New Tax Money Meant To Help LA’s Unhoused Is Stuck In Legal Limbo

There’s a new tax in town.

Los Angeles started collecting a major new tax on Saturday on large property sales to fund affordable housing and rental assistance to address homelessness.

It’s required under Measure ULA, an initiative 58% of L.A. city voters approved in November.

But the whole thing is in legal limbo.

That’s prompted a top city official to warn the L.A. city council and mayor to think twice before spending the money — until the courts have weighed in.

Two lawsuits were filed late last year seeking to block the tax, and the court rulings are still pending. There’s no date set for a decision, but it’s likely sometime after a May hearing on consolidating the 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 tax — which applies in the city of L.A. It’s 4% of the sale price on properties sold for over $5 million, and 5.5% on properties sold for more than $10 million.

Big money and big questions

The new tax is expected to generate around $670 million in the upcoming fiscal year, according to a city estimate. That’s near the bottom end of the range of what the city had told voters the measure would bring in ($600 million to $1.1 billion).

Mayor Karen Bass and the city council can plan how to spend the money — something expected in the mayor’s upcoming city budget proposal due by April 20. (A spokesperson for Bass said she was not available for an interview.)

But it’s a different story when it comes to actually spending the cash.

The city’s top financial advisor has cautioned that the tax money will have to be refunded to property sellers if the city ends up losing the court cases. In a report last month, City Administrative Officer Matt Szabo told the mayor and city council they need to decide if they’re willing to take on the risk of spending the money on key projects.

“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.

Differing views on how the tax will shape L.A.

The measure has been controversial. Supporters argue it’s a sorely needed boost to fund housing to address homelessness. Opponents say it will end up worsening the affordability crisis through the tax cost being passed onto renters.

“It's remarkable in that it's a permanent funding source that the city of Los Angeles should be able to count on — at a time it's really needed,” said Faizah Malik, an attorney with Public Counsel who is defending the tax in court on behalf of community groups.

“I think Measure ULA is going to have an incredible impact to address our housing and homelessness crisis,” she added, noting it is expected to fund rental assistance, eviction defense services, and the building of affordable housing.

Susan Shelley is a vice president at the Howard Jarvis Taxpayers Association, one of the groups that’s suing to block the tax as violating the state constitution.

“If it's 4% or 5.5% more expensive to buy an apartment complex, that becomes part of the overhead that has to be recouped and that will be calculated into the future rents,” Shelley told LAist.

“While the property owner may pay them initially, eventually it’s going to trickle down in terms of rent,” added Daniel Yukelson, executive director of the landlords group Apartment Association of Greater Los Angeles, which also is suing.

Malik said in her view, the tax’s impact on rent prices is “really speculative at this point," adding that renter protections like rent control help prevent people from falling into homelessness.

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

To what extent — if any — that will happen remains to be seen.

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 on Saturday.

The Measure ULA money will be put into a separate account rather than grouped into the general pool of city funds, said Diana Mangioglu, who serves as the city’s treasurer and director of finance.

That makes it easier to track expenses, Mangioglu told LAist.

Her office has put together a list of frequently asked questions about the tax, and Mangioglu said people can contact her office with any additional questions.