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.

Country clubs in Los Angeles — including a number situated on some of the world's most valuable land and protected from significant property tax hikes since the passage of Proposition 13 — may have improperly enjoyed that tax loophole for more than 30 years, according to Los Angeles County Assessor Rick Auerbach.

Auerbach recently told the Garment & Citizen 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 a thorough regulatory review.

Auerbach, a 37-year veteran of the assessor's office and something of a dean among property tax experts in Southern California, said he has referred the question of whether country clubs in Los Angeles should face reassessment to the State Board of Equalization. The board issues property tax regulations based on state codes, and those rules are ultimately sanctioned by the state court system.

A spokesperson for the Board of Equalization 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. Voters at the time feared being taxed out of their homes in the cyclical rounds of appreciation in the price of housing 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 contain the words or concepts of "partner," "unit," "stock corporation," "commercial" or "equity-member country club." Voters apparently did not consider commercial properties or other commercial ownership formats worth mentioning or protecting in the language of the proposition, and those words are not in state constitution, even today.

After Prop 13, state legislators passed new sections of the California Tax & Revenue Code, upon which the Board of Equalization later issued regulations — and in that welter of rules and laws, commercial properties were included under the Proposition 13 umbrella. Stock ownership and other similar partnerships have been protected from reassessments ever since.

It has been assumed, to date, that country clubs in Los Angeles belong in that group of protected properties. But that assumption is no longer clear, according to Auerbach.

Quite a Club

The country clubs sprinkled around the Westside of Los Angeles County are a nearly 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 some of the world's most expensive real estate.

Yet records kept by the County Assessor's office indicate 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% 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.

Westside Vs. Spring Street

Marineland, Ascot Park, Country Clubs: Only One Still Belongs in L.A.

A lot of theme parks and other novelty businesses that once used a lot of land have disappeared, but country clubs carry on.

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.

Country clubs have thrived in the Los Angeles metropolitan area over the past generation while many colorful enterprises that also used a lot of land have disappeared.

Marineland is gone, as is the Ascot Park racetrack in Gardena, the place where "Whoa Nellie" Dick Lane used to broadcast for the KTLA Channel 5. The Japanese Village and Deer Park in Buena Park are gone. So is Gilmore Field, which once stood near present-day Park La Brea. 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. A holdout is also under threat, with the Hollywood Park thoroughbred racetrack slated for a final season next year, and possibly headed to a future as a 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 and drive-in movie theaters have disappeared, with none considered worth saving for their jobs, tax revenue, or cultural élan.

The country clubs have endured, thanks in part to wealthy members and generous tax breaks.

Yet, unlike some the vanished businesses, country clubs are paltry job generators.

According to estimates based on information from the Club Managers Association of America, the biggest country clubs in Los Angeles probably employ no more than 350 workers. A mid-sized factory or large hotel can generate more employment, and probably provide more of a related boost to the local economy. Country clubs, unlike tourist hotels or factories, generally do not bring much outside money into our regional economy. — Benjamin Mark Cole

Compare the Los Angeles Country Club's deal to the recent agreement by the City of Los Angeles to buy a 0.8-acre parcel of land on the 400 block of Spring Street, a comparatively gritty spot of Downtown. The city agreed to pay $5.1 million for the land, which is now 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 on the basis of a free and open market, 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 luxury condos. That's $62.5 million an acre. At that rate, the Los Angeles Country Club'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 County Assessor's office. The new owners of 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 would rise from the current $200,000 to $25 million — enough to pay for 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 in the region restricted membership.

Hillcrest covers approximately 125 acres along the south side of West Pico Boulevard at Motor Avenue, including a nice golf course. Hillcrest's land is assessed at a value of $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 place where billionaire Howard Hughes once landed a private airplane in an effort to woo actress Katharine Hepburn. The County Assessor's office appraises the club's land at $5.4 million. Members pay a little more than $50,000 a year in property taxes.

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 many of the country clubs. The institutions are often formed as non-profit corporations and do not pay federal income taxes.

Why So Low?

No one at the County Assessor's office seems to know why country clubs had such low assessed values back in 1978. 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 Prop 13 passed in 1978.

As most homeowners know, Proposition 13 bars reassessment unless a property changes hands. But under this umbrella, some property — especially land owned by stock corporations, such as Chevron Corp., for example — never changes hands in legal terms, as defined by state legislators and the Board of Equalization.

The question that has been forwarded to state officials by County Assessor Auerbach — whether country clubs qualify for the Chevron Corp.-type breaks on property taxes — also 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 are actually owned by members 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. In the 30 years since 1978, it's quite likely that membership of some of the country clubs in Los Angeles has turned over by more than 50%. Members die, retire, or move out of town.

But the country clubs have not been reassessed.

Why not?

Uncle Milty on the Cost of Membership

Country clubs charge a lot but pay little on property taxes.

The famed comedian pegged the cost of joining of Hillcrest at $150,000 — back in 1994.

Largely outside public purview, the 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 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. — Benjamin Mark Cole

The reason cited by the Board of Equalization 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% of the corporation's shares have clearly changed hands.

Section 64 reads as follows: "(T)he purchase or transfer of ownership interests in legal ntities, 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 Board of Equalization has issued Property Tax Rule 462.180(c), which states that "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 vested in pension systems, insurance policies, or represented by institutional investors.

But the reality of a modern stock corporation is a long way from country clubs — it can be readily determined whether ownership has, indeed, 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," Auerbach said. "I see no evidence that question has been asked in the past."

Auerbach confirmed that the nebulous nature of current rules and laws has prompted him to seek a clarification or new rule from the Board of Equalization.

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, chief tax consultant for Cal-Tax and widely recognized as the 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" (see related Viewpoint, "Developing Country Clubs?" below)

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 country clubs in Los Angeles, 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 (see related story, "Piece of Prop 13 Under Review," above).

Though it may seem an outlandish practice to assess property taxes on country club land as if 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 the Lone Star State 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 tradespeople. 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 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 of executive director of the Howard Jarvis Taxpayer's Association, an advocacy that's named for 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."

Places for Parks

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 as 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 they are both far away from other parts of the city and vast numbers of the population. The City of Los Angeles needs more parks, where people live and walk.

Possible Solution

As thrilling as it might be, the city 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 is 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% of country club acreage into super-luxury high-rise mixed-use developments, and turn the remaining 90% 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 2,400 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 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 other 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.

Westside Traffic

To be sure, not everybody wants even more density on the Westside, even if the payoff is more public park land. Traffic is already miserable. 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 postcolonial banana republic, not modern-day Los Angeles.

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.

Map of Los Angeles Country Club and vicinity from Google Maps; photo of L.A. County Assessor from www.lacbor.org; photo of Marineland of the Pacific from Wikimedia Commons; photo of Milton Berle from Wikipedia.

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