And property taxes are hugely distorted by Prop 13 in California.
The only people who are freeloading under Prop 13 are those who owned their property for 20+ years, and they are freeloading in a very special way where they have been paying those property taxes for 20+ years to build those neighborhoods into desirable areas.
https://www.thenation.com/article/have-california-voters-fin...
The residential owners probably would have no problem with losing Prop 13 protections, as any increases can be passed on to the willing renters. They are likely to lobby for small things, such as delaying assessments by a few months in order to raise rents and process vacancies properly. (Current California law stipulates 30- and 60-day notices for rent increases, so the timing on property tax increases and rent increases needs to be synchronized in some manner).
Things get trickier with commercial and industrial tenants. The big guys know of their power to change the attractiveness and commercial viability of entire plazas and neighborhoods. Therefore if you come out to Costco or Whole Foods or Simon Malls or Wal-Mart and ask them to build out presence in a major way, they would not want to be victims of their own success. From their point of view the value of the area increased only due to a significant long-term investment from their wallet, and they should not be penalized for it.
If the municipality doesn't like it, they're welcome to either build out the facilities themselves or just attempt to raise property taxes on the gas station, laundromat and a liquor store that are the current active tenants of the blighted area.
Prop 13 prohibits this.
It's far easier and time-efficient for the city to chase sales tax revenue (by attracting large retailers), residential property tax revenues (by building denser housing) and revenue from various licensing and permitting activites.
But the effective elimination of property tax on commercial real estate vs. residential real estate also has the problem of hugely distorting the market. When I was looking for office space for my startup around ~2010, there was enough empty commercial space to for every resident to have 200 sq. ft.!
Meanwhile, residential housing stock is so low that the rental market is largely driven by personal acquaintances. I remember calling numbers for 30 ads, and only getting a response from one, because they were like "hey I know that guy!"
This is also a zoning issue. But commercial real estate acts like an investment, and if empty commercial real estate is profitable to hold on to because rents are low and taxes are low, it makes it impossible for a market to properly switch between the two, even when all that commercial real estate can be zoned as acceptable for residential use.
In any case, I see no reason why commercial real estate should be taxed less than residential real estate, unless it would be desirable to distort the market in that way. (And depending on other forces it definitely could be. I just know that Prop 13 is a really bad deal for my county's economy, and don't know why the State should have the power to override the county or city on this.)
When Prop 13 reached the Supreme Court, one justice noted the feudal character:
"These disparities are aggravated by § 2 of Proposition 13, which exempts from reappraisal a property owner's home and up to $1 million of other real property when that property is transferred to a child of the owner. This exemption can be invoked repeatedly and indefinitely, allowing the Proposition 13 windfall to be passed from generation to generation. ...
"Such a law establishes a privilege of a medieval character: Two families with equal needs and equal resources are treated differently solely because of their different heritage."
I am too young to remember the pro- and con- arguments concerning this proposition, but it's a little surprise 75.7% of the voters approved.
Looking at a larger picture, cash-starved municipalities are not that exciting to live in, with their dilapidated roads, aging infrastructure, poor public service coverage as far as police, firefighting, libraries and parks, as well as underfunded (and probably underperforming) school districts.
So isn't the issue self-correcting long-term? Places with a larger proportion of Prop 58 exemptions eventually run themselves into the ground, while places with tons of new construction and healthy resale market tax themselves into a nice school district and well-paved roads?