Business group challenges Santa Monica’s transfer tax

A Los Angeles backlash against real estate transfer taxes has spilled over into Santa Monica.

A statewide group of business executives has filed a lawsuit against the City of Santa Monica to block Measure GS, a real estate transfer tax passed by voters in November, the Santa Monica Daily Press reported.

The lawsuit by the nonpartisan California Business Roundtable, made up of leaders among the state’s major employers, seeks to scuttle a tax it says violates the state constitution by splitting the proceeds between local schools and affordable housing.

It follows legal action against Measure ULA, the controversial “mansion tax” passed by Los Angeles voters last fall.

The Santa Monica tax measure, sponsored by then-mayor Sue Himmelrich, charges $5,600 per $100,000 on all real property sales or transfers of more than $8 million, with revenue going to fund schools, homelessness prevention and housing projects.

The city has decided to fight the lawsuit, according to the Daily Press.

The lawsuit contends GS is invalid as it stipulates money would be split between two causes: funding schools and affordable housing. California law prohibits ballot measures on more than one subject.

According to the measure, the first $10 million raised each year will go to support public schools, the next $40 million will go to homeless housing and anything above $50 million will be split 80/20 between housing and schools.

The Business Roundtable contends Measure GS violates the state’s “single-subject” rule, which states that “an initiative measure embracing more than one subject may not be submitted to the electors or have any effect,” according to the complaint.

More than half of states have a similar clause, and courts have upheld the argument that multiple-subject rules can cause possible voter confusion and disenfranchisement when unrelated subjects are combined.

The Roundtable lawsuit contends Measure GS tax includes two separate and disparate subjects.

On the one hand, the initiative provides increased funding for general public education provided by the Santa Monica-Malibu Unified School District. On the other, it provides increased funding for a new comprehensive affordable housing program.

“Great and irreparable harm will result to members of the plaintiff, and to many other Santa Monica property owners desiring to sell or transfer their real property,” the lawsuit says of the transfer tax. “Moreover, the citizens of Santa Monica (and Malibu) may be harmed if the unlawful revenue source is relied on to incur debt, or long-term financial commitments by the city or the school district beneficiaries.”

The City of Malibu lost a “single-subject” lawsuit over its voter-approved Measure R in 2014. That law gave voters approval over some retail developments and limited the percentage of formula retail that a shopping center could hold. A court ruled the measure illegal in 2016; an appeal was rejected in 2017.

Los Angeles voters approved the Measure ULA transfer tax in November to support affordable housing and homeless programs. Measure ULA raises money by adding a one-time tax of 4 percent on all property deals in the City of L.A. above $5 million, with the tax rising to 5.5 percent on deals above $10 million.

The L.A. measure was challenged in court last month based on the specificity of the proposal.

The Apartment Association of Greater Los Angeles and the Howard Jarvis Tax Foundation, which filed a lawsuit, says “Measure ULA is invalid.”

While some transfer taxes have been permitted in California charter cities, the complaint by the landlord group says “transfer taxes that are ‘special taxes,’ however, are prohibited for all local governments.” It argues that Measure ULA is a special tax because the revenue it would generate is “specifically dedicated to housing and homeless services.”

— Dana Bartholomew