Transmittal Memorandum
Date: July 26, 2022
To: Mayor, Mayor Pro-Tem, and City Council
From: David White, City Manager
Gigi Decavalles-Hughes, Director of Finance
Denise Anderson-Warren, City Clerk
David Carr, Assistant City Treasurer
Subject: Filing of Attached Ballot Measure Impact Report on Citizens Initiative To Establish Added Funding for Homelessness Prevention, Affordable Housing and Schools
Summary
On June 14, 2022, Council requested that the City Manager prepare a report pursuant to Section 9212 of the California Elections Code on a citizens’ initiative to Establish Added Funding for Homelessness Prevention, Affordable Housing, And Schools by Amending Santa Monica Municipal Code Chapter 6.96 To Provide a Third Tier Transfer Tax Rate for Property Transfers of $8,000,000 or More with an eleven-member Resident Oversight Committee. The measure has qualified for placement on the November 8, 2022 ballot. The resolution directing the placement of the measure on the November 8 General Municipal ballot was originally presented to Council at the July 12, 2022 Council meeting, but the item was continued to the July 26, 2022 meeting.
Per the Elections Code, the report must be presented to the legislative body within the time prescribed by the legislative body, but no later than 30 days after the elections official certifies to the legislative body the sufficiency of the petition. This occurred on July 12, 2022. The impact report, as prepared by HR&A Advisors, Inc. is transmitted as an attachment to this memorandum.
Background
California Elections Code authorizes the governing body of a city to place qualifying initiative ballot measures on the ballot for an established statewide general election. The section establishes that the action of placing the certified petition on the ballot is ministerial, not discretionary. Thus, if the County certifies the petition, the law requires the City Council to send the measure to the voters.
On March 10, 2022, proponents of the measure notified the City Clerk’s Office of their intent to circulate an initiative petition. On March 23, 2022, the City Attorney prepared a ballot title and summary, as required by law, which describes the measure as an Initiative Measure to Establish Added Funding for Homelessness Prevention, Affordable Housing, and Schools by Amending Santa Monica Municipal Code Chapter 6.96 to provide a third tier Transfer Tax Rate for Property Transfers of $8,000,000 or more with an Eleven-Member Resident Oversight Committee. Thereafter, the proponents gathered signatures, and filed their signed petition with the City Clerk’s Office on June 15, 2022.
Upon submittal of the petition, the City Clerk requested the Los Angeles County Clerk/Registrar Recorder (“County Clerk”) verify the submitted signatures.
On July 1, 2022, the County notified the City Clerk that the measure had received the required number of signatures, which is 10% of the voters or 6,930. On July 12, 2022, the resolution directing actions necessary to place the measure on the November 8, 2022 ballot was presented to Council, however, the item was continued to July 26, 2022.
Discussion
Council has the ability to ask for a report on the impact of the initiative, as stated in Section 9212 of the California Elections Code:
(a) During the circulation of the petition, or before taking either action described in subdivisions (a) and (b) of Section 9215, the legislative 9215 body may refer the proposed initiative measure to a city agency or agencies for a report on any or all of the following:
(1) Its fiscal impact.
(2) Its effect on the internal consistency of the city’s general and specific plans, including the housing element, the consistency between planning and zoning, and the limitations on city actions under Section 65008 of the Government Code and Chapters 4.2 (commencing with Section 65913) and 4.3 (commencing with Section 65915) of Division 1 of Title 7 of the Government Code.
(3) Its effect on the use of land, the impact on the availability and location of housing, and the ability of the city to meet its regional housing needs. (4) Its impact on funding for infrastructure of all types, including, but not limited to, transportation, schools, parks, and open space. The report may also discuss whether the measure would be likely to result in increased infrastructure costs or savings including the costs of infrastructure maintenance, to current residents and businesses.
(5) Its impact on the community’s ability to attract and retain business and employment.
(6) Its impact on the uses of vacant parcels of land.
(7) Its impact on agricultural lands, open space, traffic congestion, existing business districts, and developed areas designated for revitalization. (8) Any other matters the legislative body requests to be in the report. (b) The report shall be presented to the legislative body within the time prescribed by the legislative body, but no later than 30 days after the elections official certifies to the legislative body the sufficiency of the petition.
Among the items that Council discussed including in the report were the potential funds that the measure might generate, what property transactions it would apply to, the composition of the resident oversight committee, and whether there would continue to be a need for funds dedicated to affordable housing in future years.
Because the potential ballot initiative is for a new tax revenue source and includes only limited information about proposed expenditures of the revenue to be collected, most of the illustrative examples of “impacts” in California Election Code Section 9212 cannot be analyzed. However, the report includes background information about this source of City revenue, explains the mechanics of how the revenue would be collected, provides a rough estimate of potential revenues based on past real estate sales, provides some general illustrations about how the City’s share of the tax revenues could be spent, and offers observations about potential risks to revenue collection or achievement of intended objectives.
Past Council Actions
Meeting Date Description
07/12/2022 Approval of Third Modification to Professional Services Agreement with HR&A Advisors, Inc. for Preparation of a Report Pursuant to Section 9212 of the California Elections Code on a Citizens’ Ballot Initiative
7/12/2022 Certification of Qualified Initiative Petition Measure to Establish Added Funding for Homelessness Prevention, Affordable Housing, and Schools and Adoption of Resolution to Place Measure on the November 8, 2022 Ballot
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MEMORANDUM
To: Mayor Himmelrich and Members of the City Council
From: HR&A Advisors, Inc.
Date: July 21, 2022
Re: Impact Report for the “Funding for Homelessness Prevention, Affordable Housing, and Schools” Ballot Measure
INTRODUCTION
PURPOSE OF THE MEMORANDUM
This memorandum was prepared in response to a motion by the City Council of the City of Santa Monica (the “City”) on June 14, 2022, requesting the City Manager to prepare an “impact report” pursuant to Section 9212 of the California Elections Code on an initiative titled:
An Initiative Measure To Establish Added Funding For Homelessness Prevention, Affordable Housing, And Schools By Amending Santa Monica Municipal Code Chapter 6.96 To Provide A Third Tier Transfer Tax Rate For Property Transfers Of $8,000,000 Or More With An Eleven Member Resident Oversight Committee, seeking to qualify and be placed on the November 8, 2022 ballot.
(Hereinafter referred to as the “Ballot Measure”).
The Ballot Measure is proposed by Mayor Sue Himmelrich, Michael Soloff and Jon Katz. A petition was circulated in the City to place this initiative measure on the November 8, 2022 ballot. The County of Los Angeles (the “County”) Registrar-Recorder/City Clerk certified to the Santa Monica City Clerk in a letter dated July 1, 2022, that the Ballot Measure qualified under the rules set forth in the California Elections Code Sections 9200-9226. The City Council is scheduled to adopt a resolution on July 26 requesting and directing the actions necessary to place the Ballot Measure on the November 8, 2022 General Municipal ballot.
Per the Elections Code, the impact report must be presented to the legislative body no later than 30 days after the elections official certifies to the legislative body the sufficiency of the petition.
The Council action directing preparation of the report also requested that it be presented to City Council as soon as possible, but not later than July 26, 2022. Due to time and City staff limitations, the City Attorney retained and authorized HR&A Advisors, Inc (“HR&A”) on June 26, 2022 to begin preparing the report, subject to subsequent City Council approval of an amendment to an existing contract between HR&A and the City for related services, which was approved on July 12, 2022.
HR&A is a mission-driven, national real estate advisory, economic development, and public policy consultant with an extensive body of previous consulting work for the City on a wide range of city HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 2 planning, housing policy, economic, and financial matters over more than three decades. This memorandum is intended to fulfill the Council’s request for an impact report on the Ballot Measure.
CERTAIN LIMITATIONS OF THE IMPACT ANALYSIS
As noted above, the Elections Code provides only a 30-day window for completion of this impact report. As a practical matter, it had to be completed in less than 30 days to accommodate the City Council agenda material review process and release to the City Council and public in advance of the July 26 regular City Council meeting when this memo will be presented and discussed, as requested. This severe schedule constraint, and City cost concerns, limit the level of analytic depth than HR&A could deploy to assess Ballot Measure impacts.
Furthermore, the Ballot Measure itself is primarily a revenue raising measure for certain categories of expenditures that are only outlined in general terms. Therefore, until subsequent decisions are made by the City Council about how to spend the new revenues, it is not possible to analyze most of the “impact” categories of those decisions, within the meaning of the Elections Code.1 These limitations should be considered in reviewing this memorandum.
