Study Estimates $177 Million Hit to Mansion Tax

A proposed ballot measure to create aggressive carveouts to the city’s Measure United to House L.A. tax is going through the ringer — following the release of a study which estimated changes to the tax could cut its revenue by 35 percent, or $177 million.

New findings presented to the committee tasked with evaluating any changes to Measure ULA seemed to beg more questions than answers. Friday’s discussion offered little on which way the city of Los Angeles should go on possible amendments to the so-called mansion tax, as local leaders sparred over the interpretation of opposing data sets.

Measure ULA, which went into effect in 2023, currently applies a 4 percent tax on real estate deals starting at $5.3 million and increases to 5.5 percent on transactions of $10.6 million or more. Those price thresholds will change to $5.4 million and $10.9 million after June 30.

An analysis presented on Friday to the Measure ULA ad hoc committee — the three-person group tasked with reviewing all matters related to the tax — marked the first time a study from within City Hall has gone before the panel.

That analysis, which was conducted by the Los Angeles Housing Department, evaluated the implications of ULA exemptions 4th District Council Member and mayoral hopeful Nithya Raman sought to get her peers to fast track onto the June ballot back in late January. Instead, that proposal drew the ire of some, who suggested the move lacked a full public discussion.

“We’re tracking the discussions underway in the ad hoc committee on Measure ULA reform and look forward to engaging further when this matter comes before the full council,” Raman said in a statement to The Real Deal.

The Raman proposal from January, which would have provided a 15-year carveout for newly built multifamily, commercial and mixed-use projects, would reduce ULA revenue by 13 percent, according to LAHD. When factoring in remodels done to those same property segments, the revenue reduction would be 29 percent.

In the case of an exemption for Palisades fire-impacted residential property owners, LAHD estimated a 6 percent annual reduction in ULA revenue. If only single-family residential properties destroyed by the fire or another natural disaster received the carveout, ULA’s revenue would be reduced by 2 percent annually.

When combining the most comprehensive of those scenarios — counting new and remodeled commercial properties, in addition to residential properties impacted by a disaster — LAHD estimated a 35 percent, or $177 million, cut in ULA’s revenue stream.

Dueling data

Since the creation of the ad hoc committee, which began meeting in late March, a raft of competing data sets and studies have been presented to the three-person group. So far, that has included an analysis from a coalition calling itself Amend It, Don’t End It. That group is backing changes similar to what Raman first proposed.

More recently, the United to House LA coalition, composed of supporters of the tax, presented its own data sets, arguing that technical changes — such as expanding the definition of what qualifies as an affordable housing developer — can happen without the need for a ballot measure.

“Today we saw that the waivers as proposed in an old council motion would devastate programming for those who need it most,” United to House LA Executive Director Joe Donlin said in a statement to TRD in response to the LAHD analysis.

He further added “there is absolutely no reason to weaken the city’s greatest asset for housing affordability.”

Jesse Zwick, Southern California director of the Housing Action Coalition — which is part of the Amend It, Don’t End It group — said the LAHD study doesn’t fully assess ULA’s impact and doubled down on the group’s stance in favor of the 15-year carveouts, which he called “a really elegant and surgical way to alleviate the worst costs of the measure, while preserving the vast majority of its revenues.”

And, now, dueling leadership

Competing data sets have become a divisive point within the community and, now, the ad hoc committee.

Ysabel Jurado, committee chair and 14th District council member, attempted on Friday to underscore the trend of increasing ULA revenue annually, which would counter assertions that the tax is stymieing deal flow.

Meanwhile, committee member and 12th District Council Member John Lee countered to clarify that the increased revenue was not the same as an increase in transactions, the latter of which the LAHD findings do not show. He further grilled LAHD on whether it had looked into any explanation on why other counties may be building at a faster clip than the city but was told that wasn’t part of the study.

Separately, the committee was also set to discuss the option of creating a municipal bond for a more stable ULA revenue stream. This item wrapped quickly due to speaker Kathleen Brown of the law firm Manatt — who was expected to present to the committee on a possible bond — being unprepared to field questions on the legalities of such a move.

Jurado further made a point of ripping into the idea of ULA being solely to blame for real estate market conditions and a slowdown in multifamily development in the city, calling such conclusions a “logical fallacy.” Further, she seized on characterizations some have made in the past that lenders have “redlined” the city, an idea that’s been said by many developers, including Rick Caruso.

“Redlining was a choice by banks to not fund in communities of color and so that continued use of that term by developers indicates to me that that choice holds now,” she said.

Lee’s attempt to ask Brown another question was cut off by Jurado, who moved the committee to the LAHD study.