California legislators and Gov. Gavin Newsom are facing a narrowing deadline to address a statewide anti-tax ballot measure that housing advocates warn could undermine local revenue for affordable housing, roads, schools and public safety across the state, including in Southern California and the Inland Empire.
The measure, known as the Local Taxpayer Protection Act, has qualified for the November ballot with backing from the Howard Jarvis Taxpayers Association, the group long associated with Proposition 13. If approved by voters, it would restrict local real estate transfer taxes and raise the voter-approval threshold for new local taxes from a simple majority to two-thirds.
Supporters of local housing funding say the measure is gaining momentum in part because of backlash against several high-profile city transfer taxes that were adopted with the goal of generating money for affordable housing but have produced unintended consequences.
In Los Angeles, Santa Monica and San Francisco, voters approved higher real estate transfer taxes aimed largely at expensive property sales. Those measures were often described as “mansion taxes,” but critics say the costs have fallen heavily on commercial and multi-family property transactions — the kinds of deals that can affect future housing production.
Real estate transfer taxes are charged when property changes hands, typically as a percentage of the sale price. Counties and general law cities in California are limited to a 0.11% transfer tax. Some charter cities, however, have adopted much higher rates.
Los Angeles’ Measure ULA applies to property sales above $5 million. Critics say the structure creates a sharp cutoff: a property sold for just under the threshold avoids the tax, while a larger apartment building above the line can face a major added cost. An affordable eight-unit apartment building, for example, could owe more than $200,000 in transfer taxes, while a luxury home sold for $4.9 million would owe nothing under ULA.
Housing advocates argue that the measure has slowed sales and discouraged new apartment development. A UCLA analysis cited by critics found that Measure ULA may be costing Los Angeles city and county governments more in lost property tax revenue than it is producing through the transfer tax. Unlike transfer taxes, which are collected only when a property is sold, property taxes generate revenue every year for cities, counties, schools, fire districts and other public agencies.
Santa Monica’s Measure GS has faced similar criticism. The measure charges $56 per $1,000 on sales of $8 million or more, one of the highest rates in California. In the year after it took effect, residential sales above that amount reportedly dropped by half, while commercial sales fell from 18 to five. Revenue came in at less than half of projections.
San Francisco’s Proposition I, which imposes rates of up to 6% on the largest property transactions, has also been blamed for reducing sales and slowing housing activity. City leaders there are now pursuing a proposal to cut the tax in half.
The November ballot measure would address those local taxes by limiting transfer taxes statewide to 0.11%. But opponents say it goes much further by making it far harder for local governments to raise new revenue for basic services and housing programs.
That provision could have broad consequences for cities, counties and special districts throughout California. In fast-growing and infrastructure-stressed regions such as the Inland Empire, local governments often rely on voter-approved revenue measures to help pay for transportation improvements, fire protection, schools, housing programs and other needs.
Housing advocates are urging state leaders to negotiate a compromise before the June 25 deadline, when proponents could still withdraw the measure from the ballot. They argue that lawmakers can correct what they view as poorly designed transfer taxes in a few cities without imposing sweeping new limits on local governments statewide.
The debate places state leaders in a difficult position: balancing concerns over taxes that may be discouraging housing development with the need to preserve local funding tools at a time when California remains under pressure to build more homes and maintain essential public services.
Original source: CalMatters
