Transcript
Speaker: Hello, and welcome once again to John Nerds Out on California Housing Legislation. I am John, and this is episode 15, Turnabout is Constant Play, or the Transfer Tax War.
Speaker: In this episode, I'm going to be talking about one story only, but a story that sprawls across many aspects of policy, housing, taxation, even services. which took many forms over the course of 2026 to date, starting with concern over a particular kind of housing policy and ending with a ballot measure that we will all have to vote on in this November, that the assembly member who submitted it told people to vote no on.
Speaker: It had a surprising number of twists and turns. And I think this is going to tell people a lot about how things happened in California, which is to say, in many cases, by the seat of our pants.
Speaker: but perhaps a little more serious work by all involved than you see in DC. So let's go back to the beginning as we so often have to in California housing policy, Prop 13, 1978 passed like a bombshell. I've probably mentioned it on the podcast before.
Speaker: Greatly cut existing taxes. It put that in the constitution permanently made it exceedingly hard to raise taxes going forward. It has been a big reason that California has seen the quality and abundance of its social services decrease since 1978, going from top-ranked schools to low-ranked.
Speaker: Perhaps has been related to not enough housing, although there are actually different opinions on that, but moving on. Prop 13 limited the increase in taxes both at the state level and at the local level.
Speaker: But there is the local power of initiative. And the details of what was allowed, i think, changed a certain amount over the 1980s. and believe there was a time when local governments could not increase taxes even if everyone voted for it.
Speaker: But by the time I got involved in California, i knew it as a fairly simple rule, if still too complex, that you could put a new tax on the ballot locally.
Speaker: By the time i got to California, it had settled out into something fairly understandable, at least for me. There are two kinds of taxes in terms of their purpose, general taxes and special taxes.
Speaker: General means the money can go to anything based on whatever the city council or county board or whoever says they want to use it for. It is up to their discretion. It is a general purpose fund.
Speaker: A special tax means that the measure that passed the tax says it can only be spent on one or two things. So this is a tax for education, tax for policing, a tax for housing.
Speaker: It is dedicated, and although usually the local government can decide some things about how it's used, they cannot change its purpose. the rule about taxes was general taxes can be passed at the local level by ah a majority vote of the local voters.
Speaker: So 50% plus one. But if you want it to be a special tax, then you have to get two-thirds approval, 66.66667%. sixty six points six six six or six seven percent The motivation for this was the same anti-tax ideology that motivated Prop 13.
Speaker: Basically, it was designed to make taxes harder to pass. Because it's a lot easier to pass something at the ballot by saying it's for some good thing that the government does, schools, roads, safety, than it is to pass a general tax where the opponents can say, this is a slush fund. They could use it for anything. You don't know.
Speaker: So the anti-taxers didn't care quite so much that you could pass some taxes with 50% plus one. In the 80s, that rarely happened. Over the 2010s, it started to happen more, at least in the bluest of cities, because you started to get to the point where voters had built up a bit of an immunity to this, and you could get 50% plus one, sometimes in a few places, for a general tax.
Speaker: And more and more, you saw special taxes approved with two-thirds of the vote, though again, more in the further left parts of the state. Then something was upended by a rather strange, in my opinion, court case that went up to the California Supreme Court level.
Speaker: The case that started in the city of Upland, which is in San Bernardino County, was California Cannabis Coalition versus city of Upland. And the constitutional question that it came to was, the Constitution says any tax imposed by local government must get a two-thirds vote if it's a special tax.
Speaker: Well, what does imposed by the local government mean? Does it mean that the local city council voted to put it on the ballot? Does it also include if citizens used the initiative power, collected signatures, and put it on the ballot without the approval of the council?
Speaker: The Supreme Court eventually said, imposes means the act of putting it on the ballot, right? And therefore, the requirement for two-thirds for special taxes only applies when it is the city council or board of supervisors putting it on the ballot.
Speaker: So what that means in practice is suddenly there's a big exception. Now, if you have the juice to collect signatures... You can get a special tax that says it's going to schools or safety or transit on the ballot.
Speaker: You have to collect the signatures, which takes time, effort, usually some money. But then once it's on the ballot, you only need 50% plus one. And because it's a special tax, it will be easier to pass it.
Speaker: It took several years of wrangling in court. There was at least one tax measure where all the money was being collected and put into trust, not being able to be spent until the final court ruling.
Speaker: But now it's 2026, and that shook out, and it became the new normal. Under Upland, you can get something on the ballot as general, and to get 50% threshold.
Speaker: Or if you collect signatures, you can get a special tax on the ballot with a 50% plus one threshold. And of course, once this was fully understood, various activist groups started doing it.
