New Referendum Aims to Block Los Angeles Property Transfer Tax

California voters will get a chance next year to block Measure ULA, a new property transfer tax on commercial and residential transactions over $5M in Los Angeles—an initiative that was approved by a lopsided 58% to 42% margin in a state referendum in November.

A petition calling for a new referendum on local special tax increases, spearheaded by Kilroy Realty, was certified by California’s Secretary of State this week to have been signed by more than 1M registered voters, the threshold needed to place the referendum on the state’s 2024 ballot.

The real estate interests who sponsored what they’re calling the “Taxpayer Protection Act”—Kilroy and the California Business Roundtable sponsored the measure—have worded their ballot proposition in a way they hope negates the popular advantage of Measure ULA: in fact, the 2024 referendum doesn’t even mention Measure ULA.

Instead, a “yes” vote on the 2024 referendum will create a new requirement for two-thirds approval of state referendums that impose any new local special tax increases—and it will grandfather the rule in so that it can be used to invalidate Measure ULA.

The 2024 referendum will specify that any local special tax imposed “after January 2022 but before November 2024” that was approved by less than two-thirds of voters (a 66.7% “yes” vote) “was not adopted in compliance” will be voided.

Measure ULA, which takes effect in April, will add a 4% tax on real estate deals in Los Angeles above $5M, with the rate increasing to 5.5% on deals above $10M. The new transfer tax would be added to LA’s existing transfer tax of 0.45%

Measure ULA specifies that revenue generated by the new transfer tax will go directly into a new House LA Fund that will “allocate revenue to projects that address housing availability at certain income thresholds and homelessness prevention.”

The new tax applies to all commercial and residential property deals—properties that are sold or transferred—in Los Angeles. City officials estimated the tax will generate more than $1B annually for the special housing fund.

In December, a group of landlords known as the Apartment Association of Greater Los Angeles and a group calling itself the Howard Jarvis Taxpayers Association filed a lawsuit challenging Measure ULA, claiming that the state constitution prohibits cities or counties from designating real estate transfer taxes for special purposes.

“If the Measure ULA tax increase is imposed as scheduled on April 1, 2023, great and irreparable harm will result to all Los Angeles property owners in being required to pay unconstitutionally imposed taxes,” the opponents’ lawsuit stated.

Housing advocates supporting Measure ULA fired back, saying the legal challenge to the new transfer tax is groundless.

“The California Supreme Court has made it clear that our power as citizens to place the measure on the ballot is broad, and at least four recent decisions of the Court of Appeals have made it clear that City Charters cannot limit the initiative power to propose special taxes,” said Laura Raymond, a Measure ULA campaign co-chair, in a statement.

The Business Roundtable spearheaded an unsuccessful campaign to defeat Measure ULA. Campaign filings show the business group donated $3.5M to the campaign, which was also backed by donations from CRE players, including Public Storage ($495K), Brookfield ($275K) and Equity Residential ($275K).

Proponents of Measure ULA, which they say is the largest housing ballot initiative ever adopted in the US, estimate the new tax could fund 26,000 new housing units over the next decade. Real estate firms who oppose the tax say it will lead to across-the-board pricing reductions and spur an exodus of developers from Los Angeles.

Shortly after the lawsuit was filed, Southern California News Group, which owns 11 area newspapers including the Los Angeles Daily News and the Orange County Register, published an editorial in all of its papers branding the transfer tax “a massive money grab” that will discourage new housing development rather than support it.

The city’s largest newspaper, the LA Times, published an editorial backing Measure ULA and urging the courts to quickly resolve the constitutional issue raised by opponents.

The Times suggested the new tax would affect “only a tiny percentage of property sellers” while providing a big boost to what the city’s new mayor, Karen Bass, has called her top priority: combatting the homelessness crisis in Los Angeles.

“Clearly, voters wanted to see something big and swift done to create more affordable housing in a city that has fallen behind year after year in producing it,” the Times’ editorial said.

However, in expressing its hope that the Measure ULA survives the court challenge, the city’s largest newspaper conceded that the courts might have to carve out an exemption to Proposition 13, an amendment to the state constitution adopted in 1978 which prohibits a city or county from designating a real estate transfer tax for a special purpose—like building affordable housing.

Courts have upheld the city’s right to collect transfer taxes as general revenue, so the sticking point will be the legality of the House LA Fund.