Money from LA’s Measure ULA tax mired in legal limbo

Los Angeles may collect millions from its new “mansion tax,” but it may not spend the money until the courts have weighed in on Measure ULA.

The controversial tax on large property sales passed by voters in November to fund affordable homes for homeless residents is now mired in legal limbo, with a top official cautioning not to spend the money until the court questions are settled, LAist reported.

The city’s top financial advisor has warned the tax money would be refunded to property sellers if the city ends up losing two legal challenges. So he recommends the city think twice about spending the money until the courts announce their decisions.

City Administrative Officer Matt Szabo told the mayor and City Council they need to decide if they’re willing to take the risk of spending the ULA money on key projects, according to a report last month, 

“The collected taxes would need to be refunded regardless of the measure passing if the city loses in the pending litigation and Measure ULA is invalidated,” Szabo wrote.

The two lawsuits were filed late last year seeking to block the tax, with court rulings pending. There’s no date set for a decision, but it’s likely after a May hearing on consolidating both cases.

In the meantime, the city’s top finance advisor says the city legally has to abide by what voters approved in November.

That means collecting the city’s so-called “mansion tax,” which since April 1 has collected 4 percent of the sale price for both commercial and residential properties sold for more than $5 million and 5.5 percent on properties sold for more than $10 million.

The tax is now expected to generate $672 million in the upcoming fiscal year, according to a city estimate. That’s 25 percent less than the $900 million estimate provided to voters in November, assuming $5.1 billion less in property sales. 

Supporters of the tax say it’s sorely needed to fund housing to address homelessness. Opponents say it will end up worsening housing affordability by passing the tax cost onto renters.

UCLA economics professor Jerry Nickelsburg argued last month that the new tax will result in less incentive to upgrade or develop properties in Los Angeles.

County officials collect the tax on the city’s behalf, and are expected to send the first batch of money to the city in mid-to-late May. Matthew Crawford, the city’s assistant director of finance, said he hasn’t yet heard how much tax revenue has been generated since collection began.

The Measure ULA money will be put into a separate account rather than grouped into the general pool of city funds, Diana Mangioglu, who serves as the city’s treasurer and director of finance, told LAist. That makes it easier to track expenses.

— Dana Bartholomew