John Farrell: Presidio should tax tenants

You might have read recently that Mayor Ed Lee likes the George Lucas' plan for a Presidio museum. Well, here we go again. First off let me say this. I am a big Lucas fan and remember being one of the first in line to see Star Wars at the Coronet in 1977. I've watched all six episodes, as well as all Indiana Jones and American Graffiti movies. This matter has nothing to do with Lucas personally, but with fairness.

The $700 million proposed Lucas Museum is one of three finalists for the former commissary site at Crissy Field now occupied by Sports Basement. If approved, the City will lose at least $8.1 million annually in property tax revenue, which provides funding for our city services. The other finalists are the Golden Gate National Parks Conservatory and a joint proposal from a local architect and museum consultant in Washington, D.C.

This $8.1 million annual loss is in addition to at least $10 million annually in property tax revenue lost from existing tenants at the Presidio. To date, the City has lost well over $100 million in just property taxes since the creation of the Presidio Trust, which oversees the national park. This $100 million does not include other taxes, such as the transfer tax. Therefore, the City is losing an additional $12.5 million from the recent sale of Lucasfilm to Disney in 2012. (The $12.5 million is based on a 2.5 percent transfer tax rate on a conservative $500 million assessment value.)

How is this possible? This is possible due to an unconstitutional loophole in the Presidio Trust Act, which allows all properties administered by the Trust and all interest created under leases, concessions, permits and other agreements associated with the properties to be exempt from all taxes.

In California, any private party that leases, rents or makes payments for use of government owned property is subject to a possessory interest tax (property tax). Why should private users on other government owned properties be subject to possessory interest taxes while those using the Presidio properties to their private benefit are not? Let me put this in perspective: A vendor selling hot dogs in Golden Gate Park pays property taxes while a restaurant in the Presidio pays nothing. This is unfair and inequitable taxation.

The city attorney, as well as our Congressional representa­tive, has the opinion that all third party interests for private benefit created under leases, concessions, permits and other agreements under the Presidio Trust's jurisdiction are tax exempt since Congress enacted legislation specifically in the Presidio Trust Act. This is unconstitutional.

We all agree that the Presidio Trust itself is exempt. However, if Congress enacted the Presidio Trust Act to exempt third party use for private benefit in the Presidio, they do not have the authority to do so per Article 1, Section 8, of the U.S. Constitution, which provides the powers of Congress.

In 1897, the state of California ceded to the United States exclusive jurisdiction on all lands held for military purposes, which included the Presidio. Military installations are federal enclaves and are exempt from state authority.

This exemption is no longer the case since the Presidio is no longer being used for military use, due to the federal government transfer of jurisdiction to the Golden Gate National Recreation Area (GGNRA) in 1994 to be used for natural, historic, cultural and recreational purposes.

The Presidio Trust was subsequently created by Congress in 1996 for a dual purpose: to rehabilitate and repurpose the Presidio's historic buildings and environmental resources, and operate the site as a vibrant public park independent of annual taxpayer funds.

The state of California ceded to the federal government exclusive jurisdiction of Presidio lands for military use, which is no longer the case. The issue that needs to be challenged is whether the transfer from the U.S. Department of Defense to the GGNRA caused a retrocession of jurisdiction to the state in order to permit the City to tax the third party beneficiaries at the Presidio.

The City should look further into this matter because it could result in at least $100 million in revenue to the City from current and back taxes and increased tax revenue annually to the City by a minimum of $10 million? And $8.1 million annually more if the Lucas' plan for a Presidio museum is approved.

I recommend the assessor impose a transfer tax on the sale of Lucasfilm's property in the Presidio to Disney. Per the California Revenue and Taxation Code, this is a transfer which the State Board of Equalization (SBE) will concur.

There is no rational reason why there is not a transfer tax imposed. How does the sale of Lucasfilm to Disney have any effect on the operation of the U.S. government and what right does Congress have to deny a transfer tax of at least $12.5 million that every entity outside the Presidio pays? Per the Constitution of the United States, Congress has no right. This matter needs to be challenged in a higher court. It is unconstitutional.

John Farrell, a principal at Farrell Real Estate Investments, is a former assistant assessor for budget and special projects for the city of San Francisco.