angeles County Assessor Rick Auerbach says he has asked state officials to clarify whether country clubs should continue to enjoy protections afforded commercial property under the state laws and tax codes that govern the implementation of Prop 13.]
The landmark Proposition 13 was a ballot measure passed by voters in a statewide referendum in 1978, and allows for reassessment of residential and most commercial properties only after a sale. Homeowners feared being taxed out of their homes in the recurrent rounds of house appreciation that characterize the state’s real estate market.
Prop 13 became section 13A of the California State Constitution—yet was so obliquely worded as to be meaningless when applied to commercial properties and transactions. Nearly forgotten today is the degree to which Prop 13 focused on residential properties to the exclusion of all else. To this day, 13A does not include the words or concepts of “partner,” “unit,” “stock corporation,” ‘commercial” or “equity-member country club.” Voters apparently did not consider commercial properties or commercial ownership formats worth mentioning or protecting in the language of the proposition, and those words are not in the state’s constitution, even today.
After Prop 13, state legislators passed new sections of the California Tax & Revenue Code, upon which BOE later issued regulations—and in that welter of rules and laws, commercial properties were included under the Proposition 13 umbrella. Stock ownership and various partnerships have been protected from reassessments ever since.
It has been assumed, to date, that Los Angeles country clubs belonged in that group of protected properties. But that assumption is no longer clear, said Auerbach.
The country clubs sprinkled around the Westside of Los Angeles County are nearly an unimaginable apparition on the current real estate landscape. Consider the Los Angeles Country Club, which covers 313 acres on the Westside—a verdant, sweeping swath of mostly underdeveloped land used largely for golfing and upscale socializing, all on hundreds of acres of some of the world’s most expensive real estate.
[The Los Angeles Country Club pays less than $200,000 a year in property taxes, less than the tab for a nearby single family home that recently changed owners. Photo credit: dsearls from Flickr.]
Yet records kept by the County Assessor’s office confirm that the 313 acres have an assessed value of $17.6 million, or approximately $5,623 an acre. The club pays taxes at a rate of a little more than 1% percent of the current assessed value, or less than $200,000 a year. That’s less than the price of keeping two Los Angeles Police Department (LAPD) officers on the streets.
Compare the Los Angeles Country Club’s deal to the recent City of Los Angeles agreement to buy a 0.8-acre parcel of land on the 400 block of Spring Street, a sometimes gritty stretch of Downtown. The city agreed to pay $5.1 million for the land, slated to be a city park—about 1,000 times the assessed value of the real estate of the Los Angeles Country Club, on a per-square-acre basis.
What is the Los Angeles Country Club’s land worth in the terms of the actual marketplace? How much would the 313 acres sell for in the open market, free of any zoning impediments? It’s difficult to determine the value in a free and open market value, but in 2007 the British real estate outfit Candy & Candy paid $500 million for eight acres of entitled land in Beverly Hills, a site already approved for 252 luxe condos. That’s $62.5 million an acre. At that rate, the LACC’s land, if entitled, would be worth $19.5 billion. Add some actual development such as luxury condos—and the value would go way up, in a good real estate market.
By another measure, a single-family home at 500 S. Mapleton Drive—right on the edge of the Los Angeles Country Club, and adjacent to the famed Playboy Mansion—sold for a bit more than $18 million less than a year ago, according to the Los Angeles County Assessor’s office.
The new owners of that Hefner-adjacent single-family detached house will pay more in annual property taxes than the entire Los Angeles Country Club.
Based on the Mapleton Drive sale, if the Los Angeles County Club was developed only with low-density single-family housing on two-acre lots, annual property tax revenues on on the 313 acres would rise from the current $200,000 to $25 million—the equivalent of enough to put 250 more cops on the streets.
The Los Angeles Country Club is hardly alone. Just a few miles away sits The Hillcrest Club, a Jewish private recreational institution established in the days of yore, when the “better” clubs restricted membership. Hillcrest includes approximately 125 acres along the south side of West Pico Boulevard at Motor Avenue, and a nice golf course. The assessor’s office says Hillcrest is worth $7.4 million—less than the price fetched by nearby houses and condos. Hillcrest pays less than $100,000 a year in property taxes on its spread.
The Bel Air Country Club has an even better deal. The club’s 121 acres are some of the world’s most exclusive real estate—the spot where billionaire Howard Hughes once landed a private airplane in a successful effort to woo actress Katharine Hepburn. The County of Los Angeles appraises the club’s land at $5.4 million. Members pay a little more than $50,000 a year property taxes.