Speaker: And what's on my mind right now is the regional transit measure which is put on the ballot across five counties in the Bay Area. It is extremely needed to help save transit from a fiscal cliff coming in January 2027.
Speaker: And because of the decision in Upland, it is going to be passed without needing two-thirds of the vote, and the money will still be dedicated to transit. But once this was understood enough to be common, we got a new measure in the city of Los Angeles,
Speaker: that was specific to housing, that did certain things that started to upend the apple cart once again. This was Measure ULA passed in 2022, and it was a real estate transfer tax.
Speaker: Transfer tax meaning whenever a home over the threshold or an apartment building is sold, you have to pay this percent in the form of a tax to the local government.
Speaker: It was a special tax where the proceeds were dedicated to affordable housing and tenant assistance. It was billed as a mansion tax because it got much higher than taxes had been before, than transfer taxes had been for high cost housing.
Speaker: Specifically, it was 4.45% for properties being transferred between 5.4 million and 10.6 million. I believe it started at 5 and 10, but that trended up over time. 5.95% for properties over 10.6 million.
Speaker: Previously, not many cities had passed much over 3%, and usually more like one-half, one, one-and-a-half percent. Here's the problem. I said apartment buildings.
Speaker: Even though it was dubbed the mansion tax, it applied to the value of the property. So it doesn't matter if it's a $10 million dollars house that's a single family house, a mansion, or if it's $10 million dollars because it's a 100-unit apartment building and each unit is worth $100,000.
Speaker: It treats those both as worthy of the same high taxation, that they're basically fat cats and they should be taxed because they're too rich. I think that's pretty questionable. a lot of people did. And it seems like it had a negative effect on the development of housing because it would apply to the first sale after a new apartment building is developed.
Speaker: In particular, there was an influential report by the UCLA Lewis Center for Regional Policy Studies called The Unintended Consequences of Measure ULA by Michael Manville and Mott Smith, which presented evidence in 2025 that after ULA went into effect,
Speaker: Properties selling above the tax threshold fell by as much as 50%. So they said, the evidence suggests measure ULA is neither a true mansion tax nor a tax that falls solely on unearned property wealth.
Speaker: The tax falls on mansions, yes, but it also impedes the trade in commercial, industrial, and multifamily property and jeopardizes LA's ability to build new housing. It did raise a lot of money, raised over a billion dollars.
Speaker: but it may have had a very large unintended impact. I say unintended, I think that some of the people involved in the tax, in the detailed design, may well have known what they were to get doing, and they may have liked it, because there are some weird people in LA, and some of them are near power.
Speaker: So people were stewing about this. Especially stewing about this were LA real estate people. residential real estate, developers, commercial real estate, anyone who's selling.
Speaker: And what seems to have happened is that these l LA real estate people and a lot of the California business community in general, but with them at the helm, started to talk about undoing it constitutionally.
Speaker: Because one of the tricky things with California right now is that although the voters by and large vote overwhelmingly for Democrats, we have ah hypermajority, usually like three-fourths of our legislature approximately is Democratic, a lot of those Democrat voters are also very skeptical of new and existing taxes.
Speaker: Raising taxes, even when it's very justified, struggles at the state level to get 50%. And if you pass something, if and if you put something on the ballot that says it's going to limit taxes in general, it has a good chance of getting 50%. It has good chance of getting a safe 50%, 55, 58, even 60%.
Speaker: fifty five fifty eight even sixty So they got together these business types with the Howard Jarvis Taxpayers Association, which tries to maintain the legacy of Howard Jarvis, who submitted Prop 13 and campaigned for it.
Speaker: They have passed many other anti-tax measures over the years. and have been a big part of what the California Constitution is today. The HJTA itself doesn't have a ton of money.
Speaker: It has some money, but not the kind of money that passes measures at the state level. So they needed support from business. They needed millions, maybe tens of billions of dollars to have a good chance at getting something going.
Speaker: They submitted something that they called the Local Taxpayer Protection Act, and started collecting signatures. The full name was California Two-thirds Vote Requirement for Special Taxes and Charter City Real Estate Transfer Tax Prohibition Initiative.
Speaker: It was ah very comprehensive bill. It targeted not just Measure ULA, but the whole construct under Upland that helped pass ULA and many other things.
Speaker: And it did a lot. It would have been something of a wrecking ball to California local government. at least to places like LA, San Francisco, Berkeley, Oakland, Santa Monica, that have passed these kinds of things.
Speaker: First of all, it basically repealed the Upland decision or overturned it. This measure would have said, if it's a special tax, it has to have two-thirds of your local vote, no exceptions.
