LOS ANGELES — A coalition of real estate and anti-tax groups is seeking to prevent the city of Los Angeles from implementing a recently passed tax on the sales of properties over $5 million.
The proceeds of Measure ULA, which passed with nearly 58% of the vote in the November election, would go toward a range of efforts to prevent people from becoming homeless. In addition, tens of millions of dollars would go to the construction of new housing and tenant defense.
City officials estimate that this tax on the transfer of properties could bring in between $600 million to $1.1 billion a year.
In a lawsuit filed Wednesday, lawyers representing the Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles argue that the documentary transfer tax, which is slated to go into effect in April, violates the California Constitution.
The groups' attorneys argue that "great and irreparable harm will result to plaintiffs, and to all Los Angeles property owners in being required to pay unconstitutionally imposed taxes."
"Similar harm will occur to all Los Angeles residents in the form of increased rent and consumer prices resulting from the tax increase on all property sold (or value transferred) above $5 million," the lawsuit says.
The groups are asking a judge "for a declaration of the invalidity of Measure ULA, according to the state constitution, statutes, and Los Angeles City Charter."
The passage of this measure was in part a reflection of voters' frustration with homelessness and the housing crisis, and their apparent recognition that the city needed to invest more in solutions. Sales of property over $5 million would get hit with a one-time 4% tax and that would rise to 5.5% on transactions above $10 million. A $5 million sale would generate a $200,000 tax bill.
The city already has a similar tax that sends revenue into the general fund, though at a much lower rate than what is proposed for the ballot measure. (The current tax — $4.50 per $1,000 — amounts to $22,500 on a $5 million transaction.)
Proponents saw this new tax as needed to keep the city from lagging behind in the construction of new affordable housing.
"Los Angeles is in a homelessness state of emergency. The voters who overwhelmingly passed Measure ULA just delivered a comprehensive set of solutions to address this crisis," said Laura Raymond, director of the Alliance for Community Transit–Los Angeles, who served as ULA's campaign co-chair.
"We are disappointed — but not surprised — that real estate and corporate interests are fighting to preserve the status quo and perpetuate our homelessness and housing crisis, after unsuccessfully spending about $8 million to scare city voters," Raymond said.
Since its passage, the Los Angeles Times reported that wealthy homeowners were already beginning to strategize on how to avoid paying the levy if they ended up selling their homes. Some homeowners were looking into splitting up their properties into smaller parcels with different ownership entities to avoid the tax altogether.
Neither mayoral candidate this year supported the tax measure. Now in office, Mayor Karen Bass' advisers have been planning how to use the money to help deal with the crises she ran on addressing. Behind the scenes, some city officials have said this money could be transformative because it would provide such a large, continuing revenue stream with no end date, allowing for more construction of affordable housing at a larger scale.
A recent executive directive from Bass rolling out her initiative to address street encampments asks her staff and general managers to "develop a comprehensive funding strategy that includes consideration of measure ULA."
The question now is whether that money will be available to her in the immediate term depending on how a judge might rule. In a similar situation in San Francisco several years ago, the proceeds from a tax seeking to remedy homelessness were collected but placed in an escrow account while the issue was litigated.
Before this lawsuit, tax increases couldn't go through without the approval of two-thirds of local voters. The ruling said that since the measure was placed on the ballot via outside groups through the signature-collection process, it needed only a simple majority to prevail.
Once the state Supreme Court declined to take up that case, nearly half a billion dollars was released to the city to fight homelessness.
The outcome of the San Francisco case laid the groundwork for ULA's backers to get the measure on the ballot and win voters' approval.
"The California Supreme Court has made it clear that our power as citizens to place the measure on the ballot is broad, and we're confident that will ultimately be true for Measure ULA as it has for other similar measures," Raymond said.
Depending on how this lawsuit goes, it's not clear yet if the city will start administering the tax come the spring. Representatives for Bass and City Attorney Hydee Feldstein Soto did not respond or declined to comment.
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