County records indicate that the situation is nearly identical at the Mountaingate Club, the Wilshire Country Club, the Brentwood Country Club, and Rolling Hills Country Club—all of which sit as vast swaths of emerald green acres with enormous untapped development and job-generating potential—and paltry property tax bills. And even the federal government cannot tax the country clubs: They are 501-c non-profit corporations, and do not pay federal income taxes either.
[Left to right, Rancho Park Golf Course and Hillcrest Country Club. Photo from dsearls from Flickr.] As to why country clubs had such low assessed values back in 1978, no one at the County Assessor’s office seems to know anymore. Some observers speculate that the clubs were treated as non-profits in a part of town that was much less developed in the 1950s and 60s, and that the low assessments simply carried over into the 1970s. And those low assessments have been locked in ever since 1978.
As most homeowners know, Proposition 13 bars reassessment unless a property changes hands. But under this umbrella, some property--especially any owned by stock corporations, such as Chevron Corp. for example—legally never changes hands, as defined by state legislators and the state Board of Equalization.
The question that has vexed County Assessor Auerbach—whether country clubs qualify for the Chevron Corp.-type breaks on property taxes—revolves around ownership: Legally speaking, has ownership of the country clubs changed hands in the 30 years since Proposition 13 passed?
Members of country clubs actually own the clubs through something called “equity shares.” State laws and rules say that a change of hands involving more than 50% of the ownership is enough to trigger reassessment. It’s nearly certain that the memberships of some country clubs in Los Angeles have turned over by more than 50% since Prop 13 passed in 1978. Members die, retire, or move out of town.
But the country clubs have not been reassessed.
The reason cited by BOE staffers lies in Section 64 of the state Revenue and Tax Code, which embodies the legislative interpretation of Proposition 13 as it pertains to commercial properties with multiple owners.
In both law and regulation, in cases in which a property is owned by legal entity such as a corporation, there is no change in ownership, or reassessment, unless 50.1 percent of the corporation shares have clearly changed hands.
Section 64 reads as follows: “(T)he purchase or transfer of ownership interests in legal entities, such as corporate stock or partnership or limited liability company interests, shall not be deemed to constitute a transfer of the real property of the legal entity.”
Meanwhile, the state Board of Equalization—not state voters—has issued Property Tax Rule 462.180(c), which states “The purchase or transfer of corporate stock, partnership interests, or ownership interests in other legal entities is not a change in ownership of the real property of the legal entity, pursuant to Section 64(a) of the Revenue and Taxation Code. “
There’s some sense in the legalese. Stock corporation ownership is a fluid matter, with institutional investors—pension and stock mutual funds and others—buying and selling shares daily. Who actually owns a large stock corporation? Ultimately, an amorphous mass of millions of people in pension systems, insurance policies, or others represented by institutional investors.
But that reality of a modern stock corporation is a long way from country clubs, where it can be easily determined whether ownership has in fact changed in the last 30 years. However, the county assessor’s office has not even checked.
“Whether such equity clubs (the country clubs) should get reassessed is an unanswered question at this time,” County Assessor Auerbach said, adding that the nebulous nature of current rules and laws has led him to request a clarification or new rule from the BOE.
“I see no evidence that question has been asked in the past,” Auerbach added.
Even the Sacramento-based California Taxpayer’s Association (Cal-Tax), a robustly pro-business organization noted for its powerful support of Proposition13, is mute on the matter of whether country clubs should now be reassessed.
David Doerr, who serves as chief tax consultant for Cal-Tax and is widely regarded as one of foremost experts on California's Revenue and Taxation Code, said through spokesman David Kline: “We are not familiar with the country clubs in question, their structure or their assessments, we can't provide any assistance for your story.”
Reporting for this story has been made possible with the financial support of Spot.Us, an Internet-based non-profit organization that raises funds for independent reporting. Labeez.org, a website that has been established by New America Media and features coverage from various ethnic publications in the Los Angeles area, is a contributor to Spot.Us. The Garment & Citizen is a member of Labeez.org.
[Image from dsearls from Flickr.]
By Benjamin Mark Cole
In real estate and urban planning circles, the mantra “highest and best use” describes a development paradigm in which an unfettered free market determines how each parcel of property is built up, or left fallow. The theory is that a free market—and an unbiased system of property taxes—leads to the best development.