Speaker: Doesn't matter if the council put it on the ballot or if you got signatures for it, two-thirds, just like it was before roughly 2020. It repealed all transfer taxes except for 0.11% that already existed at the state level.
Speaker: And the really big wrecking ball on top of that was it repealed Upland retroactively. It said everything passed that was a special tax that only got a majority and not a two-thirds majority, is going to be repealed.
Speaker: So a whole lot of measures that many big cities had passed over the last several years would have been repealed by this statewide constitutional amendment. That would have been a huge deal, would have caused a lot of chaos at the municipal level.
Speaker: And I should say that although the transfer tax in ULA was really broad brush in some honestly unprecedented ways, there are a lot of cities that have done more targeted transfer taxes that are usually a smaller percentage.
Speaker: They usually treat apartment buildings better. And removing those would also hurt those cities that pass them in probably better faith than measure ULA.
Speaker: so Even though this was a pretty extreme measure, and it's possible that a campaign would have kept it from passing, it still had pretty good chances, everyone thought, because, again, you have the anti-tax voter who also votes Democratic.
Speaker: and the anti-tax voter could have swung it. So over the course of the year, and not to say that everyone understood the urgency the whole time, there was some work to get this onto the agenda, but there was work in fits and starts to try to keep this from getting on the ballot.
Speaker: Now, how do you keep something from getting on the ballot if it's already submitted the signatures, which this one has? Well, currently, this wasn't always the case, but in California law, the submitter of a ballot measure has right to withdraw it up to a certain date, which was around the end of June.
Speaker: The idea is that sometimes they might negotiate with the legislature and get something passed, but just in state law, without having to go to the voters, without having to spend all that money and take everyone's time and attention and annoy everyone, they might work something out with the legislature, something that works for both parties.
Speaker: So the idea was, if we can do something about the original measure ULA, which is what created the money for this Howard Jarvis Taxpayers Association measure to get its signatures, if we can just reform the transfer taxes so that the problematic ULA is reduced, and then maybe the proponents will take this off the ballot because the people who are funding them are no longer going to be funding them.
Speaker: I believe that one of the big negotiating counterparties, according to the news, was the California Business Roundtable, which also had been a big donor to this ballot measure in the first place.
Speaker: When you look at the other donors, a lot of them are real estate. Some of them are commercial real estate. And so in the end, what came out very near the deadline was Assembly Bill 736. This was a transfer tax reform that would have cut various local taxes by the power of the state. The state can do that.
Speaker: It was introduced by Buffy Wicks, Mark Gonzalez, Senator Elena Gonzalez, and Senator Tim Grayson. So it was a reform and it took effect in 2027 and it was kind of calibrated.
Speaker: to not penalize the cities that had passed better transfer taxes, to reduce the extent of ULA, and also to give some confidence to business that transfer taxes wouldn't go above a certain level.
Speaker: So first, it didn't reform anything with regard to genuine mansions. It said, any tax you have on single-family homes of more than $5.4 million, dollars you can keep that tax. We're not changing that.
Speaker: So the original idea that helped pass ULA at the ballot, that of taxing mansions, That stuck around. There is still some persuasiveness to that.
Speaker: Overall, it capped any kind of transfer tax at 3%, but it could only be 3% if it was a general tax. If it was a special tax, it had to be no more than 1.5%.
Speaker: So ULA would have gone down to 1.5%, but some cities, including, honestly, cities in the Bay Area, would have been able to keep 3% rate. So there were a couple of problems. This was happening at the last minute.
Speaker: A lot of interest groups were involved, but it is difficult to juggle that many interest groups. And I'm not sure exactly how the power worked because the people who had funded the ballot measure were placated. That was in the news that the California Business Roundtable, they did end up supporting AB 736, so effectively supporting the compromise. And they had funded the majority of what that measure got in those days to collect the signatures.
Speaker: But i don't know if they actually had the power to withdraw it from the ballot. The people withdrawing it from ballot were people like John Kupal with the Howard Jarvis Taxpayers Association.
Speaker: And they might have been okay to just not worry about the funding and put it on the ballot and try to fight it out with less money. I realize as I say that, I'm implying that maybe the negotiation didn't go to the right people.
Speaker: I could be wrong about that. This is some stuff I've heard here and there, and I could have gotten the wrong impression. But it seemed at the last minute like it was not clear that the compromise was actually going to work. And then there was last-minute push by some interest groups against 736, and apparently without much of any understanding or not caring about the context in which it was passed.
Speaker: So there were some rallies against it and actions opposing it by groups including affordable housing developers and tenants' rights advocates, again, according to a news item, but also the California Association of Realtors and representatives of local government like the League of Cities.