ANALYSIS APPROACH AND DATA SOURCES
HR&A’s approach to preparing the analysis reported in this memorandum included the following tasks:
• Detailed review of the full text of the Ballot Measure, the City Attorney’s Official Summary of the Ballot Measure, the Ballot Measure petition, review of information about the Ballot Measure published by the proponents, and discussions with its proponents to clarify intent and meaning about the Ballot Measure;
• Review of the City’s existing real estate transfer tax ordinance, including amendments contained in Measure SM, enacted by City voters in November 2020; • Assembly and review of historical real estate transfer tax revenues, as contained in the City’s Comprehensive Annual Financial Report (i.e., audited financial statements), and discussions with City Finance Department officials about those revenues; • Assembly and analysis of residential and commercial real estate sales with values of $8 million or more in Santa Monica during calendar years 2012 to 2021, which correspond roughly to the City Fiscal Years 2011-12 to 2020-21. These data were derived from proprietary real estate sales databases to which HR&A has access, including the Multiple 1 Examples of “impacts” mentioned in Elections Code 9212 include: effects on the internal consistency of the city’s general and specific plans, consistency between planning and zoning; effect on the use of land, the impact on the availability and location of housing, and the ability of the city to meet its regional housing needs; impact on funding for infrastructure; whether the measure would be likely to result in increased infrastructure costs or savings; impact on the community’s ability to attract and retain business and employment; impact on the uses of vacant parcels of land; and impact on agricultural lands, open space, traffic congestion, existing business districts, and developed areas designated for revitalization.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 3 Listing Service (for residential sales) and the CoStar real estate data base (for commercial sales);
• Detailed discussions with City Finance Department and City Community Services Department officials to obtain data on City expenditures over the same 2012-2021 period that generally align with the expenditure categories in the Ballot Measure; • Interviews with 8 senior real estate industry professionals with knowledge of and experience working in Santa Monica to assemble their views about potential impacts of the Ballot Measure’s new tax level;
• A brief review of available professional literature about the impacts of the real estate transfer tax on local economies;2
• Review of on-line City Council meetings when this matter was discussed in recent months; • Review of numerous local news articles about the Ballot Measure; and • Consideration of City staff comments on a preliminary draft of this memorandum.
FINDINGS AND CONCLUSIONS
The Ballot Measure seeks to add funding for homelessness prevention, affordable housing, and schools by amending Santa Monica Municipal Code Chapter 6.96 to provide a new Third Tier Tax Rate for real estate transfers of $8,000,000 or more. The proposed Third Tier Rate would be $56.00 per $1,000 of value transferred (i.e., sale price), of which $50.00 is net new.
After assembling and analyzing residential and commercial real estate sales with values of $8 million or more in Santa Monica during calendar years 2012 to 2021, HR&A developed revenue estimates based on the proposed incremental Tier 3 tax rate (i.e., 5.0% of 5.6% total) as if it had been in effect over that period and assuming there would not have been any changes in market or other conditions over that time period due to the higher tax rate.
During this time period, there were 286 qualifying property transfers, representing $9.8 billion in sales value. With the additional 5.0 percent tax, these transfers would have generated $490 million in tax revenues. This included:
• 52 single-family home and condominium sales, representing $595 million in sale value, translating to roughly $29.8 million in tax revenue from the Ballot Measure’s incremental Tier 3 tax rate, six percent of total incremental tax revenue; and . • 234 commercial and multi-family property sales, representing $9.2 billion in sale value, translating to roughly $460 million in tax revenue, and 94 percent of total incremental tax revenue.
This translates to an annual average of $49 million in additional tax revenue that would have been derived from the Ballot Measure had it been in place over this decade. Based on the funding 2 See for example: Office of Economic Analysis, Office of the Controller, City & County of San Francisco, “Increases to the Transfer Tax Rate for Properties Over $10 Million: Economic Impact Report,” September, 23, 2020, available at:
https://sfcontroller.org/sites/default/files/Documents/Economic%20Analysis/161351- 170208_economic_impact_final.pdf (hereinafter, “Controller’s Transfer Tax Impact Report”).
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 4 allocations in the Ballot Measure, in an average year the Tier 3 tax rate would generate $10 million to the School Fund and $39 million to the Homelessness Prevention & Affordable Housing Fund.
During the 2012-2021 timeframe there was substantial year-to-year variation in the number of qualifying property transfers, concentrations of very large sales, and total sale value that would have been subject to the Tier 3 tax. Qualifying property sales ranged from a low of $318 million (2014) to a high of $2.5 billion (2016), translating to estimated revenues of $16 million and $123.0 million, respectively.
After analyzing existing City expenditures roughly comparable to those described in the Ballot Measure for the Homelessness Prevention and Affordable Housing Fund, the estimated annual average of $39 million in new tax revenue for that Fund represents about a 293 percent increase in funding now allocated by the City for such programs.
Every year, realizing the same scale of revenue as estimated for the 2012- 2021 period will be subject to several ongoing risks, some of which are a direct result of the introduction of the Tier 3 tax rate. These include, but are not limited to, the following:
• Economic and real estate market cycle variability;
• Uneven number and frequency of large transactions;
• Project feasibility impacts to new development and redevelopment projects; • Economic and fiscal impacts from any reductions in development or investment activity; • Increase in tax avoidance behavior; and
• Potential Litigation.
In addition, there are also implementation risks to achieving the programmatic benefits these additional resources could provide. These include, but are not limited to, the following:
• Compliance, implementation, and enforcement staffing needs; • Eligibility criteria, which may reduce disbursement flexibility; and Concerns Regarding Coordination of Expenditure Decisions and Operation of the Residents Committee.
In conclusion, if voters approve the Ballot Measure as proposed, new annual tax revenues of about $49 million per year could result, based on the pattern of sales of $8 million or more between 2012 and 2021. Depending on specific future spending recommendations by the Ballot Measure’s Resident Oversight Committee, and approval or modification of the those recommendations by the City Council within the revenue allocation framework contained in the Ballot Measure, the new tax revenues could make significant progress in addressing the needs of homeless persons, rentburdened existing low-income households, and a need for additional dwelling units affordable to low- and moderate-income households, as the Ballot Measure’s proponents suggest. But because of the scale of Tier 3 tax rate included in the Ballot Measure, and other issues discussed below, there are reasons to be cautious about whether the scale of estimated new tax revenue predicated on previous sales over the past 10 years would materialize to the same degree year over year in the future. And, also for reasons described below, caution is warranted about the City’s ability to HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 5 deliver effective programs and new affordable units, to the degree that the Residents Oversight Committee and City Council may recommend.
ORGANIZATION OF THE MEMO
The remainder of this memorandum includes the following sections:
• A summary of the Ballot Measure’s provisions, including additional tax rates, allocation of tax revenues to specified uses, and a new expenditure decision making process; • An overview of Santa Monica’s existing real estate transfer tax ordinance and how it compares to a selection of other California cities;
• Estimates of Ballot Measure tax revenues based on historical sale trends for qualifying sales during 2012-2021;
• Estimates of how annual average revenue derived from the Ballot Measure compare to similar existing City spending allocations for homelessness prevention and affordable housing unit production;
• An assessment of risk to the future achievement of Ballot Measure revenues derived from historical sales and certain program implementation risks; and • Overall conclusions from the analysis.
SUMMARY OF THE BALLOT MEASURE
The Ballot Measure seeks to add funding for homelessness prevention, affordable housing, and schools by amending Santa Monica Municipal Code Chapter 6.96 to provide a new Third Tier Tax Rate for real estate transfers of $8.0 million or more. The proposed Third Tier Rate would be $56.00 per $1,000 of value transferred (i.e., sale price), of which $50 is in addition to the City’s existing tax rate schedule.
The new revenue sought by the Ballot Measure is intended to help address a series of needs and conditions, which we summarize below from review of the Ballot Measure’s Findings and Purpose, information about the Ballot Measure prepared by its proponents, and an HR&A interview with Ballot Measure proponents, including the following:
• A large proportion of City residents whose incomes fall into the low-income category, a large percentage of whom are rent-burdened, some severely under federal definition, and the stark choices some of these households are forced to make between paying for rent or other basic needs;
• A causal linkage between rent burden and homelessness and the number of unsheltered homeless individuals in the City;
• The prevalence of seniors, children and persons with physical and mental challenges among both the City’s rent-burdened and homeless populations; • A need for economically stable housing of physical quality and good public educational programs for children in low-income households;
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 6 • Depletion of the City’s supply of affordable rental units subject to the City’s Rent Control Law, due to operation of the Ellis Act and the Costa Hawkins Rental Housing Act; • An unusually large annual adjustment to Maximum Allowable Rents that the City’s Rent Control Board was required to approve under existing law and regulations, which compounds the rent burden on lower-income households;
• Despite the City’s robust Affordable Housing Production Program, the “inclusionary” requirement on market-rate apartment and condominium development does not and will not produce enough new dwelling units to meet City needs;
• An elevated numerical requirement for the City to facilitate and produce new affordable housing and address racial injustices, pursuant to state Housing Element Law; • A history of City residents’ support for programs and actions to alleviate these conditions, and a history and wide variety of City programs, supported by extensive funding and associated regulations to help alleviate these conditions; • Insufficient revenue for the Santa Monica-Malibu Unified School District to serve student academic and other needs, including inconsistent funding for student services, such as counselors, nurses, mental health services, and after-school programming. • A deeply held belief in the value of a socio-economically diverse City population, which for the reasons described above, is in danger of either extreme household income bifurcation or homogenization at the upper end of the household income spectrum; • A lack of financial resources from the federal, state and County governments to match the City’s independent efforts to a degree that is equal to the scale of the task; and • After consideration of alternatives for generating more City funding to meet these needs, an increase in the City’s real estate transfer tax is an appropriate means for doing so, particularly when a similar tax increase measure may be enacted by City of Los Angeles voters in the same November 2022 election.
