The ballot measure puts the LA estate tax on the back burner

from Ben ChristopherCalMatters

This story was originally published by CalMatters. Sign up for their newsletters.

California’s secretary of state announced Tuesday that a tax cut proposal one of the supporters has spent years on is trying to put before the voters — is now officially eligible for the November election. Come fall, tax advocates and real estate developers may have reason to rejoice; city ​​governments, public sector unions and the city of Los Angeles may have reason to worry.

The announcement of qualification for a real estate-oriented constitutional amendment also gives California Democratic lawmakers reason to begin frantically negotiating a deal to keep the measure off the ballot entirely, even though the measure’s backers have publicly said they’re not interested.

Branded the “Local Taxpayer Protection Act” by its sponsor, the Howard Jarvis Taxpayers Associationthe newly passed measure would both sharply limit municipal transfer taxes — fees levied on real estate sales — and make it harder for voter-sponsored campaigns to raise taxes in local elections.

The measure would hit especially hard cities like Berkeley, San Mateo and Alameda, which rely on transfer taxes for a significant portion of their funding. According to an analysis by the nonpartisan Legislative Analyst’s Office, that would cost local governments “several billion dollars” per year, with taxpayers collectively saving just as much.

Why it’s also a battle for Los Angeles

But the focus of the debate, and perhaps the main target of the proposal, is Los Angeles and its controversial “mansion tax,” known as Measure the ULA.

Since becoming law in 2023, the voter-backed policy imposed a 4 percent tax on real estate sales over $5 million and 5.5 percent on those over $10 million — thresholds that have since risen to match inflation. The tax raised more than $1 billion over three years. Last week, the city announced a 360 million dollars award for future affordable housing projects.

But interests in real estate, some elected officials in Los Angeles, and a growing number of scholars say the tax has caused a sharp slowdown in new construction, including the affordable housingall over town compared to neighboring cities. The levy falls not only on mansions, but also on flats, apartments, multipurpose and commercial establishments.

The resulting anger among developers, investors and business groups over the L.A. tax has fueled a statewide proposal campaign, said John Koupal, president of the Howard Jarvis Taxpayers Association, a conservative group best known for its landmark property tax cap measure Proposition 13. “I think ULA wasn’t just the straw that broke the camel’s back, but the redwood that broke the camel’s back,” he said.

The statewide proposal would reduce transfer taxes to just one-twentieth of 1 percent of the sale value of real estate. Measure ULA’s highest rate is 100 times higher. Also, some voter-initiated tax measures would be needed to overcome a two-thirds threshold, rather than a simple majority. In Los Angeles, the ULA measure passed 58%.

If the tax cut proposal passes, Measure ULA is the first on the block.

But that’s a big “if.” According to a recent study by Public Policy Institute of California.

In turn, tune in… haggle!

There’s also a chance the measure won’t even make the ballot.

Under California election law, sponsors can still return a measure after collecting enough valid signatures before the June 25 official qualification deadline. In previous election cycles, that window has become gold for backroom deals in Sacramento, as Democratic lawmakers scramble to remove unwanted measures from the upcoming ballot and deal-hungry interest groups line up to extract concessions.

A notable example: In 2018, the soda industry funded a ballot measure that would have made it harder for local governments in the state to raise taxes. They pulled it at the last minute, but only after lawmakers reluctantly agreed to pass a A 13-year ban on new soda taxes.

At the end of last year’s legislative session, a group of Southern California Democrats, working with Los Angeles Mayor Karen Bass and former state Assembly Speaker Bob Hertzberg, began a last-minute effort to exempt new housing developments from the Los Angeles tax while adding some new flexibility in how the money can be spent. The bill also had a broader purpose: It would only take effect if the Howard Jarvis Taxpayers Association withdrew its measure.

In the face of pushback from both business groups on one side and staunch defenders of Measure ULA on the other, the effort failed. But now that Howard Jarvis’ measure is officially headed for a vote, lawmakers in Sacramento may feel newly inspired to get going. Even if the electoral odds end up going against the proposal, Democratic lawmakers and left-leaning campaign financers would be happy to avoid a costly defense campaign.

Shall we make a deal?

Meanwhile, changes may be coming from Los Angeles itself.

Earlier this year, Council Member Nitya Raman, who is hoping to unseat Bass as mayor, introduced a measure that would have put a series of changes to Measure ULA on the June ballot. Excluding the new developments, it reflects many of the changes proposed in last year’s failed state bill. But a the majority of the council struck.

Instead, the council delegated the matter to a electoral commission chaired by Council Member Isabel Jurado, tasking him with recommending changes to the tax. Some of these changes will require voter approval and could be brought before voters in November on the same ballot as Howard Jarvis’ proposal.

The commission will also consider a range of changes to the law proposed by city officials it would clarify that affordable, nonprofit developers are exempt from the tax, while making it easier for developers to pair ULA funds with other funding sources. City officials say those changes can happen without going back to voters.

Tenants’ rights groups, some affordable housing developers, and labor unions support these changesbut urge the commission otherwise to leave the tax alone. A coalition of developers, backyard Yes advocates and carpenters’ unions has emerged to urge the city to consider a sweeping “fix” — before state lawmakers or anti-tax advocates do the work for them.

“We think it’s really important to show that we can drive reform at the local level,” said Sarah Dussault, a former city homelessness official who is now one of the leaders of the Fix It, Don’t End It campaign. Making these changes at the local level “will go a long way to preventing more drastic measures.”

Advocates of Measure ULA counter that nothing the city or state does will be enough to convince the Howard Jarvis Taxpayers Association to withdraw the measure.

“We’ve tried to negotiate with the funders of the measure, and both publicly and privately, they’ve been consistent that they have no intention of withdrawing the measure,” said Joe Donlin, director of the United to House LA coalition. “They don’t want to change taxes, they want to eliminate them.

Coupal from Howard Jarvis agreed that the offer was not a barter coin. “People on our side can’t imagine any kind of deal that would give us the comfort that we would need,” he said.

But campaigns are expensive. Although the proposal campaign was led by the Howard Jarvis Taxpayers Association, much of the funding came from California Business Round Tablea coalition of major California firms, along with several commercial real estate companies, developers and landlord groups in Los Angeles. For now, the business roundtable says that this dispute should be decided by the voters. In the coming months, will any of them be willing to make a deal with desperate Democrats in exchange for withdrawing their support?

Some lawmakers in both Sacramento and Los Angeles are eager to find out.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.