Los Angeles Delays ‘Mansion Tax’ Spending Amid Legal Fight

Laura Curtis
·2-min read

(Bloomberg) -- Los Angeles plans to hold off spending most of the money collected from a voter-approved “mansion tax” until legal challenges against the initiative are resolved.

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Mayor Karen Bass revealed in her 2023-24 budget plans that the city intends to allocate just $150 million of the funds raised by Proposition ULA, a ballot initiative that took effect this month to fund the construction of more affordable housing.

The decision will prevent the city from taking a loss if a lawsuit succeeds in reversing the tax, according to budget documents released this week. The city anticipates it would qualify for $150 million in federal reimbursements to make up the amount.

City officials project the tax will bring in $672 million in the fiscal year starting in July, which is at the lower end of initial projections that ranged as high as $1.1 billion. The levy imposes an added 4% on the sale of properties valued over $5 million and 5.5% for those sold for $10 million or more, paid by the seller.

“While it’s disappointing, we appreciate the city’s caution,” said Stephanie Klasky-Gamer, president of LA Family Housing, a nonprofit service provider for the homeless. “Ideally, the city would borrow against its reserves so that they can spend more aligned to the projected dollars raised via ULA.”

Read More: Los Angeles’s ‘Mansion Tax’ Aims to Unlock Affordable Housing

Los Angeles County is facing a shortage of an estimated 500,000 affordable housing units, exacerbating the region’s homelessness crisis. Over the past decade, the homeless population has grown by more than 75% to nearly 70,000, with people sleeping on sidewalks, in tent encampments and camper vans throughout the county.

The real estate industry opposed the tax, saying it may worsen affordability by increasing rents for businesses and residential tenants. Some have also expressed concern about the timing, as higher interest rates have already cooled the housing market.

The Howard Jarvis Taxpayers Association and the Apartment Association of Greater Los Angeles have a filed lawsuit against Proposition ULA, saying the new tax violates California’s constitution, according to the Los Angeles Times.

Voters have previously backed tax revenue measures to address homelessness — an issue consistently cited as a top concern for residents in polls.

In 2016, LA city taxpayers approved Measure HHH, a $1.2 billion bond measure to finance more than 12,000 housing units for the homeless. However, fewer than half of this units have been completed, according to the Los Angeles Housing Department. The program stoked public outrage when the city controller last year reported cost overruns, with some units being built for $840,000 each.

(Adds comment from housing advocacy group in fifth paragraph.)

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