Some of these points are supported by the City’s own analysis, as reported in the City’s 6th Cycle Housing Element Update3 and the City Rent Control Board’s annual report.4 Currently, there are two City real estate transfer tax rates. The First Tier Tax Rate ($3.00 per $1000 of value transferred) applies to transfers under $5 million and the Second Tier Tax Rate ($6.00 per $1000 of value transferred) applies to transfers of $5 million or more. Because values of $8.0 million or more also exceed $5.0 million, transfer values of $8.0 million or more would be subject to both the Second Tier Rate and the new Third Tier Rate (i.e., a total of $56.00 per $1,000), as shown in Figure 1. The tiered City tax rates are in addition to the $1.10/$1,000 rate applied by the County of Los Angeles (the “County”).
3 See, for example, the Housing Needs Assessment Appendix in the June 2022 Draft Housing Element Update, available at: https://www.santamonica.gov/media/Housing-Element-Update-2021-to2029/Adopted%20Appendix%20B%20Housing%20Needs%20Clean.pdf. More recent data on rent-burdened lowincome households in Santa Monica is available from the U.S. Department of Housing and Urban Development at:
https://www.huduser.gov/portal/datasets/cp.html
4 Available at: https://www.smgov.net/Departments/RentControl/content.aspx?id=11090 HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 7 Figure 1: City of Santa Monica Documentary Transfer Tax Rates (Under Proposed Ballot Measure) City Transfer Tax Tier Transfer Value Tax Rate
1 Under $5.0 million 0.3% or $3 tax per $1,000 of value 2 $5,000,000-$7,999,999 0.6% or $6 tax per $1,000 of value 3 $8.0 million or more 5.6% or $56 tax per $1,000 of value Sources: Santa Monica Municipal Code, Chapter 6.96; Ballot Measure; HR&A Advisors Examples of how the Ballot Measure’s incremental and total Tier 3 tax rate would apply to sales at different prices of $8 million or more are shown in Figure 2.
Figure 2. Tax Revenue from the Ballot Measure at a Range of Sale Prices of $8 million or More Sale Price Tier 2 Tax Rate
(0.6% or $6/1,000)
Proposed Tier 3 Tax
Rate (5% or
$50/$1,000)
Total Tax (5.6% or
$56/$1,000)
$8 million $48,000 $400,000 $448,000
$12 million $72,000 $600,000 $672,000
$25 million $150,000 $1,250,000 $1,400,000
$50 million $300,000 $2,500,000 $2,800,000
$100 million $600,000 $5,000,000 $5,600,000
$200 million $1,200,000 $10,000,000 $11,200,000
Sources: Ballot Measure; HR&A Advisors
The Ballot Measure would add Chapter 4.90 to the Santa Monica Municipal Code establishing:
1. A new School Fund; and
2. A new Homelessness Prevention and Affordable Housing Fund These two Funds comprise the “Allocated Funds.” Within the Third Tier Tax Rate of 5.6 percent, the additional revenue from the 5.0 percent rate would go to the Allocated Funds and revenue from the 0.6 percent Tier 2 tax rate would continue go to the City’s General Fund for basic City services.
The Ballot Measure outlines an annual distribution of the Allocated Funds. The first $10 million of revenue generated would be deposited into the School Fund and the next $40 million would be deposited into the Homelessness Prevention and Affordable Housing Fund. Of any Allocated Funds above $50 million each year, 20 percent would be deposited into the School Fund and 80 percent to the Homelessness Prevention and Affordable Housing Fund. These allocations are shown in Figure 3, assuming $60 million in annual revenue, for illustrative purposes.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 8 Figure 3: Allocation of an Example $60 Million Revenue Scenario Sources: Ballot Measure; HR&A Advisors
The Santa Monica-Malibu Unified School District (“SMMUSD”) will receive the funds for the School Fund annually from the City. If Malibu schools are permitted by the California Board of Education to “unify” as that city has requested (i.e., separate all Malibu schools into a new public school district), this category of Ballot Measure funds would be allocated to the remining school district in Santa Monica. All expenditure decisions for these funds would be determined by the relevant school district Board of Education during the annual budget adoption process.
The Ballot Measure further specifies sub-allocations of annual expenditures from the Homelessness Prevention and Affordable Housing Fund, as follows (see Figure 4):
• No more than 6.0 percent of the revenue should be used for compliance, implementation, and administration, after which the remaining 94 percent would be allocated for:
• 30-50 percent to provide income assistance to rent burdened Santa Monica households, and
• At least 50 percent for acquiring, rehabilitating, or developing deed-restricted affordable housing units.
• Any remaining funds can be used to fund
o (1) tenancy preservation programs for extremely low income, very low income, low income, or moderate income households, which could include code compliance enforcement, legal services, loans, or grants for unit improvements; or o (2) a reserve fund for future funding of programs that provide services like the ones mentioned above.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 9 Figure 4: Homelessness Prevention and Affordable Housing Fund Allocations Sources: Ballot Measure; HR&A Advisors
The Ballot Measure would establish an 11-member Resident Oversight Committee (the “Committee”), appointed by the City Council, to provide recommendations for expenditures from the Homelessness Prevention and Affordable Housing Fund. The Committee will consist of Santa Monica residents, four of whom must be from Lower Income Households consisting of at least one of the following, a senior citizen, a parent of minor children, an individual who faces mental or physical challenges, and an individual who is formerly homeless, in addition to seven members with expertise in the following fields: affordable housing financing, affordable housing development, law, accounting, and homelessness prevention. The City’s auditors will audit the Homelessness Prevention and Affordable Housing Fund annually and publicly provide the results to the Committee and the Audit Subcommittee of City Council.
For both Funds, the Ballot Measure expresses an intention that any revenues derived from the Third Tier Tax Rate are in addition to and not a replacement of any funds that the City otherwise provides for these purposes. However, the Ballot Measure does not specify a current year baseline for existing City expenditures. It should also be noted that because the Ballot Measure assigns its tax revenue proceeds to the specified special Funds, these revenues would not be available for any City General Fund purposes, such as public safety, parks, libraries, public realm maintenance, capital projects, or the City administrative costs to operate such programs.
The Ballot Measure does not contain a sunset provision. Therefore, the Third Tier Tax Rate, Allocated Fund specifications and sub-allocations by expenditure category will remain operative indefinitely and immune from changes by the City Council; these provisions could only be amended or changed through a subsequent ballot measure approved by a majority of City voters.
Administration,
6%
Income
Assistance,
30%
Affordable
Housing Units,
50%
Income
Assistance or
Other Specified
Uses, 20%
Fund Category Allocations
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 10 The text of the Ballot Measure is included in Appendix A. Should voters approve this measure, it will be effective on March 1, 2023.
SANTA MONICA’S REAL ESTATE TRANSFER TAX
The City of Santa Monica’s Real Property Transfer Tax Ordinance derives from California’s Documentary Transfer Tax Act,
5 which allows counties and cities across the state to collect taxes on real estate transfers. The creation and delivery of a deed for any property triggers the documentary transfer tax. Counties collect taxes at the rate of $1.10 per $1,000 of value. General law cities are empowered to collect an additional transfer tax at one-half the county rate (i.e., $0.55/$1,000 of value). But, charter cities, like Santa Monica, are authorized to set city-specific tax rates that may exceed the usual city rate. Through its Real Property Transfer Tax Ordinance (Municipal Code Chapter 6.96), Santa Monica currently collects additional taxes on property transfers as shown below in Figure 5.
Figure 5: City of Santa Monica Documentary Transfer Tax Rates (Current) Tier Transfer Value Tax Rate
1 Under $5.0 million 0.3% or $3 tax per $1,000 of value 2 $5.0 million and above 0.6% or $6 tax per $1,000 of value Sources: Santa Monica Municipal Code, Chapter 6.96; HR&A Advisors The ordinance was enacted in 1967, and has been amended twice, in 1991 and 2020. The transfer tax delivers millions of dollars to the City each fiscal year. The revenues realized from the tax since FY 2011-12 are shown below in Figure 6.
5 California Revenue & Taxation Code, Sections 11911-11933.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 11 Figure 6: Santa Monica Documentary Transfer Tax Revenues: FY2011-12—FY2020-21 Source: City of Santa Monica, Comprehensive Annual Financial Report, FY 2020-21, Table 5, p. 155; HR&A Advisors Since Measure SM’s implementation in March 2021 this tax revenue category has increased by an additional $6.6 million.
Santa Monica is not alone among California charter cities in extending and increasing its real estate transfer tax for General Fund revenue purposes or sometimes special expenditure categories.
Several cities in California and nationally have either recently approved real estate transfer tax measures or have proposed tax increase measures for purposes similar to those specified in the Ballot Measure. Some notable examples include:
• Berkeley, CA (2018): Voters increased the tax on the transfer of real property to 2.5 percent from 1.5 percent for sales and transfers over $1.5 million (to $26.10 per $1,000 of value). This measure directed revenues to the City’s General Fund and establishment of a homeless services panel.
• Culver City, CA (2020): Voters increased the tax rate for transfers over $1.5 million to
1.95 percent (to $20.60 per $1,000 of value), transfers over $3 million to 3.45 percent ($35.60 per $1,000 of value), and transfers over $10 million to 4.45 percent ($45.60 per $1,000 of value). This measure directed funds towards maintaining essential city services related to parks, public facilities, and streets, and programs for public school students, seniors, and the homeless.
