With more than 500 square miles and 3.85 million people, things aren't easy for businesses in Los Angeles. Recent events such as rising interest rates, increasing costs due to inflation, and economic slowdown have placed the local real estate and financial sectors under unprecedented strain.
With around 99,000 companies operating in an environment where even a $70,000 salary is still below the poverty line, the pressures are daunting.
Unfortunately, the city's tax policies, particularly the actions of the Los Angeles House of Representatives (ULA), have only exacerbated these challenges.
The ULA measure, which will take effect from April 2023, introduced a high documentary transfer tax on real estate transactions over $5 million. Although it was sold to voters as a way to exclusively target luxury real estate, its effects ripple across commercial, retail, industrial, and residential sectors, reducing sales, discouraging investment, and creating economic instability. This is a contributing factor.
Given ULA's huge tax increase, many parts of the local real estate market, especially apartments and commercial real estate, are at a standstill as few developers are able to pursue projects economically.
In the long run, this is very bad for residents looking for rental space and businesses looking to continue operating in the city.
ULAs are not an isolated burden, but part of a cumulative tax environment that chips away at disposable income, stunts business growth, and deepens the affordability crisis in a state already notorious for its high cost of living. It is important to understand that.
Against this backdrop, the Taxpayer Protection and Government Accountability Act (TPA), a statewide initiative set for the November ballot, is critical to undoing the damage caused by Los Angeles' problems, particularly the ULA measures. It is emerging as a major intervention. The ULA was passed by exploiting a legal loophole that makes it easier for special interest groups to pass local taxes that benefit them. The Taxpayer Protection Act closes this loophole and moves toward transparency and accountability in tax spending.
If the TPA passes, the ULA measure will have to go back before local voters, and this time they have the advantage of knowing how much damage the ULA has done. A response to the ULA, the TPA represents a broader call for fiscal responsibility and a check on Los Angeles' history of unchecked tax increases.
For lenders and real estate professionals, TPAs lead to a more balanced and sustainable economic environment where special interests cannot use local tax ordinances to impose undue burdens to the detriment of the broader community. This suggests the possibility of a transition. Requiring clarity and accountability in tax expenditures could foster a more stable and predictable market, which could benefit both large-scale projects and small-scale community-based development.
More than just a solution to ULA overreach, the Taxpayer Protection Act represents a shift in perspective and a call for a fairer, more transparent tax system in California. The bill would address growing “tax fatigue,” in which Californians pay more and more in taxes for little in return, while offering hope for a more just fiscal future. The TPA would give voters the final say on all state and local taxes, ensuring that any tax increases would have broad community buy-in.
Los Angeles businesses appear ready for a shift toward fiscal moderation, but are Los Angeles voters ready for that shift? When will they go to the polls this November? You'll understand. Meanwhile, members of the business community, as stakeholders in one of the nation's most dynamic urban landscapes, have an obligation to challenge policies that constrain growth and champion policies that promise a more balanced and sustainable future. owed.
