History of Square Footage Taxation in Berkeley

by Leland Traiman  November 2020

Prior to the passage of Proposition 13 in June 1978 cities, counties, school districts and other special districts could increase property taxes to pay for service by a simple majority of a city council or district’s board.  These property taxes were all ad valorem taxes, which means taxes based on the value of the property.  Proposition 13 took away the ability of elected boards of counties, cities, and districts to raise taxes and instead required a two-thirds vote of the local electorate.  Additionally, Proposition 13 said that ad valorem property taxes could not exceed 1% of the assessed value.  This was a devastating blow to the budgets of all of California’s local entities.

Initially, most thought that only parcel taxes, where each parcel paid the exact same amount, could be passed with a two-thirds vote of the electorate.  Of course, this was inequitable as a large and a small parcels would each pay an identical amount.  A small one story one-bedroom home would pay exactly the same amount as a ten-story office building.

To cope with their budgetary shortfall the Berkeley City Council created the Citizens’ Budget Review Committee, and I was appointed to the committee by Councilwoman Florence McDonald.  Gus Newport was mayor at that time.  While the rest of the committee busied themselves with how to equitably distribute the City of Berkeley’s greatly reduced revenue, I decided to find a way to equitably raise revenue.  I came up with idea of taxing inside useable (defined as appropriate for business or residential use) square footage of buildings, referred to in legal language as “improvements.”  I found a positive correlation between value and square footage in Berkeley.  Therefore, a tax based on inside useable square footage would mimic ad valorem taxation.  This was essential because I knew Berkeley’s voters would demand equity.  Berkeley City Attorney, Michael Lawson, made the final draft of the measure for the ballot and the ordinance thereafter.  This idea eventually became the Library Relief Act of 1980 (LRA).

LRA totally funded the Berkeley Public Library with a significantly expanded budget.  LRA also took the library out of the City of Berkeley’s general fund freeing up money which could then be used for other city services. 

At some point, a commercial property questioned the legality of taxing garages under the LRA.  I had intended for garages to be taxed, but the wording of the ordinance was unclear thanks to Attorney Lawson’s sloppy wording. Therefore, it was determined that garages should not be taxed.  Hence, almost all property tax bills had to be adjusted and public garages were exempted from the tax.  The LRA had a 10 year expiration date in June 1990.  However, in 1988, an amendment was passed making the tax permanent, increasing the tax rate, codifying the garage exclusion and imposing penalties for failure to perform obligations under the act.

Spit Roll Taxation

Prior to Proposition 13, ad valorem taxes could have a split roll, with higher rates for business property than for residential property.  Therefore, I decided that the LRA would have a split roll.  We (a dedicated group of librarians and myself) calculated that a residential property tax of 2.3 cents per square foot and business property tax of 3.5 cents would provide the Library with an appropriate budget.  Unfortunately, we were about $100,000 short due to Lawson’s garage mistake.

There was also an inflation factor built into the LRA.  This gave the Berkeley City Council power to raise the tax annually up to the specified inflation factor for the previous year.

The Berkeley finance director showed me that the square footage of all of Berkeley’s 29,000 buildings were recorded on four by six cards in the city finance office with a card for each floor of each building.  Each card had a small floorplan of each floor and the square footage of that floor.  Therefore, it was just a question of adding up all the business square footage and all the residential square footage.  This was a laborious task, but we knew it could be done.  The small group of librarians and I (all volunteers) processed the thousands of building cards available so that the City could impose tax on homes and businesses. 

No site visits were done.  We just relied on the building cards to do the arithmetic.  We also combed through building permit records from the intervening years, up to 1980, to account for construction additions that were not on the cards.  These were added to the tally.  It was an enormous project, and it took much persistence to complete.  Hopefully, all such information is now on computers for much quicker calculations.

Originally, when I first proposed the idea, the Berkeley finance director told me, “Square footage taxation is a crazy idea, it can never work and, as the voters will definitely reject it, the entire thing would be moot.”  Berkeley passed LRA by 69% of the vote.  In 1988 Berkeley voters amended the LRA with more than the required 2/3 vote which doubled the tax rate.

After the successful passage and implementation of LRA the idea was adopted by other California cities, counties, school districts and special districts. 

The mandate for uniform taxation

Eventually, statewide legislation was passed prohibiting split roll taxation.  All taxes passed now must have the same rate for all taxpayers, both business and residential, within the district being taxed.  (see Borikas vs. Alameda Schools, 2013, S209992)