• Los Angeles, CA (2022): In Novembers, voters will decide whether the City of Los Angeles will raise taxes on transfers between $5 million and $10 million to 4.0 percent and transfers over $10 million to 5.5 percent from the current 0.45% (to $41.10 and $55.10 per $1,000 of value, respectively). Should the measure pass, most of the funds will support acquisition, $5.2M
$6.0M $6.3M
$7.9M $7.9M
$11.0M
$8.2M
$9.8M
$6.9M
$9.3M
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 Historic Transfer Tax Revenues
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 12 development, construction, and/or rehabilitation of affordable housing and provide support to affordable housing programs.
• San Francisco, CA (2020): Voters approved a transfer tax increase for transfers over $10 million where properties selling between $10 million and $25 million will pay a 5.5 percent tax (up from 2.5%) and properties selling or over $25 million will pay a 6.0 percent tax (up from 3.0%). This measure directed revenues to the City’s General Fund, though there was a successful advisory resolution to direct those funds to a COVID-19 relief fund and a new Social Housing Program Fund.
• Chicago, IL (2022): The City Council is considering an advisory referendum for the November election which would increase the transfer tax to 2.65 percent for all properties sold for $1.0 million or more ($26.50 per $1,000 of value). Should the referendum become law, the measure will direct revenues to homelessness prevention programming.
As a noteworthy example, San Francisco voters have approved four measures since 2008 that have impacted properties selling for over $5 million. Currently the City imposes the following tax rate scale on property transfers:
• 0.5% for properties over $100,000 ($5.00 per $1,000 of value). • 0.68% for properties over $250,000 ($6.80 per $1,000 of value) • 0.75% for properties over $1,0 million ($7.50 per $1,000 of value) • 2.25% for properties over $5,0 million ($22.50 per $1,000 of value) • 5.5% for properties over $10 million ($55.00 per $1,000 of value) • 6% for properties over $25.0 million ($60.00 per $1,000 of value) According to analysis by the Office of the Controller for the City and County of San Francisco, 6 between 2010 and 2016, 51 percent of all property sales over $10.0 million in San Francisco were commercial office properties, 16 percent were hotel properties, 10 percent were multi-family residential, and 3 percent were single-family residential. Since FY2014, the property tax transfer rate has translated to between $250M and $350M in tax revenues to the City and County of San Francisco, with a high of over $400 million in 2017.
Should Santa Monica voters approve the proposed Ballot Measure, the City’s transfer tax rate will be the highest in California for properties sold between $8.0 million and $25.0 million. The City and County of San Francisco will still have the highest rate for properties over $25.0 million. Figure 7 below compares the adopted and proposed tax rates among California cities. 6 Controller’s Transfer Tax Impact Report, op cit., p. 6.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 13 Figure 7: Property Transfer Tax Rates: California Cities City Transfer Tax Rates
Santa Monica
(proposed)
0.3%: <$5M
0.6%: $5M-$8M
5.6%: $8M+
Berkeley 1.5%: Up to $1.5M
2.5%: $1.5M+
Culver City
0.45%: <$1.5M
1.55%: $2M-$3M
3%: $3M-$10M
4%: $10M+
Los Angeles
(proposed)
0.45%: <$5M
4%: $5M-$10M
5.5%: $10M+
Oakland
1%: up to $300K
1.5%: $300K-2M
1.75%: $2M-$5M
2.5%: Over $5M
Richmond
0.7%: under $1M
1.25% $1M-$3M
2.5%: $3M-$10M
3%: $10M+
San Jose
0.33%: >$2M
1.08%: $2M-$5M
1.33%: $5M-$10M
1.83%: $10M+
San Francisco
0.5%: $100K-$250K
0.68%: $250K-$1M
0.75%: $1M-$5M
2.25%: $5M-$10M
5.5%: $10M-$25M
6%: $25M+
Sources: City of Santa Monica; californiacityfinance.com; HR&A Advisors Real estate transfers in LA County and the City are eligible for categories of exemptions that align with State law.
7 These include marital dissolutions, conveyance to establish sole and separate property of a spouse, reconveyance upon satisfaction of a debt, conveyance changing the manner in which title is held, deeds to secure debts, transfers to governmental agencies, corporate reorganizations, transfers pursuant to SEC orders, transfers of certain partnership interest, among others. Enactment of Measure SM in 2020 added a partial exemption for Affordable Housing Transfers. This partial exemption applies if the property transfer is to: (1) a nonprofit corporation, 7 Revenue & Taxation Code, Division 2, Part 6.7, Chapter 3, Sections 11921-11925.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 14 (2) a limited partnership or limited liability company in which a nonprofit corporation is the managing general partner or managing member, or (3) a community land trust; for a taxpayer making an Affordable Housing Transfer who receives prior approval from the City, wherein the seller is not required to pay the Tier 2 tax to the City, but must pay the Tier 1 tax rate on the entire transfer amount. Alternatively, a taxpayer making an Affordable Housing Transfer subject to the Tier 2 tax may seek a refund of the tax paid that exceeds the Tier 1 tax rate.
It is customary practice in Los Angeles County that payment of real estate transfer tax is a seller’s obligation. Procedurally, real estate transfer tax payments due are sent to the County RegistrarRecorder by the escrow officer implementing the sale transaction closing and flow of funds, pursuant to escrow instructions agreed to by the seller and buyer. Any eligible statutory or City exemptions from paying the real estate transfer tax are determined as part of the escrow instructions prior to payment to the County. Apparently, the County does not always verify compliance with eligible exemptions and the City is not in a position to know whether a seller has claimed an exemption and done so properly. As noted above, per Measure SM, sellers must apply to the City for certain additional exemptions from the City tax. City staff report there have been no such exemption applications since Measure SM became effective in March 2021.
Pursuant to an agreement between the County and City, the County collects the City real estate transfer tax payments and remits them to the City monthly, along with a listing of each sale transaction by record number and City tax amount and charges the City a small administrative fee for doing so. The City conducts an audit of a sample of the individual tax payments to ensure that that the City tax amount paid is correct.
ESTIMATED BALLOT MEASURE REVENUE BASED ON HISTORIC PROPERTY SALES DATA
APPROACH TO THE ANALYSIS
It was not possible within the time available for this analysis to prepare a responsible projection of annual tax revenues that could result from approval of the Ballot Measure (e.g., by employing multiple regression modeling). The next-best approach is an estimate based on what the Ballot Measure would have generated over the previous 10 years of City tax revenues received, assuming none of the risks discussed further below would have changed real estate sale patterns. Our approach included a detailed review of the Ballot Measure text; analysis of commercial and multifamily property sales data from the widely utilized CoStar real estate database; and analysis of single-family home and condo sales from the Multiple Listing Service. We also consulted closely and reviewed preliminary estimates with the City’s Director of Finance and the Assistant City Treasurer.
For the reasons described above, the resulting City tax revenues are net of any applicable statutory or other exemptions. In addition, the scope of this report does not attempt to characterize the extent of the need for additional funding for K-12 education, affordable housing, and homelessness prevention programming, but only to develop an estimate of projected revenues and expenditures based on historical data.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 15
COMMERCIAL & MULTI-FAMILY PROPERTIES
Drawing from CoStar, a nationally renowned provider of commercial real estate information, we assembled and analyzed data on qualifying commercial and multi-family property sales between 2012-2021. Over that period, there were 234 commercial and multi-family sales, representing $9.2B in sales value. These property sales varied across the timeline, subject to changing economic conditions over the period. The results8 are shown in Figure 8 below:
Figure 8: Commercial & Multi-family Sales of $8 million or More in Santa Monica, 2012-2021 Year Number of Sales
$8M+ Total Sales
2012 18 $507M
2013 19 $692M
2014 11 $267M
2015 30 $1.0B
2016 39 $2.4B
2017 23 $1.0B
2018 30 $1.2B
2019 23 $1.0B
2020 20 $496M
2021 21 $504M
Total 234 $9.2B
Sources: CoStar; HR&A Advisors
Sales of office buildings, multi-family buildings, and retail properties represented 85 percent of all transactions and total property sales over the 10-year period between 2012-2021. In fact, sales of office buildings alone accounted for 42 percent of all transactions and 60 percent of all sales.
This is further illustrated in Figure 9 below.
8 For analytic convenience, this analysis utilizes calendar years rather than City fiscal years (i.e., July 1-June 30).
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 16 Figure 9: Commercial & Multi-family Sales of $8 million or more by Land Use, 2012-2021 Sources: CoStar; HR&A Advisors
These sales were concentrated along the primary commercial corridors within central Santa Monica and along the coast. This is further illustrated in Figure 10 below. $5.5B
$610M
$1.6B
$1.4B
Office Retail Multi-Family Other
15%
18%
7%
60%
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 17 Figure 10: Map of Commercial & Multi-family Sales $8 million or More, 2012-2021 Sources: CoStar; HR&A Advisors
SINGLE-FAMILY HOMES & CONDOS
Drawing from Multiple Listing Services, we assembled and analyzed data on qualifying singlefamily and condo property sales between 2012-2021. Over that period, there were 52 singlefamily and condo sales, representing $595M in sales value. These property sales varied across the timeline, subject to changing economic conditions over the period. This is illustrated in the table below:
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 18 Figure 11: Single-Family & Condo Sales, 2012-2021
Year
Number of Sales
$8 million or
More
Total Sales
2012 4 $40M
2013 4 $39.8M
2014 4 $52M
2015 4 $52.6
2016 3 $37.8M
2017 9 $83.2M
2018 5 $50.3M
2019 7 $80.2M
2020 6 $52.5M
2021 6 $107M
Total 52 $595M
Sources: Multiple Listing Service; HR&A Advisors
Over 90 percent of the qualifying sales between 2012-2021 were single-family homes, as only four qualifying transactions over that period were condominium sales. These sales are heavily concentrated in the far northwest corner of the City with other properties scattered along the coast.