It seems clear that Los Angeles’ country clubs, sitting on land of nearly incalculable value, would be intensely developed in a free market, and that the land lies fallow (developmentally speaking) only because of its protected status. By any reasonable measure of “highest and best use” and consequential taxation, the property taxes on the Los Angeles Country Club would rise by several hundred fold.
Though it may seem an outlandish practice to assess property taxes on country club land as if it were developed for highest and best use, that in fact is the law of land—in that pro-business state of Texas. In the Lone Star State, commercial property is routinely taxed at a rate consistent with highest and best use, even if the land is fallow. Until this November, even residential property could be unilaterally reassessed in Texas—indeed an assessor could upzone residential property for its highest and best use as a commercial property.
Texas homeowners stopped that practice with their own initiative this November, but the reassessment to highest and best use is still law of the land in Texas when it comes to commercial property.
Put the Los Angeles County Club in Texas, bordered by expensive housing, and it would likely be reassessed to highest and best use, especially if it were in Houston, which has no zoning regulations. And assessing the Los Angeles Country Club to the highest and best use would likely result in a radical increase in property taxes, thus all but compelling the development of the land.
Such country club development would initially bring with it thousands and thousands of jobs in architecture, construction, finance and related professional services. Then would come sales for furniture stores, designers and squadrons of cabinet-makers, painters and a whole host of other trades-people. Retailers in the area would permanently enjoy increased trade, as would professionals, such as lawyers, dentists, accountants and the like.
Property and sales tax rolls would be nicely fattened by the kinds of upscale property owners who generally put less of a burden on public services.
From strictly a business, economic and public revenues point of view, development of the county clubs appears to make sense. The doctrine of highest and best use seems to have its merits.
Not everyone agrees, though. Some say stability in property taxes is more important than real estate development.
“One of the few benefits we have in California to attract business is that they know what their property taxes will be,” says Kris Vosburgh executive director of the Howard Jarvis Taxpayer’s Association, an advocacy that’s named for the man who served as a driving force behind Prop 13. “People and capital can move where they want to, and we already have one of the highest tax burdens in the country.”
[Image from dsearls from Flickr.]
But a city breathes not only money. In today’s world, for a metropolis to prosper, people must enjoy living there. In the post-industrial economy, large businesses such as a Capital Research & Management, Cisco or Microsoft, or any number of smaller consulting firms, software gurus or investment shops, can locate where they wish—and, in general, they choose to locate where the living is good. The quality of life is a business retention tool, and parks are part of the quality of life.
Check a map of the Westside and you’ll see plenty of large splotches of green. Look closer and you’ll find they are country clubs, not public parks.
The private patches of green space stand out more when considered against data showing Los Angeles ranking last in terms of open public space on a per capita basis. The National Recreation and Parks Association recommends 10 acres of park space per 1,000 residents. Los Angeles has barely reached 10% of that standard, with a mere 1.107 acres per 1,000 residents, according to the Los Angeles Neighborhood Land Trust.
In terms of accessibility, even that low figure is a bit misleading; it includes a few wonderful yet behemoth refuges such the 4,000-acre Griffith Park.
Of course, Griffith Park and its smaller sister Elysian Park are air-freshening greenbelts, and great for mid-city residents—but are far away from other parts of the city. The City of Los Angeles needs more parks where people live and walk.
As thrilling as it might be, the City of Los Angeles probably cannot financially afford to seize the thousands of acres tied up in country clubs by eminent domain and turn them into parkland. A related Henry Georgian idea of “fair play” and paying the country club property owners the assessed value for their land also has appeal, but probably not doable either.
But there is a solution that could generate hundreds of acres of parkland for Los Angeles, develop more jobs, and make the country club owners a sizable boodle too: Convert 10 percent of country club acreage into super-luxury high-rise mixed-use developments, and turn the remaining 90 percent of green space into well-scrubbed parkland with maintenance revenues derived by special districts.
Remember that eight acres in Beverly Hills that the Candy Brothers bought? Zoned for 256 condos and worth $500 million? How about 12 acres on the former Bel Air Country Club, zoned for 2400 luxury high-rise condos, each with breathtaking views of a 100-acre urban park? Think of New York City’s Central Park--and then several such parks on the Westside. It would make sense to upzone acreage around the parks so that condo towers could take advantage of the greenery and views. Additional billions in property tax value could be created, and additional billions in construction business would come to Los Angeles, the first wave of improved business for many Angelenos.
