Measure ULA Carve-Outs Could Reduce Tax's Revenue By Up To 35% Annually, City Report Says

The carve-outs to Measure ULA that the city is mulling could translate to the roughly 3-year-old real estate transfer tax generating up to 35% less revenue annually, a city report found.

The figure comes from a Los Angeles Housing Department report, submitted over the weekend, that looks at four different situations that have been suggested as tweaks to the measure and estimates how their outcomes will affect the money generated by the tax. 

ULA adds a 4% tax on transactions of more than $5.3M and a 5.5% tax on transactions over $10.6M. 

LAHD's analysis found that exempting commercial and multifamily properties built or substantially remodeled within the past 15 years from the city's so-called mansion tax could reduce revenue from the measure by as much as 29%, or $145M, per year.

Exempting only commercial and multifamily projects built in the last 15 years would cause an estimated 13% drop in revenue, or $64M, per year, the report's authors said. 

Creating a carve-out for residential properties impacted by the Palisades fire would reduce revenue by $32M, or 6%, annually while in effect. Restricting the carve-out to just those homes destroyed by the fire would mean a 2%, or $8M, annual drop in revenue for ULA while in effect. 

Mayor Karen Bass last year suggested a three-year pause on ULA for "owners of homes, condominiums and other residential housing whose ownership was affected" by the Palisades fire in the fall.

A combination of the "broadest exemption scenarios" that includes transactions on 15-year-old commercial and multifamily properties as well as pauses for fire-impacted areas could reduce total revenue by about 35%, or a decrease of roughly $177M in ULA revenue each year, the report's authors said.

There are also possible revenue losses from interest and fees on ULA loans and other collateral reductions that could occur, according to the report, but weren’t included in the estimates.

The report is the result of a January request from Councilmembers Ysabel Jurado and Eunisses Hernandez, who said it was "critical to understand  the fiscal, programmatic, and operational impacts" of the changes the council was considering before they voted on them. 

Measure ULA passed with 57.8% of votes in November 2022 and went into effect in April 2023. It has come under fire as critics, including those in the real estate industry and academics, have argued that it is discouraging new apartment production and commercial real estate transactions. 

Measure ULA has been slower to hit estimated revenue targets than previously anticipated but passed the $1B revenue mark in January. Those funds have been used for a wide array of public benefits and tenant advocacy programs, including funding for affordable housing and eviction defense.