This distribution is further illustrated in the map in Figure 12 below.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 19 Figure 12: Map of Single-family Home & Condo Sales Over $8M 2012-2021 Sources: Multiple Listing Service; HR&A Advisors
REVENUE ESTIMATES AND VARIABILITY
Had these $9.8 billion on property sales been subject to the additional 5.0 percent real estate transfer tax rate resulting from the Ballot Measure, and holding all other circumstances constant, the City would have realized approximately $490 million in additional revenue from the proposed incremental new Tier 3 tax rate applicable to sales of $8.0 million or more. Using the distribution percentages in the Ballot Measure, as discussed above, this would have translated to annual average deposits of $10 million to the School Fund, and $39 million to the Homelessness Prevention and Affordable Housing Fund. The derivation of these estimates is shown in summary form in Figure 13 below. By way of comparison, the estimated annual average of $39 million estimated for the Homelessness Prevention and Affordable Housing Fund is about 2.7 times the amount of revenue deposited into the former Santa Monica Redevelopment Agency’s Low & Moderate Income Housing Fund (i.e., from 20% set-aside from annual property tax increment) during the final two years before California’s system of redevelopment was dismantled in 2012, per information provided by City staff.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 20 Figure 13: Summary of Revenue Generated From Proposed Tier 3 Tax Rate Summary
Total Sum of Sales Price (2012-21) $9,803,504,360
Total Potential Fiscal Revenues (2012-21) $490,175,218
Average Year Total 5% Tax Allocated Funds $49,017,522
In an Average Year (5% Tax Allocated Funds)
School Fund $10,000,000
Homelessness Prevention and Affordable Housing Fund $39,017,522 Source: CoStar, Multiple Listing Service, HR&A Advisors In any given year, the tax revenues derived from the Ballot Measure would be subject to significant year-to-year variability based on the number and scale of transactions. Based on review of historic data, qualifying property sales would have varied from a low of $318 million (2014) to a high of $2.5 billion (2016), translating to a low of $16.0 million to a high of $123.4 million in potential tax revenues from the additional 5.0 percent tax rate. This reflects significant variation of market conditions and circumstances across the period, which included recovery from the Great Recession, an accelerating economy and real estate market through 2019, and the volatile economic conditions brought on by the COVID-19 pandemic beginning in early 2020. It also reflects the lumpiness of individual large-scale transactions in any particular year. This variability in transaction volume and tax revenue is depicted in Figure 14 below.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 21 Figure 14: Relationship between City Sales Transactions and Additive Real Estate Transfer Tax Revenues Between 2012-2021
Sources: CoStar, Multiple Listing Service; City of Santa Monica; HR&A Advisors
FUND ALLOCATIONS
As noted above, had the Ballot Measure’s Tier 3 real estate transfer tax rate been in effect between 2012 and 2021 on sales of $8 million or more, approximately $490 million in total tax revenues would have been generated. Of this total $120 million would have gone to the School Fund, and $370 million for the Homelessness Prevention and Affordable Housing Fund. Here again, the allocated funding would shift year-to-year in response to economic conditions and the number of qualifying sales transactions each year. This dynamic is illustrated in Figure 15 below:
$0M
$20M
$40M
$60M
$80M
$100M
$120M
$140M
0 5
10 15
20 25
30 35
40 45
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Number of Transactions
Projected Tax Revenues
Number of Transactions Projected Tax Revenues
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 22 Figure 15: Estimated Fund Allocations From Ballot Measure Tax Revenues, 2012-2021 Year
Number of
Qualifying
Sales
Sum of
Sales Prices
Potential
Revenue from
Ballot Measure
5% Tax Rate to
Allocated Funds
School Fund
Revenue
Homelessness
Prevention and
Affordable Housing
Fund
2012 22 $547M $27.4M $10M $17.4M
2013 23 $731M $36.6M $10M $26.6M
2014 15 $319M $15.9M $10M $5.9M
2015 34 $1.1B $54.3M $10.9M $43.4M
2016 42 $2.5B $123.4M $24.7M $98.7M
2017 32 $1.1B $56.3M $11.3M $45M
2018 32 $1.3B $63.1M $12.6M $50.4M
2019 30 $1.1B $55.2M $11M $44.2M
2020 26 $549M $27.4M $10M $17.4M
2021 27 $610M $30.5M $10M $20.5M
Total 286 $9.8B $490M $120M $370M
Sources: CoStar, Multiple Listing Service; Ballot Measure; HR&A Advisors
ILLUSTRATIVE PROFILE OF BALLOT MEASURE EXPENDITURES
As noted above, decisions about how to spend tax revenue collected from a successful Ballot Measure will be up to the City Council, based on recommendations from a Resident Oversight Committee. Therefore, it is not possible to specify or estimate the types of “impacts” from the Ballot Measure, like the “impact" examples listed in the Election Code. However, drawing on the revenue estimates from the previous memo section, and historic expenditure data for City programs that appear to be similar to the allowable expenditures from the Homelessness Prevention and Affordable Housing Fund, makes it is possible to present an illustrative example about how the Ballot Measure’s new tax revenue resources could enhance such expenditures in the future. The following analysis presents potential additional spending distributions for a single year based on actual City program expenditures for FY 2020-21, and an estimate of steady-state, on-going housing production expenditures without unusual one-time impacts in recent years, which generally align with the Fund allocations in the Ballot Measure.
Based on analysis developed by City staff at HR&A’s request, the City dedicated approximately $13.3 million to homelessness prevention programs and services and affordable housing unit production, including emergency income assistance, affordable housing acquisition, rehabilitation, and development, and tenant preservation programming, including City staff administrative costs, using resources from the General Fund, Measure GSH, developer in-lieu fee payments, and a series of state and federal funding sources, some of which are one-time funds allocated to help mitigate impacts associated with the COVID-19 pandemic and would not recur annually in the future. The above estimated annual average of about $39 million of new funding from a successful Ballot Measure would increase expenditures devoted to homelessness prevention and affordable housing programs and administration by 293 percent.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 23 For illustration purposes only, our analysis of new Ballot Measure expenditures assumes the following allocations:
• Administration: 6%
• Emergency income assistance: 30%
• Acquisition, rehabilitation, and development of affordable housing: 50% • Tenancy preservation and a reserve for other homelessness prevention programming: 14% HR&A and City financial and program staff made a rough estimate of how existing City expenditures for homeless prevention and housing production in FY 2020-21 (the most recent audited year) align with the allowable expenditure allocations in the Ballot Measure’s Homelessness Prevention and Affordable Housing Fund. This distribution of $13.3 million is shown in Figure 16 and is compared with the hypothetical Ballot Measure allocations of the estimated annual average of $39 million in Tier 3 tax revenues, in the right-hand column, assuming those revenues were to be spent on the same existing programs. This comparison shows that the Ballot Measure revenues would represent a 293 percent overall funding increase, although therewould be differences by category (e.g., a smaller incremental addition for Acquisition, Rehabilitation, and Development of Affordable Housing relative to the scale of incremental addition for Emergency Income Assistance and Tenancy Preservation and a doubling of the amount for Administration).
This dramatic increase in potential funding dedicated to homelessness prevention and affordable housing would increase the scale at which the City can support related program expenditures. While translating new expenditures to potential program impact increases in all categories cannot be estimated at this time, rough we can estimates how new funding might translate into a few specific outcomes for affordable housing unit production. For example, given the array of funding sources currently available to the City and historic development cost trends, the City spends, on average, $262,913 for land acquisition, predevelopment and closing the construction financing gap to produce a new affordable housing unit on land acquired from a private owner, and when LowIncome Housing Tax Credits and other public and bank financing sources are available. Therefore, with an additional $19.5 million in potential annual funding from the Ballot Measure’s 5% tax rate, the new funding could result in the creation of about 74 additional affordable units annually, if every dollar in this Fund category were allocated towards new affordable housing development on land acquired from a private party at market rate, and assuming the non-City resources remain available.
If these funds were, instead, applied to affordable housing development on City-owned land, in which case only the average cost per unit for pre-development and closing the construction gap might apply ($106,768), then about 182 units could be produced annually with the same $19.5 million, assuming once again, that all the other tax credit and other financing sources would also be available.
