Bass: Use Transfer Tax Funds to Buy Hotels for Housing

Mayor Karen Bass, who has made tackling the spiraling homelessness crisis in Los Angeles her top priority, has overruled the city’s top financial advisor, who warned against spending a new housing fund based on the proceeds from the Measure ULA property transfer tax.

Bass announced this week her proposal to spend $1.3B next year in a city-wide Initiative to move unhoused people into housing and treatment programs.

The funds will draw $150M from Measure ULA, the property transfer tax that went into effect on April 1. The tax adds a 4% tax on all residential and commercial sales over $5M and a 5.5% tax on sales over $10M.

Out of the funds from the transfer tax proceeds, $62M will be used for property acquisition and rehab; $25M will go toward eviction defense and income help for seniors and people with disabilities; and $20M will fund short-term emergency assistance for tenants.

Last week, City Administrative Officer Matt Szabo warned the city not to spend the tax windfall until legal challenges to the property transfer tax are resolved in court. Szabo warned that if the city ends up losing either of two legal challenges to Measure ULA that are moving through the courts, Los Angeles will be liable to refund the tax money to property sellers.

Bass appears to be reaching for the middle ground with her proposal to use $150M from the transfer tax fund: according to an estimate from Szabo, the new tax is expected to generate about $672M in new revenue in the fiscal year that begins on July 1 and end on June 30 next year.

In her first annual State of the City Address, Bass said she is planning to buy hotels and motels for conversion to housing. She also called for a city-wide review of the inventory of city-owned buildings that could be used as homeless shelters.

Bass has launched a program called Safe Inside that offers homeless people motel rooms and a path to permanent housing with services; the program has attracted 1,000 enrollees. The mayor also is increasing funding for substance-abuse treatment beds for the homeless.

“We have finally dispelled the myth that people do not want to come inside. They do,” Bass said, in her speech to the City Council.

Critics have noted that Bass’ predecessor as mayor, Eric Garcetti, succeeded in enacting a budget in 2021 with $1B in homeless spending and the problem continued to grow in Los Angeles exponentially last year—with the homeless population in the city now estimated at more than 40,000.

Szabo’s $672M estimate was a disappointment to proponents of Measure ULA—which was approved by a lopsided 58% to 42% margin in a state referendum in November—who had promised more than $900M in tax revenue to voters, based on real estate sales volume in the fiscal year that ended in June 30 2022.

This claim was amplified by a UCLA analysis published in September that estimated that the transfer tax would generate $923M. Neither of the earlier estimates included an important caveat: they assumed all the sales they based their estimates upon would actually close.

Opponents of Measure ULA warned last fall that rising interest rates and the approval of the transfer tax would have a chilling effect on sales transactions.

A $672M yield for Measure ULA will generate an estimated $433M for affordable housing programs in Los Angeles and $185M for homelessness prevention programs in a new fund known as House LA.

Voters will get another chance to decide if that return is sufficient to keep Measure ULA in effect:

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