Transfer Tax in Los Angeles Produces Significantly Lower Revenue Than Anticipated

Voters were promised a housing fund of $900 million; the city now expects about $672 million.

Measure ULA, the new property transfer tax on commercial and residential transactions over $5 million in Los Angeles, was approved by a lopsided margin of 58% to 42% in a state referendum in November. However, the initiative is not bringing in the kind of tax revenue that its supporters had promised would be used to support a new housing fund.

According to a recent analysis by the City Administrative Office in Los Angeles, Measure ULA may bring in up to $672 million during the fiscal year that runs from July 1 to June 30 of the following year.

On the city’s voter information pamphlet, which is the official ballot information provided to voters and explains what an initiative seeks to accomplish, supporters of Measure ULA stated that the property transfer tax would generate $900 million annually, based on the volume of real estate sales in the fiscal year that ended on June 30, 2022.

This assertion was strengthened by a UCLA study that was released in September and predicted that the transfer tax would bring in $923 million. The new property transfer tax raises the tax rate from 4% to 5.5% for sales of homes and businesses for more than $5 million and over 10%.

Both of the preceding projections made the crucial assumption that all the sales on which they were based would close, which neither of them did. That might occur during UCLA lab exercises, but Measure ULA opponents can claim, I told you so. They forewarned last autumn that rising interest rates and the approval of the transfer tax would have a deterrent effect on sales transactions.

Nonetheless, a $672 million yield for Measure ULA would result in a new fund called House LA that will provide an estimated $433 million for affordable housing initiatives in Los Angeles and $185 million for initiatives to prevent homelessness.

If that return is adequate to maintain Measure ULA in existence, voters will have another opportunity to decide:
Kilroy Realty led a petition drive for a fresh referendum on local special tax increases, and this month the California Secretary of State verified that the petition had received the required number of signatures—more than 1 million registered voters—to qualify for the state’s 2024 ballot.

The “Taxpayer Protection Act” was sponsored by real estate interests, including Kilroy and the California Business Roundtable. By not mentioning Measure ULA in the 2024 referendum, the sponsors of the legislation intend to undermine its advantage in the eyes of the general public.

Alternatively, if voters choose to approve the 2024 referendum, a new requirement for two-thirds approval of state referendums that impose any new local special tax hikes would be established, and it would grandfather the rule in so that it could be used to invalidate Measure ULA.

Any municipal special tax enacted after January 2022 but before November 2024 that received less than two-thirds of the vote (66.7% “yes”) was not implemented in compliance, according to the 2024 referendum, and will be revoked.

The Howard Jarvis Taxpayers Association and a group of landlords going by the name of the Apartment Association of Greater Los Angeles filed a lawsuit against Measure ULA in December, asserting that the state constitution forbids cities or counties from allocating real estate transfer taxes for particular purposes.

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