Similarly, at an average cost estimate from City staff of $535,110 per unit for affordable housing unit acquisition and rehabilitation, the same additional $19.5 million from the Ballot Measure could lead to the creation of approximately 36 new affordable units annually.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 24 Figure 16: Illustrative Ballot Measure Expenditure Allocations Existing Expenditure
Category
Funding Source Existing
Expenditure
Amount
(FY2020-21
Actuals)*
% Illustrative
Additional
Expenditures
from the Ballot
Measure
(annual
average)
%
Administration
Homeless
Initiatives Staffing
Housing Division
General Fund $2.4M 18% $2.3M 6%
Emergency Income
Assistance
HHSD Flex Funds
POD Program
General Fund
Measure GSH (Santa
Monica Sales Tax
Measure)
$2.1M 16% $11.7M 30%
Acquisition, Rehabilitation,
and Development of
Affordable Housing*
Affordable Housing
Linkage Fees
AHPP In-lieu Fees
Measure GSH
TORCA Fund
Loan Repayments
$7.5M 56% $19.5M 50%
Programs to Preserve
Tenancy
LAFLA - General
Community Legal
Services
St. Joseph Center
- Retention
Program
Step-Up On
Second –
Sanctuary
Tenant Counseling
General Fund
Local Fund Returns
$1.3M 10% $5.5M 14%
Total $13.3M 100% $39.0M 100%
* Actual affordable housing production expenditures were minimal during FY 2020-21 due to budget reallocations decisions associated with the COVID-19 pandemic impacts on the City budget. They were unusually high in FY 2018- 19 and FY 2019-20, due to one-time proceeds from winding down the former Santa Monica Redevelopment Agency. The included $7.5 million value, therefore, represents City staff’s best estimate of average annual on-going expenditures from the indicated revenue sources.
Sources: City of Santa Monica; Ballot Measure; HR&A Advisors However, pursuant to the Ballot Measure, the City Council may choose, after receiving recommendations from the Resident Oversight Committee, to allocate funding to such programs differently and/or to allocate funds to new programs and initiatives that do not currently exist in the City (e.g., a Master Leasing strategy to restrict rents for units occupied by lower-income households in existing market rate apartment buildings; a new tenant income or rent subsidy program to address the adverse impacts of an unusually high recent annual rent adjustment in units subject to the City’s Rent Control Law; a new and improved version of the former Tenant Ownership HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 25 Rights Charter Amendment program that could provide homeownership and wealth accumulation opportunities to low- and moderate-income households).
In addition to the distributions to the Homelessness Prevention and Affordable Housing Fund, the Ballot Measure will also dedicate the first tranche of new revenue to the Santa Monica-Malibu Unified School District, or a Santa Monica-only successor School District. Since the average annual projection of new tax revenue from the Ballot Measure is just under $50 million, the applicable School District allocation would be $10 million annually. And as noted above, all decisions about how that contribution to K-12 public education would be utilized are within the purview of the separately elected Board of Education. We note, based on HR&A’s familiarity with SMMUSD’s budget, that about 86 percent of it is devoted to staffing, including salaries and benefits for a wide range of academic and student support services and administration. And, considering the significant complexity of K-12 public school financing in California, which has historically been at the low end of the spectrum of per-student spending among the states, additional funding would meet many needs. We also note that new revenues for SMMUSD generated by the Ballot Measure would continue a long history of very generous support for SMMUSD by the City, including (as of FY 2022- 23 estimates9) approximately $10.3 million from an annual contract for services to youth and other uses, and $17.2 million from two previous revenue raising ballot measures (Measures Y and GSH for sales tax increases) which, like the Ballot Measure, share tax revenue between the City and SMMUSD. The City’s existing contracts and other agreements with SMMUSD for use of City funds may need to be amended, if the Ballot Measure were to pass.
BALLOT MEASURE REVENUE ESTIMATE AND PROGRAM IMPLEMENTATION RISK
ASSESSMENT
Whether Ballot Measure tax revenue in future years will be realized to the same degree as presented above based on actual 2012-2021 real estate sales is unknowable. It is conceivable that even more revenue year-over-year or in total could be generated over the next 10 years. But the estimate of funding in future years that was based on the past 10 years could also be subject to a variety of future risks associated with circumstances outside the City’s control and market responses to the scale of the Tier 3 tax rate. In addition, there are also implementation risks to achieving the programmatic benefits these additional resources could provide. Both risk categories are discussed briefly below.
REVENUE ESTIMATE RISKS
Economic and Real Estate Market Cycle Variability
Because the tax revenue associated with the Ballot Measure is directly tied to the behavior of the general economy and the real estate market, both of which are cyclical and vary from year to year, annual tax revenue production will likely also vary. At the moment, the general economy is in 9 See generally FY 2022-23 SMMUSD budget presentation materials at:
https://simbli.eboardsolutions.com/SB_Meetings/ViewMeeting.aspx?S=36030435&MID=12416.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 26 a very uncertain state, due to supply chain disruptions, and labor shortages and labor cost increases resulting from the COVID-19 pandemic and the war in Ukraine, resulting in historically high consumer and producer price inflation, including increases in home prices and rents, but also very large increases in construction costs. Furthermore, each real estate market product, (i.e., for-sale homes, apartments, and office, retail and industrial buildings) subject to future construction or investment in the City, moves through different market cycles in response to the state of the general economy, demographic growth and compositional change, and other factors.
In the analysis presented above for the 2012-2021 period, real estate transfer tax revenues were more modest in the recovery years following the Great Recession, and again, during the onset of the COVID-19 pandemic. In the years between these events, sales activity and tax revenues rose dramatically, in part because the economy and related real estate markets were stronger. Overall, between 2012 and 2021, annual qualifying property sales ranged from $318 million to $2.5 billion, generating a range of annual tax revenues from $16.0 million to $123.0 million. This degree of potential revenue variation makes any annual average of questionable value, and the volatility will make program planning and implementation utilizing new Ballot Measure funding difficult, as will be discussed below.
Tax Revenue Volatility Due to Uneven Number and Frequency of Large Transactions Particularly large transactions also have an important impact on annual real estate transfer tax revenue consistency. For example, in 2016, the year with the highest one-year tax revenue generation of any year between 2012 and 2021, there were four $100 million plus transactions.
However, in 2014, the lowest year of tax revenue generation during that period, there was only one sale transaction for $100 million or more. Years with a higher concentration of such significant property transfers, which can sometimes occur even in years of economic downturn, add to the high level of volatility of real estate transfer tax revenues. The future numbers and frequency of very high-value property sales in future years is unknown.
Development Project Financial Feasibility Impacts
The scale of the Ballot Measure’s Tier 3 tax rate would be a non-trivial additional cost to land sellers and land developers and could change each party’s decision-making about whether to sell land for development or undertake new development, including new dwelling units needed to meet the City’s elevated Regional Housing Needs Assessment. While these decisions will be propertyspecific, we summarize below general observations based on interviews with residential and commercial real estate brokers familiar with the City’s market, several developers and investors who have been active in the Santa Monica market, including some of the largest recent sale transactions in recent years, and other knowledgeable real estate industry professionals. 10 Among
the concerns raised were:
• Poor timing for a large tax increase on new development and property investment, considering the tenuous nature of the current economy which may be tipping into recession; 10 Interviewees included senior company officials with Compass Realty, CBRE, Tishman-Speyer, Cypress Equities, and attorneys at the Harding Larmore Kutcher & Kozal and Allen Matkins Leck Gamble Mallory & Natsis law firms.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 27 historically high inflation adversely affecting construction costs; significant declines in the stock market; and the Federal Reserve’s rapid increases in prime banking rates to combat inflation, which increase construction and permanent loan rates. • Yet one more requirement on new development and real estate investment transactions in a city with notoriously high barriers to entry, which could be the “final straw” that causes developers and investors to pursue their business elsewhere, at a moment when the City needs active participation by the private sector to meet its elevated housing production requirements.
• A form of double-taxation, considering all the other General Fund taxes imposed on commercial development in particular.
• Incentivizes property sellers to pursue any available tax avoidance tactic (see discussion below).
• Fails to recognize the large number of private properties in the City potentially available for new development that are owned by families with a low property tax basis and high sensitivity to generational wealth transfer, which could cause delays in selling land in the hope of a more favorable future regulatory climate.
• Lack of appreciation for the how the additional tax will impact financial return to a developer and its co-investors, particularly when a project is sold at the end of a multi-year holding period.
• Under-estimation of the length of time it may take land and home prices to re-adjust to the additional seller cost. And to the extent this results in lower prices, there will be a collateral impact on assessed values, which in turn impacts property tax revenue to the City. • Potential to change prevailing practice in which the real estate transfer tax is a seller obligation, to split the cost between buyer and seller, further complicating transaction negotiations.
As to potential impacts of the Ballot Measure on new apartment development, HR&A tested the impacts on a selection of prototypical new construction developments, which in Santa Monica include both market rate and a percentage of units affordable to low- and/or moderate-income households pursuant to the City’s Affordable Housing Production Program. Using a static pro forma modeling approach developed to guide development standard change recommendations to support policies in the City’s draft 6th Cycle Housing Element update, HR&A added the additional cost of the five percent real estate transfer tax as a cost of sale to measure change in developer profit margin for four apartment prototypes on commercial boulevards and two office building prototypes. The development prototypes and real estate market assumptions and Floor Area Ratio and building height assumptions used in the modeling are based on HR&A’s December 8, 2021 analysis, which was prior to the most recent round of negotiations with the California Housing and Community Development Department. All tested development prototypes include a ground floor retail component , subterranean parking, and either apartments or office space on the upper floors.
Market assumptions were sourced from HR&A’s market research using industry-accepted data sources as of the date of the analysis, and were vetted by local developers and other real estate industry stakeholders. The analysis uses developer profit margin (developer profit divided by total HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 28 project value) as the investment return threshold to evaluate financial feasibility. Development prototypes with greater than or equal to a 12.5 percent profit margin are considered “likely to develop,” meaning a developer is likely to pursue the project. Development prototypes with less than 12.5 percent profit margin are considered “marginally likely to develop” or “unlikely to develop,” depending on how far below the 12.5 percent threshold the profit margin falls. The analysis results are summarized in Figure 17 on the following page.