And, the country clubbers could adapt. Surely, a few floors of the new luxury condo towers could be set aside for club activities. There are nice clubs in town—the Jonathan Club, the California Club, the Regency Club—that are largely indoor bastions of the wealthy. And country clubbers, instead of paying heavy dues, would earn heavy dividends from their land sale. Yes, they would be dispossessed, but they could cry all the way to the bank.
To be sure, not everybody wants even more density on the Westside, even if the payoff is more public parkland. Traffic is miserable already. Yet the answer to Los Angeles commute catastrophes is not less construction, but more—and in the city. The answer is in shorter commutes and good mass transportation. The simplistic “no more building” solution is bad for business, and vaguely antidemocratic—is there not a whiff of pulling up the drawbridges after you got yours?
Interestingly enough, some of the most Republican enclaves—try Newport Beach—have the strictest anti-growth measures in place. Everybody believes in free enterprise, except when they don’t. On another level, one might complain that what is needed in Los Angeles is not luxury housing, but affordable housing. True, but any increase in the total supply of housing also helps overall affordability. The housing market, after all, is one of supply and demand. More supply, and prices have to come down. More in-town building is inevitable, or should be—and better near job centers than in ever-expanding suburbs, …and better we get gorgeous parkland as a trade.
In any event, the laughably low property taxes paid by country clubs of Los Angeles should not be allowed to stand. The tax dodge, favoring our wealthiest citizens, is something one would expect to find in the post-colonial Philippines, not modern-day Los Angeles.
[Marineland once drew visitors to the Palos Verdes peninsula, one of a number of tourist attractions and novelty parks that used a lot of land in the region through the 1970s but have disappeared since then.]
It is worth noting that many, many of the colorful but intensive land-using businesses of yesteryear have disappeared from the greater Los Angeles area while the country clubs have thrived.
Marineland is gone, as is the Ascot Park racetrack in Gardena (where “Whoa Nellie” Dick Lane used to broadcast for the old KTLA Channel 5), the Japanese Village and Deer Park in Buena Park, and Gilmore Field near Park La Brea. Threatened is the Hollywood Park, thoroughbred racetrack, slated for final season next year and perhaps destined to be the site of another mixed-use mall. No more Gay’s Lion Farm (with 200 lions!) in El Monte, or even Kiddyland and the pony rides, now home to the Beverly Center mall.
The change from rural to semi-rural to urban is always littered with misty stories of halcyon days gone by. Any number of crocodile farms, drive-in movie theaters, or pony rides have disappeared—none of these sometimes iconic enterprises were worth saving, said city and business leaders, either for cultural elan, or for the jobs.
Yet the country clubs have endured, saved by generous tax breaks and wealthy benefactors. But unlike some the vanished businesses, country clubs are paltry job generators.
According to the Club Managers Association of America, even better clubs nationwide had annual revenues of about $13 million apiece—nice, but truly just small businesses. It may be that the money-soaked Los Angeles clubs have larger revenues than the national average, but not enough to be considered serious job generators. The biggest clubs probably employ no more than 350. Any mid-sized factory generates more employment, and more boost to the local economy (country clubs, unlike tourist hotels or factories, generally do not bring much money into our regional economy).
It is another perspective on the warping influence of special property tax protection for Los Angeles country clubs.
Largely outside public purview, country clubs today are still a hot ticket. To join the Rolling Hills County Club as an equity (part-owning) member will set one back more than $100,000, and then nearly $1,000 a month in fees—but evidently Rolling Hills is far from the apex, country-club wise. (Clubs do not discuss fees with reporters, or nearly anybody else).
Back in 1994, in an interview with the magazine Cigar Aficionado, the late comic Milton Berle explained joining Hillcrest in 1932, and its then-current fees of 1994:
“It cost me $275 to join in those days,” Berle said. “Now the initiation fee is $150,000, if they'll accept you, which all depends on how much money you've given to the United Jewish Appeal.”
[The famed comedian pegged the cost of joining of Hillcrest at $150,000—back in 1994.] The clubs do not divulge joining fees, but upscale golf magazines hint at the $200,000 to $300,000 range as a starter.
But you can’t just join. In general, you have to be vetted by current membership—you have to be asked, often by two existing members. After all, it’s not like the clubs need the money—their tax burden is obviously very, very reasonable.
Originally published in the Los Angeles Garment & Citizen with funding from Spot.Us. Written by Benjamin Mark Cole.
Recognition from the LA Times.
