By John Farrell
OPINION When Congress established the Presidio Trust in 1996, it wanted to ensure its financial stability. Congress believed taxing private tenants impeded the Trust’s financial stability, so it enacted provisions within the Presidio Trust Act to ensure that tenants were tax-exempt. The only problem is that Congress doesn’t have the power to exempt tenants under the US Constitution.
In 1897, the State of California ceded to the United States exclusive jurisdiction on all lands held for military purposes, including the Presidio. Military installations are federal enclaves exempt from state authority. Per legal counsel of the State Board of Equalization, a “federal enclave” is a property over which the federal government holds exclusive jurisdiction.
In 1989, the federal government closed the Presidio as a military base. Since the Presidio is no longer for military use, the federal government transferred jurisdiction to the Golden Gate National Recreation Area (GGNRA) in 1994 for natural, historic, cultural, and recreational purposes.
Did this transfer to GGNRA end its tax-exempt status? Did this transfer negate the concept of “federal enclave” and “exclusive jurisdiction,” since the Presidio is no longer used for military purposes? Could the city now tax private beneficiaries? This issue has never been addressed.
The Presidio Trust was created by Congress in 1996 for a dual purpose: to rehabilitate and repurpose historic buildings and environmental resources, and operate as a vibrant public park independent of annual taxpayer funds.
In establishing the Trust, Congress’s concern was with the city’s potential assessment of property tax. In California, any private party that rents or uses space on government-owned property is subject to property tax.
In order to curtail the possible assessment of property tax, Congress enacted legislation signed into law by President Clinton on November 29, 1999. Public Law 106-113 (HR 3194) includes specific language providing that, “The Trust and all properties administered by the Trust and all interest created under leases, concessions, permits and other agreements associated with the properties shall be exempt from all taxes and special assessments of every kind in the State of California, and its political subdivisions, including the City and County San Francisco.”
Our City Attorney and Congressional representative have the opinion that all third party interests for private benefit under the Presidio Trust’s jurisdiction are exempted from taxes by the Presidio Trust Act.
This language confirms Congress’s intent to exempt private tenants from all forms of state and local property taxes. The only problem is that if Congress enacted the Presidio Trust Act to exempt third party beneficiaries, it did not have the authority per Article 1 Section 8 of the Constitution, which provides the Powers of US Congress. In other words, this part of the legislation was unconstitutional.
Because of this unconstitutional loophole, the city is losing at least $10 million annually in property tax and over $100 million since inception. This amount doesn’t include revenue loss from other taxes such as real estate transfer tax. Further, if the George Lucas plan for a Presidio museum is approved, the city will lose at least $8.1 million annually in property tax.
The city is losing an additional $12.5 million from the recent sale of Lucasfilm’s to Disney in 2012 (based on a 2.5 percent transfer tax on a conservative $500 million assessment). An ownership transfer includes a lease of 35 years or more. Lucasfilm had a 66-year lease at the Presidio transferred to Disney. Per the state Revenue and Taxation Code, this is a legal transfer and there is no rational why there is no transfer tax imposed.
The city has decided to adhere to the legislation by Congress to tax exempt tenants even though it is unconstitutional. But everyone should pay their fair share.
John Farrell is a Realtor, former city budget analyst, and fifth generation San Franciscan.