Figure 17: Ballot Measure Tax Rate Impact on Developer Profit Margin for Four Prototypical and Two Office Developments in Santa Monica Zoning Category ---> Mixed Use
Boulevard Low
Mixed Use
Boulevard
Bergamot Transit
Village
Bergamot Transit
Village
Downtown
Community Plan
Downtown
Community
Plan
Apartments Apartments Apartments Office Apartments Office
DEVELOPMENT PROTOTYPES
FAR 2.25 2.75 2.50 2.50 2.75 2.75
Building Height 52 ft. 52 ft. 52 ft. 52 ft. 52 ft. 52 ft.
Number of Stories 4 stories 4 stories 4 stories 4 stories 4 stories 4 stories Total Units 32 units 42 units 81 units 43 units
Market Rate 27 units 36 units 69 units 37 units
Affordable (15%)1 5 units 6 units 12 units 6 units
Average Unit Size 704 SF 704 SF 704 SF 704 SF
Office GSF 25,000 SF 33,000 SF
Retail GSF 9,000 SF 9,000 SF 21,000 SF 21,000 SF 9,000 SF 9,000 SF Total GSF 34,000 SF 43,000 SF 88,000 SF 90,000 SF 43,000 SF 42,000 SF Lot Area (SF) 15,000 SF 15,000 SF 35,000 SF 35,000 SF 15,000 SF 15,000 SF
PROJECT RETURNS
Net Operating Income $1,253,000 $1,579,000 $3,091,000 $3,735,000 $1,575,000 $1,923,000 Capitalization Rate 4.3% 4.2% 4.2% 4.8% 4.2% 4.8%
Project Value $29,632,000 $37,788,000 $73,424,000 $78,476,000 $38,354,000 $40,643,000 Total Development Cost ($23,200,000) ($30,268,000) ($59,259,000) ($62,129,000) ($28,994,000) ($33,376,000) Profit $6,432,000 $7,520,000 $14,166,000 $16,347,000 $9,360,000 $7,267,000 Developer Profit Margin 21.7% 19.9% 19.3% 20.8% 24.4% 17.9% Feasible? (>12.5% Profit) LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO
DEVELOP
TAX MEASURE SENSITIVITY
RETURNS
Real Estate Transfer Tax (5%) ($1,482,000) ($1,889,000) ($3,671,000) ($3,924,000) ($1,918,000) ($2,032,000) Profit $4,951,000 $5,631,000 $10,494,000 $12,424,000 $7,442,000 $5,235,000 Developer Profit Margin 16.7% 14.9% 14.3% 15.8% 19.4% 12.9% Feasible? (>12.5% Profit) LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO DEVELOP LIKELY TO
DEVELOP
The preceding analysis shows that in each case, the additional seller cost associated with the Ballot Measure’s Tier 3 tax rate would add between $1.5 million and $3.9 million to the “cost of sale” and cause a reduction in developer profit margin to a point much closer to, although not below, the stated threshold that would threaten financial feasibility. It should also be noted that the City has proposed some additional zoning flexibilities since HR&A’s last round of feasibility testing was completed, plus use of the State Density Bonus Law, which could have more positive impacts on prototype feasibility even with the additional Tier 3 tax rate, depending on how additional costs of construction associated with these flexibilities trade off against achievable net operating income from additional market rate units.
We acknowledge that the foregoing is only a general estimate of the Ballot Measure’s potential impact on a sample of new development projects, and only in the year that the prototype first achieves stabilized occupancy. It does not reflect the impact of the Tier 3 tax rate using other standard measures of investment return including return on developer and co-investor equity, Internal Rate of Return over a holding period, or changes in after-tax impacts. Such analysis is beyond the scope of this memorandum.
Economic and Fiscal Impacts Resulting from Any Reductions in Development or Investment Activity Downward trends in real estate transactions—either as a result of difficult economic conditions or because of adverse impacts tied to the Ballot Measure’s Tier 3 tax rate—could cause collateral impacts on other sources of City tax revenues associated with commercial development in particular, such as reductions in property taxes and motor vehicle license fee in-lieu property taxes, parking tax, sales tax, business license tax, utility user’s tax and Transient Occupancy tax. Any such collateral impacts would also extend to SMMUSD and Santa Monica College which also receives shares of local property tax revenues. Any reductions in development and/or investment activity could also cause reductions in jobs and total economic output in the City’s economy. On the other hand, new programs and development activity resulting directly from new Ballot Measure tax revenue expenditures would generate new jobs and economic activity, but in different categories and numbers; there would not likely be any associated increases in City tax revenues, other than those associated with new household spending.
Increase in Tax Avoidance Behavior
Also related to the high cost of the Ballot Measure’s Tier 3 tax rate, property sellers may be incentivized to pursue tactics to reduce the impact of the new tax rate or seek to avoid it altogether.
This may include, for example, lowering sale prices that would otherwise be set close to the qualifying price of $8.0 million to avoid paying the Tier 3 tax rate. Between 2012-2021, 15 property sales of commercial or residential properties representing $6.1 million in estimated City tax revenue, fell between $8.0 and $8.4 million. Considering that the proposed Tier 3 tax rate increment of $50/$1,000 would translate to a tax of $400,000 to $420,000 could motivate the seller to lower the price to slightly below $8.0 million. This possibility becomes more likely over time HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 31 because the Ballot Measure’s $8.0 million threshold for the Tier 3 tax rate is not indexed for inflation. Therefore, sale prices that would fall below $8.0 million today will move up to that threshold over time as values appreciate due to general price inflation and the behavior of the real estate market.
Sellers may elect to pursue more aggressively one or more of the statutory exemptions from paying real estate transfer tax as provided under state law and County ordinance. As described above, the City is not in the chain of communication between escrow agents the County Registrar-Recorder prior to the County’s distribution to the City of its share of real estate transfer tax revenue. And it is not clear how much the County scrutinizes claimed exemptions. The higher the sale price, and hence the higher the potential tax liability, the more incentive there will be for sellers to pursue tax avoidance tactics.
Potential Litigation
Here again, the relatively large scale of the tax amount resulting from the Ballot Measure’s Tier 3 tax rate could cause some sellers and their legal counsel to explore theories to challenge the application of the Ballot Measure, or the City’s method of enforcement, for individual properties or classes of similarly situated properties. Although City staff report no history of litigation involving the current tax rates, and HR&A is not qualified to identify specific legal theories that might be pursued, we note this only as another possible response from some sellers facing much larger tax liability that could reduce additional real estate transfer tax revenues over time, due to legal process delays or victories.
IMPLEMENTATION RISKS
Compliance, Implementation, and Enforcement Staffing Needs At present, the City is facing staffing challenges, with many positions open across departments.
Current City staff are unlikely to capably manage the scale of new and expanding homelessness prevention and affordable housing programming tied to the potentially large increase in revenues from the Ballot Measure. To effectively deploy these funds, the City will need to hire additional staff to manage the Homelessness Prevention and Affordable Housing Fund, the associated programming, and their administration. As current staff are stretched thin, the City will need to hire new staff to:
• Support housing production efforts;
• Manage receipt of new revenues;
• Manage disbursement of new expenditures;
• Administer new and expanding programming;
• Provide support for the Resident Oversight Committee; • Support auditing efforts along with Moss Adams;
• Support additional financial reporting requests from the Finance Department associated with homelessness prevention and affordable housing revenues and expenditures; and • Other related tasks and roles across City departments as necessary.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 32 Furthermore, continuous programming will require consistent staff support. Given the fluctuations in real estate property transfers discussed above, there may be tension between the uneven flow of new annual revenues generated from the Ballot Measure and a need for stable funding to budget for the additional staff support on an ongoing basis to use the new funds for their intended purposes.
Eligibility Requirements Constrain Disbursement
Some of the dedicated programming associated with the Ballot Measure’s funding allocations will require criteria and means testing to determine who is eligible to receive assistance. Should criteria, eligibility, or disbursement planning be defined too rigidly, that could prevent funds from flowing to residents when they need it most. For example, should there be another economic or other systemic shock in the future (e.g., from natural, such as an earthquake or climate event, or human causes) the programs associated with Ballot Measure expenditures must be flexible enough to disburse funds to those who are suddenly facing difficult circumstances and may not be able to prove what income category they fall into to qualify for funding associated with such categories. A more flexible approach to expending tax revenue resources allows City staff to disburse funds directly to those most affected by sudden shocks, regardless of their strict adherence to particular income categories.
Concerns Regarding Coordination of Expenditure Decisions and Operation of the Residents Committee Under the Ballot Measure’s current language, the Resident Oversight Committee will make expenditure recommendations to City Council. It is unclear whether or how this decision-making process will be coordinated with the City’s annual budgeting process. City staff expressed concern that this process may interfere with existing City Council-approved authority and guidelines, potentially inhibiting the flexibility and speed at which City staff currently makes key funding decisions. Such considerations are particularly important when it comes to funding affordable housing, as land or buildings may only be available for brief periods and the City must be positioned to act quickly. Similarly, the ability of affordable housing organizations to successfully acquire land and buildings may be hindered if funding goes through an extended discretionary process.