Print copies available.
This article will be printed in this weeks LA Garment and Citizen which can be
found in dozens of newsracks Downtown. Most of our racks are located on the eastern side of Downtown, with one on each block of Broadway between 2nd and Olympic, and nearly every block of the same stretch on Spring. Some racks on Main, and the Echo Park racks are generally along Sunset. Racks on the western side of Downtown are limited, but 7th & Hope is a good corner, with one just at the subway entrace on the northwest corner, and another in front of Macy's plaza on the southwest corner.
December 18, 2009 Mark Paul This story missed a key fact. California Constitution has provision limiting assessment of nonprofit golf courses to their value for golf. Prop. 13 is only a minor part of the problem here. See below:
CALIFORNIA CONSTITUTION
ARTICLE 13 TAXATION
SEC. 10. Real property in a parcel of 10 or more acres which, on
the lien date and for 2 or more years immediately preceding, has been
used exclusively for nonprofit golf course purposes shall be
assessed for taxation on the basis of such use, plus any value
attributable to mines, quarries, hydrocarbon substances, or other
minerals in the property or the right to extract hydrocarbons or
other minerals from the property.
It's perhaps not a coincidence that among the worst traffic in the county is the area of town with the most country-club golf courses. Cutting some roads through these properties--new east-west routes, particularly--would be the greatest gift, of time, money, and relative ease--to hundreds of thousands of people who struggle through Westside jams each day.
Too bad this report missed the central story. The golf courses got their property tax protection from voters! To provide a environmental benefit! The argument for the measure, Prop 6 in 1960, was signed by both Gus Hawkins, the famous black lawmaker and Mrs. Bob Hope! There's great stuff to be reported here. Get back to work.
Will look into the point you raised,
Jerry Sullivan
http://www.leginfo.ca.gov/.const/.article_13A
I see no mention of golf courses in the state constitution.
I did not mention the 50-year-old Prop 6, as I did not want to confuse readers with another Prop, especially as I already cited state tax and revenue codes and even BOE regulations in relation to Prop 13. At some point, the copy has to stop.
Indeed, Prop 6 prevents county assessors from assessing land to highest and best use--a topic we dealt with extensively in the story. If you read the whole story, this is in fact a central feature of our story. We did not miss the central story.
Interestingly, in the 1950s, private golf course were being taxed on the basis of surrounding land values in Los Angeles County--to highest and best use, in other words. As to be expected, private golf courses were leaving the area--precisely the free market development pattern that free markets would dictate. Golf courses should locate "further out" to cheaper land.
It is worth noting that the Riviera Club, in Los Angeles, was reassessed in 2002 following a sale of the whole club in a single transaction to Japanese investors--new assessed value $92 million, about 10 times the old value. Prop 6 did not stop reassessment, though it does prevent taxing to highest and best use.
Mark Paul, my phone number is 213 259 5598. I am puzzled by your first cite and the tone of your comments. Please call me.
Did you get the assessed value of the Wilshire Country Club? It would be a great park in an area of the city that could REALLY use one.
An acre of trees absorbs enough CO2 over one year to equal the amount produced by driving a car 26,000 miles. Furthermore, an acre of trees can produce a constant supply of fresh oxygen to 20 persons or more. 200 acres of urban forest would supply new fresh air to 4,000 people in the immediate area. The other 113 acres of LACC would be used for parkland (also with trees) , walking/jogging trails, new local tree-lined roads, bikeways, and of course, high-density development (with green roofs). Has anyone been to the netherlands to see how they work? They surely are the masters at modern development, many times better than anything we're doing here in the states. The four edges of the LACC plot could be designed with the most modern netherlands-like urban planning sophistication, connecting that part of the city to itself and reducing congestion by encouraging small commutes, safe bicycle use, and walking - all supposed to be inherent in a high-density environment. Unfortunately, LA has been building as if we never left the 60s. Stupid buildings that hog energy and close themselves off from the street and only serve to clutter the skyline. LA is a city people dread visiting for extended periods of time - why? - because it's considered a dirty mess with absolutely no public amenity (save the beach and the few hill parks). This parks strategy with some well planned revenue-garnering development is a win-win-win, really. The golf courses now are pretty much a lose-lose-draw (the draw comes from being able to play golf and socialize - which benefits a handful with golf... when they could be making money via their shared equity... can anyone say 'duh'?). Let's try and think modernly about things. All the help we can give to the city of LA we need to give, and we need to give now.