Speaker: And they were simply saying, hey, you can't do this. We need our transfer tax money. Well, I don't know why they weren't in the loop or did they not care that a lot more of the transfer taxes had a good chance of being nixed if this compromise didn't pass.
Speaker: Buffy Wicks is, of course, a major housing ally, so she really cared about making ULA work like it was supposed to, like mostly tax only the mansions at such a steep rate.
Speaker: And she's from Oakland and represents a lot of Oakland and I think all of Berkeley. So she cared about certainly making sure that Berkeley wasn't overly penalized.
Speaker: So it was a really careful compromise. But in the end, it was starting to go down in flames. And we were right near the deadline for the ballot measure to be withdrawn if anyone was going to do that.
Speaker: So people, including Buffy, but many other people, sort of swallowed their pride and stepped down again and did a different compromise measure. At the time, this was ACA, Assembly Constitutional Amendment 22.
Speaker: Since then, because the legislature did put it on the ballot, it has become Proposition 43. This finally did satisfy the Howard Jarvis people, and they did withdraw their Local Taxpayer Protection Act. So that's not on the ballot.
Speaker: What's on the ballot is the compromise. It was put on there by people including Buffy Wicks. The thing about Prop 43 is it is a compromise just on the matter of upland, not on the matter of transfer taxes.
Speaker: What it does is it basically overturns the Upland decision like the other measure did, but that's pretty much all it does. It doesn't do anything about transfer taxes, just about the threshold for passing any taxes at the local level.
Speaker: It says the special tax threshold goes up to two-thirds, 66.67%, whether you get signatures or not. whether you get signatures or not It does not go back and zero out transfer taxes of almost all kinds like the previous version did.
Speaker: It does not undo taxes that have already been passed at the ballot only going forward. And this is quite important. I believe, I like to think this was important for Assemblymember WICs too because it just takes effect January, 2027. That means that if the measure I mentioned at the beginning, the regional transit measure for the Bay Area,
Speaker: If that passes in November with, again, more than 50%, but not more than two-thirds, that still goes into effect. That still saves transit. It is not affected by Prop 43.
Speaker: But Prop 43 still is bad, thinking about all the public services that would be eroded by its limitation on future new funds. So it's still not good.
Speaker: But Buffy Wicks actually went onto her social media and gave an explanation. And I'm getting some of what I'm talking about from her thread, which was on both Blue Sky and X, and was rather arresting in how it started.
Speaker: She said, i am the author ACA 22. I'm also adamantly opposed to it. She explains, going back the story I just said, they were trying to make a compromise. They ended up putting ACA 22 on the ballot to get the more dangerous measure off the ballot.
Speaker: And then she summed up, that doesn't mean you should vote for it. I'm not telling you to vote for it. She said, you should vote no ACA 22, which again is Prop 43. Now, quote, voters have the final say, I'm asking them to vote no on ACA 22, unquote.
Speaker: So we have this measure, which is another bad anti-tax measure on the ballot this November to vote against. Hopefully there is going to be opposition to it and funded opposition.
Speaker: Hopefully the voters get it and the voters reject it. But that will take campaigning, that will take persuasion, and that will take money that could go to other ballot measures, other good ones or opposing other bad ones.
Speaker: None of this is cost free. Unfortunately, the nature of the compromise did nothing about the problems of ULA. And I wasn't sure this was the case until I read it from many different sources.
Speaker: The l LA real estate guys were sort of used, abused, and thrown away in this whole process. They cared about the transfer taxes. They were willing to negotiate if transfer taxes were fixed and made more functional.
Speaker: But then the Howard Jarvis people, who are the more ideological anti-taxers, negotiated a deal that did nothing for them other than reduced future taxes, but not limited to transfer taxes, did nothing about the existing ones that they had a problem with.
Speaker: So what happened? They're $10 million. dollars Well, they're still on the right-wing side. Maybe they're still okay with this on balance. I don't know. I would have been mad. But I don't know these people.
Speaker: So that is the story of how all this back and forth with what voter threshold is allowed for new local taxes... What kinds of taxes do you design? What are you trying to do with them?
Speaker: What makes them more or less popular? And what makes them more or less effective? And then our strange measure ballot measure system that does legislation by collecting signatures, but then puts a lot of that power those signatures into the hands of the people who collected them to negotiate with the legislature, turns into someone saying, i sponsored Prop 43, now please vote no on it.
Speaker: It's a rum world. So edited down, this will probably be a shorter episode than usual, but this is a story I thought really needed to get out there. A fair amount more has happened on statewide legislation and the other ballot measures are going to be worth an episode. There are multiple measures specifically about housing, and their story is going to be interesting.
Speaker: But I will get to those in a later episode. Thank you for listening here with me. i will see you next time. And until then, keep on learning.
