Dan Walters: Poison pill would kill two real estate measures

dwalters@sacbee.comSeptember 6, 2013 

Democrats won two-thirds supermajorities in both legislative houses last year, but have employed that power only rarely since.

Party leaders consciously delayed action on tax increase measures, aware that Gov. Jerry Brown is reluctant on that front and knowing that many Democratic legislators share that reluctance.

Now, because of resignations and the loss of one special election to fill a vacancy in the Senate, those supermajorities no longer exist, at least until the empty seats are filled.

One of the rare times the supermajority functioned was last spring when the Senate voted 27-0 for Senate Bill 391, which would impose fees on real estate transaction documents to raise money for low-income housing, at least $300 million a year.

It would, in effect, address a problem that the Legislature itself created when it abolished city redevelopment agencies two years ago.

Those agencies had been required to set aside a major portion of their property tax revenue for low-income housing.

The real estate industry opposes the measure, saying it would hurt the revival of California's housing market, which had been clobbered by recession. The bill has been stuck in the Assembly ever since because it requires a two-thirds vote and Democrats temporarily lack an Assembly supermajority.

The Senate also passed another bill this year, this one by a 36-0 vote and it, too, is stuck in the Assembly. Supported by the same real estate interests that oppose SB 391, Senate Bill 30 would reinstate a tax break for homeowners who have sold their underwater homes or gone through foreclosure.

Technically, mortgage debts that are forgiven in bankruptcy or short sales are income to the distressed homeowners. The federal government has shielded that paper income from taxation and the state followed suit, but the exemption ran out at the end of 2012.

SB 30 would reinstate the tax break for another year, and there's no opposition to the measure. But one day before SB 391 went through the Senate last May, Senate leaders inserted a brief provision in SB 30: "This act shall become operative only if Senate Bill 391 of the 2013–14 Regular Session is enacted and takes effect."

In legislative jargon, that's known as a "poison pill" and is aimed at overcoming real estate industry and Republican opposition to SB 391. But so far, the California Association of Realtors isn't budging, and with just a few days left in the legislative session, it's unlikely that the months-long impasse will be resolved.

If both bills remain in limbo, it would mean that many thousands of former California homeowners would be hit with hefty state income tax bills, about $50 million in all, for the unpaid portions of their former mortgages.

That's how the Legislature works – or doesn't.

Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters. Follow him on Twitter @WaltersBee.

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