Measure ULA Revenue Is Barely a Trickle

Proponents of Measure ULA, the new property transfer tax on commercial and residential transactions over $5M in Los Angeles, promised that the new tax would generate more than $900M for a new housing fund.

In March, the City Administrative Office tamped down those expectations with an analysis that lowered the revenue estimate for Measure ULA to $672M for the fiscal year that begins on July 1 and ends on June 30, 2024.

This week, the city’s fiscal chief revealed the proceeds from the first month of tax revenue collected due to Measure ULA, which went into effect on April 1.

We’ll pause here to consult our thesaurus for a word that describes something that’s less than a trickle. Okay, let’s call it a dribble:

In April, Los Angeles collected about $3.6M for a grand total of five transactions that were subject to the new tax, which adds a 4% tax on all residential and commercial sales over $5M and a 5.5% tax on sales over 10%, Bisnow reported.

We don’t need our calculator to figure out that—if this trend continues—Los Angeles will only reap about $40M in annual revenue from Measure ULA.

That kind of a dismal return is not likely. Proponents of Measure ULA, which passed by a lopsided 58% to 42% margin in a state referendum in November, have been quick to point out that April’s revenue tally for the transfer tax is likely to be an anomaly due to the dearth of transactions in April.

In fact, a slew of transactions rushed to close before the April 1 start date for the new transfer tax specifically in order to avoid the levy.

Regardless of the amount of revenue that eventually comes in from Measure ULA, there is no certainty that the transfer tax will prevail in a series of legal challenges that are moving through the courts.

In April, after the transfer tax went into effect, 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 Mayor Karen Bass and the City Council they need to understand the risk they are taking if they start allocating the tax proceeds to new affordable housing project. If the city ends up losing either of two legal challenges to Measure ULA that are moving through the courts, he said, Los Angeles will be liable to refund the tax money to property sellers.

Mayor Karen Bass, who has made tackling the spiraling homelessness crisis in Los Angeles her top priority, overruled the city’s top financial advisor, 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.

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 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.