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STAKEHOLDERS - Remember proposition ULA, the Mansion Tax, that was passed in 2023? It is no surprise that in tax-happy California, it passed and has been implemented. Like every Tax supposed to cure the affordable housing and homeless problems, in LA, it has failed due to burdensome bureaucratic administration and expensive and arbitrary financial penalties imposed on a vital sector of the Real Estate Market.
It should have been easy to predict that interfering in a free market does have consequences. The revenue lost due to significantly reduced transactions has caused budget deficits, diminished the amount of money expected to be raised by Property Taxes, and slowed all kinds of real estate development in Los Angeles, including multifamily apartment buildings, manufacturing, and commercial developments and redevelopments. It has also driven commerce to other parts of the County unaffected by the ULA levies.
These ULA levies start at 4% for all properties sold between $5 million and $10 million; for properties over $10 million, the levies increase to 5 1/2%. Adding up to hundreds of thousands of dollars and perhaps even making the difference in whether the property is profitably sold or sold at a loss. But in all cases, it is significantly eating into profits that might have been reinvested in meaningful, productive projects. In the case of a distressed seller, it's an insult to an already big injury.
Politicians in California believe there's no better money to spend than other people's money. So, they spend your ultra-high and unaffordable tax dollars like drunken sailors. Heaping largesse on illegal immigrants, homeless addicts, and the mentally ill while requiring nothing from them in return for the aid given. As we've seen repeatedly, especially with the homeless situation, we end up with nothing to show for it. But there's a key difference: a drunken sailor spends his own money, while bureaucrats spend yours.
Proposition ULA passed with nearly 58% of the vote. The way ULA was marketed was misleading. It was advertised as only affecting people selling mansions and McMansions in upscale neighborhoods. For most voters, it seemed fair and justified; they believed it was our "duty" to make the wealthy contribute to help those in need. This was Robinhood at its best.
As usual, most people did not understand or read the fine print, including the press. The reality was that it wasn't just for those selling large homes who would face this additional confiscatory Tax; it applied to almost any property sold in Los Angeles. Councilwoman Nithya Raman (CD4) admitted that Measure ULA was intentionally promoted as a "Mansion Tax" to secure voter approval, even though it was meant to include any property transaction over $5 million. This bait-and-switch tactic has resulted in accusations of misleading voters about the true scope and effect of the Tax. In other words, the ballot materials were intentionally false.
Prop ULA was authored by a large coalition of labor unions, tenant rights advocates, nonprofit housing developers, and faith-based groups. Some key organizations that authored and promoted this bill were the LA County Federation of Labor, the California Community Foundation, the United Way of Greater Los Angeles, Los Angeles-Orange County's Building and Construction Trades Council, and Service Employees International Union 721. ULA was also blessed by the usual paid experts who always publish a white paper telling you what their benefactors want you to hear.
Well, jumping Jehoshaphat, who would have thought that imposing a heavy tax on high-value real estate would disrupt the real estate market and make property owners hesitant to engage in transactions? This has hurt property tax revenues, negatively impacted the local economy, and reduced the need for construction jobs, slowing down normal business activities.
There are many issues with how Measure ULA was drafted, even though all its supporters aimed to make it bulletproof. There are numerous unintended consequences associated with this measure. Because of these problems and inherent unfairness, this Tax will now have another day in court as it is being appealed in the California Court of Appeals. Below, we highlight some of the plaintiffs' arguments supported by key facts.
This Tax applies to the gross proceeds of sales, not net profits, which plaintiffs argue is arbitrary and unconstitutional. The plaintiffs criticize the ULA for using gross sales proceeds as a proxy for the ability to pay, arguing that it lacks a rational basis. They assert that the Tax applies indiscriminately, regardless of the seller's financial circumstances. The plaintiffs point to outright unfairness because the Tax applies even if properties are sold at a loss or are in financial distress.
The Equal Protection Clause (the 14th Amendment) requires that laws treat similarly situated individuals or entities equally unless there is a rational basis for the distinction.
Critics argue that ULA's dependence on gross sales proceeds instead of net profits creates an arbitrary and unjustifiable distinction among taxpayers: Sellers of high-value properties are heavily taxed regardless of whether they turn a profit or incur a loss. Properties under $5 million, which can generate significant profits, are completely exempt from the tax, leading to unequal treatment among property owners.
Plaintiffs claim the ULA has decimated the Los Angeles real estate market, reducing high-value property transactions by 83% and generating only 26% of the promised revenue. They argue this has harmed the local economy and property tax collections. The argument suggests that the ULA unfairly targets a small group of property owners, leading to claims of class warfare.
Additionally, the legitimacy of ULA's legislative end is challenged by allegations of animus against a politically unpopular group, which can invalidate the law under all levels of scrutiny.
ULA conflicts with California's Documentary Transfer Tax Act (DTTA) in several ways, including Contradictory authority over tax collection (City's Director of Finance vs. County Recorder). Irreconcilable allocation schemes for collected funds. Duplicative and conflicting refund and appeal procedures. Lack of statutory authorization for the County Recorder to implement ULA requirements. The ULA allegedly violates Article XIII, Section 4 of the California Constitution, which prohibits local governments from imposing transaction taxes on real property sales. This section was established to prevent local entities from circumventing property tax limitations like Proposition 13.
Measure ULA negatively impacts the financing of new apartment buildings due to its restrictive provisions that conflict with conventional lending standards. Key issues include the fact that ULA mandates affordability restrictions "in perpetuity" even if the property is sold. Limiting resale options, which are incompatible with requirements from government-sponsored entities like Fannie Mae and Freddie Mac. These government-sponsored enterprises demand flexibility in case of default, which ULA does not provide. This prevents developers from securing conventional debt financing. ULA imposes mandatory union labor agreements for larger projects (40+ units), inflating construction costs and further complicating financing. Developers are still struggling to finalize funding agreements under ULA's restrictive terms.
Despite collecting significant funds of $703 million, way less than its activist backers hoped, as of May 2025, according to the ULA Dashboard, a mere skosh of funds has been released. ULA has an interim income support program that awarded only $9.6 million and served a meager 481 households. No data is supplied on how many households have applied for this financial assistance.
Another interesting failure of the ULA program administered by the Los Angeles Housing Department is the emergency rental assistance program, which has a total of 31,388 applications from people looking for help paying back rent. The total renter assistance requested is almost $474 million, yet, as of December 15th, 2024, only $31 million has been paid. Why so little? What are they doing with all the money? This small number of families being helped by this Tax leads one to wonder, are there restrictions and draconian conditions hidden in the measure that block the flow of money going to the aid of deserving applicants? Or, in fairness, are they slow walking the aid due to legal challenges?
Although ultra-liberal UCLA initially praised the ULA tax as a great solution to tackle affordability issues in the city, it has changed its stance. UCLA revised that initial opinion with a study released on June 1, 2025, highlighting the unintended consequences of the Mansion Tax measure. This study confirms everything the appellants have argued extensively in the appeals process. For all these reasons, including economic justice, fairness, social justice, and a stronger economy, the Appeals Court should overturn the ULA tax.
(Eliot Cohen has been on the Neighborhood Council, serves on the Van Nuys Airport Citizens Advisory Council, and is on the Board of Homeowners of Encino, and was the president of HOME for over seven years. Eliot retired after a 35-year career on Wall Street. Eliot is a critic of the stinking thinking of the bureaucrats and politicians that run the County, the State, and the City. Eliot and his wife divide their time between L.A. and Baja Norte, Mexico.)
