California's Top Court Nixes Ballot Challenge to Measure ULA

Measure ULA, approved by California voters in November 2022, added a 4% property transfer tax on real estate deals.

The California Supreme Court has blocked a November ballot initiative that could have overturned the Los Angeles property transfer tax known as Measure ULA, as well as 40 other special taxes across the state.

The Taxpayer Protection and Government Accountability Act initiative sought to change the percentage of votes that proposed special taxes need to become law, increasing the threshold for approval to two-thirds of voters from the current simple majority.

The proposed law would have gone into effect retroactively, applying the two-thirds approval requirement to any special tax initiatives passed since Jan. 1, 2022.

Measure ULA, which was approved by California voters in November 2022 by a 58% to 42% margin, added a 4% property transfer tax on real estate deals in Los Angeles above $5 million, with the rate increasing to 5.5% on deals above $10 million.

Proponents of Measure ULA promised that the property transfer tax would generate up to $1 billion in new revenue for a House LA Fund to combat homelessness. However, after the measure was enacted in April 2023, transaction volume plummeted in L.A. and the new law brought in less than $200 million by the end of last year.

In the wake of Measure ULA's approval, real estate interests spearheaded by Kilroy Realty and the California Business Roundtable began circulating a petition to put the Taxpayer Protection and Government Accountability Act on the November 2024 ballot.

The proposed state referendum didn't mention Measure ULA, but its retroactive 66% approval requirement would have killed the property transfer tax. In February 2023, California's secretary of state certified that the petition had garnered 1 million signatures, putting it on this year's ballot.

Last fall, Gov. Gavin Newsom petitioned the California Supreme Court to block the ballot question, arguing that it would cut off revenue sources across the state. The state's top court unanimously agreed.

"Those changes would substantially alter our basic plan of government. The proposal cannot be enacted by initiative," Justice Goodwin Liu wrote in the court's ruling.

The ruling by California's top court may not be the last word on legal challenges to Measure ULA. In September, a federal judge ruled that federal court is not the proper venue to challenge the property transfer tax. Judge John Kronstadt dismissed a federal lawsuit Newcastle Courtyards filed against the City of Los Angeles claiming that the new transfer tax violates the equal protection clause of the US Constitution.

The U.S. Court of Appeals for the Ninth Circuit has agreed to hear arguments over the legality of Measure ULA later this year.

Source: GlobeSt/ALM