LA WATCHDOG - In June, the City was anticipating General Fund revenues of $7.6 billion and a surplus of $40 million for the 2023-24 fiscal year that begins on July 1, 2023. But this projection is no longer valid because of the new revenue from Measure ULA, the Homeless and Housing Solutions Tax, that was approved by 57% of the voters in the November election.
This new tax is expected generate annual revenue of between $600 million to $1.1 billion by taxing sales of real property valued at $5 million or more at the rate of 4% on the total value. When the value hits $10 million or more, the tax increases of 5.5%, again on the total value of the transaction.
These new revenues will be devoted to programs that increase permanent and affordable housing and provide resources to tenants at risk of homelessness. This includes providing legal assistance to people facing eviction and protecting existing low-income and affordable housing.
What is unknown is the impact this windfall will have on the General Fund budget. Will these new revenues be in addition to the City’s existing contribution of $250 million to combat homelessness? Or will this $250 million be allocated to other General Fund departments? Will any of these monies be used to cover a portion of the City’s overhead?
There are also concerns about the projected 2.3% ($172 million) growth in revenues because of the impact of higher interest rates on the housing market and the overall slowdown in the economy. Fewer real estate transactions will have a significant negative impact on the documentary transfer tax while the slower growth rate in the City’s assessed value of its real estate will result in lower anticipated property tax revenues. There may also be issues with the anticipated revenue from the hotel, sales, and gross receipts business taxes.
There are issues with expenditures. Higher than expected inflation will impact everyday expenditures while lower investment returns will require higher contributions to the City’s two pension plans. New labor agreements may require additional funds and the Police Department may need more money to fill its depleted ranks. There are also the cost overruns associated with the City’s new Human Resources Payroll project that must be addressed.
Fortunately, the City’s Reserve and Budget Stabilization Funds are in good shape, totaling $720 million, or almost 10% of General Fund revenues, the goal of the City Administrative Officer. But these funds are for use in emergencies such as an earthquake or pandemic, not to balance the budget.
With the proceeds from the Homeless and Housing Solutions Tax, Mayor Bass has the opportunity to put the City on firm financial ground and, at the same time, address her number one priority, homelessness. Don’t blow it.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee, the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)