California Supreme Court Will Hear Arguments On Constitutionality Of Anti-ULA Ballot Measure

The California Supreme Court will hear arguments May 8 about the constitutionality of a measure planned for November’s ballot that would reverse Los Angeles’ real estate transfer tax and dozens of other recently enacted special taxes.

The court got involved after Gov. Gavin Newsom and the state legislature petitioned to take the measure off the ballot, an intervention that groups on both sides of the measure say is unusual. 

On the surface, the measure seeks to change how much of a voter majority proposed special tax initiatives need to become law. But in the lead-up to November, it has the potential to impact everyone in Los Angeles commercial real estate. 

“There's a two-tiered system right now,” California Business Properties Association President and CEO Matthew Hargrove said, describing the way the state can pass special taxes. 

The ballot measure that he and a coalition of supporters are backing, the Taxpayer Protection and Government Accountability Act, focuses on shutting down that two-tiered system.

The existing system was made possible by a 2017 court decision about how cities can get special taxes approved. It essentially created two thresholds for approval, allowing ballot measures proposed by citizen groups to pass with a simple majority while government-proposed measures need a two-thirds majority.  

“If the city of LA had put [Measure] ULA on the ballot, it would have required a two-thirds vote,” Hargrove said. “But because the city of LA did not do it, they deferred to community groups to do it, they got the benefit of that 50% vote threshold.” 

Measure ULA passed with 57.8% voter approval.

Hargrove and supporters say the measure restores the historical two-thirds requirement to pass these special taxes and laud its transparency measures that require detailed ballot descriptions of what the revenue will go toward. 

Closing what the measure’s supporters call a loophole would require making changes to the state constitution to clarify the voting threshold and expand the definition of a tax in such a way that it could apply to some charges that state and local governments currently classify as fees, the state’s Legislative Analyst’s Office wrote. The measure could require them to be approved by at least two-thirds of voters. 

Those changes may have a negative fiscal impact on government coffers. The Legislative Analyst’s Office predicted “lower annual state and local revenues, potentially substantially lower, depending on future actions of the Legislature, local governing bodies, voters, and the courts.” 

Newsom, the legislature and many opponents of TPGAA, which includes the United to House LA coalition that supported Measure ULA, argue in their challenges that the new measure is unconstitutional. 

The TPGAA seeks to restructure the state's constitution, altering the fiscal powers of the legislative and executive branches and those of the voters well beyond the level of a constitutional amendment, said Jonathan Jager, a staff attorney with Public Counsel who authored an amicus brief for United to House LA.

“The governor’s position, which the coalition agrees with, is that the Taxpayer Protection Act measure so fundamentally rewrites the state constitution … it’s a revision to the constitution,” Jager said. 

Unlike constitutional amendments, revisions to the state constitution can’t be proposed by citizens. They have to come from the legislature, Jager said. 

If approved, the TPGAA would go into effect retroactively, requiring such initiatives passed since Jan. 1, 2022, to return to voters and get the two-thirds majority approval in 2025. 

Measure ULA is one of roughly 40 tax initiatives in the state that would be invalidated by the TPGAA if it passes, Hargrove said, but there is some disagreement about that. The League of California Cities counts more than 130 initiatives that would be overturned, a figure that Hargrove contested. 

Measure ULA supporters put out a report this month tallying the revenue generated by Measure ULA and where the money is headed. In the first 10 months after the measure went into effect on April 1, 2023, it raised $192M. Although that is well below the $672M the measure was once estimated to raise annually, it is also more than 2.5 times the federal funds the city receives for affordable housing every year, according to the report. 

The California Supreme Court is tasked with determining whether TPGAA is unconstitutional and if there is a case to be made for the court getting involved and keeping the measure off the November ballot.

Whatever the court decides, CRE professionals won't have to wait long to find out. The court said it would issue a ruling on the matter before the end of June.