L.A. ‘mansion tax’ would raise money for affordable housing

Reps. Karen Bass and Rick Caruso have each put forward expensive plans to expand temporary and permanent shelters for the homeless, but Los Angeles mayoral candidates have offered few details on how they would pay for it.

One possible way to fund these plans is through a ballot measure held in front of city voters in November. Known as Measure ULA or “United to House LA”, the “house tax” would impose an additional tax on the sale of commercial and residential real estate exceeding $5 million.

According to a city analysis, the voting measure would bring in an estimated $600 million to $1.1 billion a year.

Caruso’s proposed plan costs around $900 million and Bass around $300 million. But none of the candidates backed the measure, even though the city officials expect the funds available to build affordable housing to decrease in the coming years.

Both appear to think supporting the tax is bad policy when Angelenos is frustrated with how funds have been spent on tackling homelessness in the past, even though many feel the crisis has worsened.

“While I would support the idea of ​​a dedicated revenue stream for homeless shelters and services, I believe we must first show the public that they can trust the government to use these funds effectively and efficiently,” Caruso said in a statement. “Once we can do that, I would like to move forward with an action if it turns out that more funding is needed.”

Bass has yet to decide whether to support or oppose the measure, her spokeswoman said, adding that the congressmen’s priority is to “ensure that the $1 billion that the city already spends on homelessness each year be spent as effectively and efficiently as possible”.

The measure, known as the Document Transfer Tax, would impose a one-time 4% tax on real estate sales over $5 million, rising to 5.5% on transactions over $10 million. A $5 million sale would result in a $200,000 tax bill.

A simple majority of the votes cast in the November 8 elections is required for passage.

Many of those involved in creating affordable or homeless housing see it as essential to continue their work.

“I really think it would be a game changer for us,” said Stephanie Klasky-Gamer, president and chief executive officer of LA Family Housing, a nonprofit homeless services and shelter organization. “Having a dedicated ongoing revenue stream — not a borrowing measure, nothing that happens once, but a dedicated revenue stream that could generate that amount of funds — would really allow us to achieve the growth in build that we’ve seen over the past five years.” experienced. ”

The ULA regulation initiative has also garnered support from unions, who say it would help its members find decent housing and secure jobs in the projects it funds.

A study by Rand Corp. showed that working conditions in a previous Affordable Housing bond increased construction costs by 14.5%. But supporters of the new tax proposal say it’s the result of people paying well and could result in up to 43,000 new construction jobs and 26,000 new affordable housing units being built over the next decade.

Social justice groups are emboldened that about 30% of proceeds go to fund emergency rent subsidies, direct payments to seniors and disabled people at risk of homelessness, and tenants’ right to counseling. They say these types of programs prevent people from becoming homeless.

“Any amount of money that we can get our hands on with seniors is usually the tipping point so they can pay rent without then having to choose between medication or treating food insecurity issues,” Diego Cartagena said , executive director of the legal aid group Bet Tzedek.

The group overseeing the measure, United to House LA, has raised about $3.9 million, mostly from labor unions, while opponents have raised about $1.5 million, including $775,000 so far from California Business Roundtable and $500,000 from Westfield Property Management.

Opponents say the tax could push up rents and make Los Angeles a harder place to do business, which could cause companies to flee the city.

They are citing Proposition HHH, the city’s much-criticized $1.2 billion homeless loan program, which voters approved in 2016 and has been plagued by cost overruns and delays. As of August, approximately 6,300 units funded by the bond were under construction.

An inspector’s report of work in 2021 indicated that 14% of the HHH units under construction at the time would cost more than $700,000 each to build. The city is paying about $130,000 per unit, with the rest of the money coming from government and philanthropic sources.

Opponents say much of the ULA’s money would go towards building homes, which are too expensive and take too long. Nearly 25% of the monies generated under the proposed tax would go towards sustainable affordable housing funded in a manner similar to Proposition HHH.

“Why should we raise more money and tax people when they sell their property…when we have failed to address homelessness with the billions that have come before it,” said Rev. Andy Bales, who leads the Union Rescue Mission, one of the largest City homeless shelters on Skid Row.

This money was “wrongly spent. It takes too long to develop these units. Once we develop them, they are too expensive. They’re not sustainable and then alcohol and drugs just flow freely,” Bales said.

The city already has a similar tax that transfers revenue to the general fund, albeit at a much lower rate than the proposed ballot measure. (The current tax — $4.50 per $1,000 — is $22,500 on a $5 million transaction.)

Klasky gamers and other supporters say this measure was written to reflect the lessons learned from Proposition HHH, including providing more flexibility on the cap on how much city money can flow into an affordable housing project. Developers say this limit slowed construction as they pooled funding from multiple sources, including tax credits.

Klasky-Gamer said Proposition HHH has enabled their nonprofit to create housing faster, going from one new development about every three years to breaking ground on three new buildings per year.

“Is it later than people thought it would be? Maybe,” she said. “But that’s bloody big and that’s because of the revenue in our system.”

New funds stemming from the voting measure are needed to continue this momentum, she said.

About a quarter of tax revenue would go towards alternative construction and the purchase of existing buildings. About 30% of the proceeds go to short-term emergency aid for tenants, grants for rent-burdened seniors or the disabled; and funds to provide legal aid to tenants.

Unlike previous home loan policies, there will be a paid inspector general with staff to check the progress of the money’s use. About 8% of the revenue would be earmarked for this purpose.

The city faces a financing crisis for affordable housing in the next few years. LA has committed to spending about $350 million on housing this fiscal year, primarily from funds from Proposition HHH, but only about $75 million next fiscal year and $49 million the year after, according to estimates by the Housing Department.

Proponents say this new tax is necessary to prevent the city from lagging behind in building new affordable housing. Opponents, meanwhile, say the term “mansion tax” is misleading.

In 2019, if this tax were applied, almost half of the proceeds would have come from the sale of commercial real estate and 27% from the sale of multifamily buildings such as apartments, according to analysis by consultant Mike Kahoe, who wrote a paper on the measure for the Center for Jobs & the Economy and the California Business Roundtable.

If the upcoming election measure had already been in effect, sales of these two property types would have brought in about $690 million, while sales of expensive single-family homes would have brought in just over $200 million.

“They add to the cost of doing business — whether it’s a rental business, office, or commercial property — those costs are passed on,” Kahoe said. “Especially in the current economic environment where these types of businesses, which are impacted by cost increases everywhere, are more likely to have those costs passed through more quickly.”

Billy Lehman Goodyear, a residential real estate developer, said he recently pulled out of buying property in Brentwood when he heard about the tax. He planned to build two houses there but then calculated the impact on his business if the measure were passed.

“This new tax … coupled with the downward movement in home prices that the tax is likely to cause, will make the work of many developers unprofitable and force many to halt development in the City of Los Angeles,” he wrote in an email and found the measure taxes the entire value of a sale and eats up much of the profit he makes on a development.

“For many, this tax will be the knockout blow.”

https://www.latimes.com/california/story/2022-09-30/mansion-tax-la-ballot-measure L.A. ‘mansion tax’ would raise money for affordable housing

Alley Einstein

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