Additionally, the City is currently working to decrease the number of active boards and commissions.
Not only do boards and commissions require dedicated funding, resources, and staffing, the City Council has reportedly experienced recent difficulty in finding residents willing to serve on such board and committees. Not only will the City need to identify and approve 11 residents for the Committee tied to the Ballot Measure, but these residents must fit within specific income brackets, housing circumstances, life experiences, and professional backgrounds. Should the City be unable to impanel the necessary 11 residents for the Committee, there are concerns that this may delay progress on making recommendations for City Council decision making about the most useful and efficient use of new tax revenues derived from the Ballot Measure.
HR&A Advisors, Inc. Santa Monica Transfer Tax Ballot Measure | 33
CONCLUSION
If voters approve the Ballot Measure as proposed, new annual tax revenues of about $49 million per year could result, based on the pattern of sales of $8 million or more between 2012 and 2021.
Depending on specific future spending recommendations by the Ballot Measure’s Resident Oversight Committee, and approval or modification of the those recommendations by the City Council within the revenue allocation framework contained in the Ballot Measure, the new tax revenues could make significant progress in addressing the needs of homeless persons, rent-burdened low-income existing households, and a need for additional dwelling units affordable to low- and moderateincome households, as the Ballot Measure’s proponents suggest. But because of the scale of Tier 3 tax rate included in the Ballot Measure, and other reasons discussed above, there are reasons to be cautious about whether the scale of estimated new tax revenue predicated on previous sales over the past 10 years would materialize to the same degree year over year in the future. And, also for reasons described above, caution is warranted about the City’s ability and speed to deliver effective programs and new affordable units, to the degree that the Residents Oversight Committee and City Council may recommend.
The proposed municipal code amendment reads as follows:
SECTION I: TITLE
,, !( t (: t I Y t L, JU1cL or .... ,.,1 CI T. I •-
I ( CLER I<-
2022 HAR l o PH f: 5 2
SANTA MONICA. CJ\LIF.
This measure may be known and referred to as the "Funding for Homelessness Prevention, Affordable Housing, and Schools" Ballot Measure.
SECTION II: FINDINGS AND PURPOSE
The People of the City of Santa Monica find as follows:
The U.S. Department of Housing and Urban Development ("HUD") estimates in its Community Housing Assessment Data that nearly one out of every five Santa Monica renter households-our neighbors in our City-are both low income and suffer "severe cost burden." This means they pay more than half of their limited incomes as rent and utilities. HUD further estimates that an additional close to one out of every ten Santa Monica renter households are both low income and "rent burdened"-that is, pay more than 30 percent and up to 50 percent of their incomes as rent and utilities.
The extreme rent burdens faced by so many of our low income neighbors exacerbates the homelessness crisis facing Santa Monica. Low income household members who are severely rent burdened are potentially just one financial shock away from homelessness. The most recent pre-pandemic homeless count for Los Angeles County, conducted in January 2020, found that roughly two out of every five unsheltered adults were both homeless for the first time and cited economic hardship as the cause.
Even when homelessness is averted, the extreme rent burdens faced by so many of our low income neighbors forces them to spend much less on food, on health care, and on their children's development than they would if they had affordable rents. This in turn contributes to the educational achievement gap experienced by some of our community's children.
It is inconsistent with our values as Santa Monicans to allow so many of our neighbors to live in these extremely difficult and precarious conditions, especially when they are seniors, children, and persons facing physical and mental challenges.
The Santa Monica Preserve Our Diversity pilot programs have demonstrated that a local rent subsidy to low income seniors in rent-controlled apartments is a highly cost-effective way to eliminate rent burden, prevent homelessness, and allow our low income senior neighbors to age in place with dignity. Extension of these pilot programs to other rent-burdened low income households-including those with members who are seniors, children, or persons facing physical and mental challenges-would also be a cost-effective way to eliminate rent burden, prevent homelessness, and to allow all of our low income neighbors to live in dignity.
Temporary emergency rent subsidies, legal assistance, and code enforcement also are cost-effective interventions to prevent homelessness or displacement of our low income neighbors.
1 Appendix A: Ballot Measure Text
4.90.010 Creation of Homelessness Prevention and Affordable Housing Fund and School Fund.
(a) The City shall create within the Housing Trust Fund a new Homelessness Prevention and Affordable Housing Fund.
(b) The City shall also create a new School Fund.
(c) On an annual basis, the City shall deposit into the Homelessness and Affordable Housing Fund and the School Fund all funds collected pursuant to the Third Tier Tax Rate imposed by Section 6.96.020(c) that are in excess of six dollars for each one thousand dollars of consideration or property value, or fractional part thereof as follows:
(i) The first $10 million of funds to the School Fund;
(ii) The next $40 million of funds to the Homelessness Prevention and Affordable Housing Fund; and
(iii) Any funds above $50 million shall be deposited 20 percent to the Schools Fund and 80 percent to the Homelessness Prevention and Affordable Housing Fund.
4.90.020 School Fund.
(a) The City shall provide annually to the Santa Monica Malibu Unified School District (SMMUSD), the funds in the School Fund. The City is authorized to establish an agreement with SMMUSD to provide for this contribution for use for school purposes by the SMMUSD. (b) In the event of a unification of Malibu schools, the school district that serves residents of the City of Santa Monica shall receive all of the funds referenced in subdivision (a) of this section. In the event of a unification of Malibu schools, any school district that is located outside of Santa Monica is not entitled to any portion of these funds, regardless whether that district offers enrollment to any students that reside in Santa Monica. The City is authorized to modify any agreement(s) regarding the distribution of the funds under subdivision (a) of this section to direct the funds to the appropriate Santa Monica school district. (c) In enacting this Initiative, it is the intent of the voters that any funds allocated to the SMMUSD or any future school district pursuant to this section should be additional to, and not a replacement of any funds the City otherwise provides to the school district, including any funds provided according to existing agreements or in accordance with prior advisory measures regarding city funding for public education.
4.90.030 Expenditure of Homelessness Prevention and Affordable Housing Funds. (a) No more than six percent of the funds deposited into the Homelessness Prevention and Affordable Housing Fund annually may be used for compliance, implementation, and 3 acquisition of low rent housing projects in the City of Santa Monica by public agencies, that development, construction, or acquisition is hereby deemed authorized by the People of Santa Monica, having been duly approved by a majority of qualified electors of the City of Santa Monica, and with such authorization constituting the approval required by Article XXXIV of the California Constitution. The development, construction, and/or acquisition of low rent housing units authorized by this section shall be in addition to any other authorization of the development, construction, and/or acquisition of such housing by the voters of the City of Santa Monica before or after adoption of this section. This Section in no way restricts or limits the City's authority to develop or assist in the development of housing that is not subject to Article XXXIV. This Section 4.90.070 shall be interpreted to maximize affordable housing production and acquisition. As used in this Section 4.90.070, the terms "public entity," "develop," "construct," "acquire," and "low rent housing projects" shall be interpreted in accordance with Article XXXIV of the California Constitution, California Health and Safety Code Section 37000 et seq., and any successor legislation thereto.
4.90.080 Definitions.
(a) "Extremely Low Income Households" shall have the same meaning as in Section 50 I 06 of the California Health and Safety Code.
(b) "Very Low Income Households" shall have the same meaning as in Section 50 I 05 of the California Health and Safety Code.
(c) "Low Income Households" shall mean Lower Income Households whose gross incomes exceed the maximum for Very Low Income Households. (d) "Lower Income Households" shall have the same meaning as in Section 50079.5 of the California Health and Safety Code.
(e) "Moderate Income Households" shall have the same meaning as the tenn "Persons and families of moderate income" as defined in Section 50093(b) of the California Health and Safety Code.
4.90.90 Severability.
If any section, subsection, subdivision, paragraph, sentence, clause or phrase of this Chapter or any part thereof is for any reason held to be invalid, unlawful or unconstitutional, such decision shall not affect the validity of the remaining portions of this Chapter or any part thereof. The voters of the City of Santa Monica hereby declare that they would have passed each section, subsection, subdivision, paragraph, sentence, clause or phrase thereof, irrespective of the fact that any one or more sections, subsections, subdivisions, paragraphs, sentences, clauses or phrases be declared unconstitutional.
SECTION IV: AMENDMENT OF SANT A MONICA MUNICIPAL CODE, CHAPTER
6.96 6
HR&A Advisors
Santa Monica RE Tax Measure Evaluation
7/18/22
ToSummary tal Potential Fiscal Revenues (2012-21) $548,996,244 Average Year Total to General Fund (0.6%) $5,882,103
Average Year Total 5% Tax Allocated Funds $49,017,522
In an average year (5% Tax Allocated Funds)
School Fund $10,000,000
Homeless/Aff Housing Fund $39,017,522
Year Number of Sales Sum of Sales Price
Potential Revenue from
5.6% Tax Rate 5% Tax Allocated Funds General Fund (0.6%) Revenue to School Fund Revenue to
Homeless/Affordable
Housing Fund
2012 22 $547,159,741.00 $30,640,945.50 $27,357,987.05 $3,282,958.45 $10,000,000.00 $17,357,987.05 2013 23 $731,363,864.00 $40,956,376.38 $36,568,193.20 $4,388,183.18 $10,000,000.00 $26,568,193.20 2014 15 $318,825,916.00 $17,854,251.30 $15,941,295.80 $1,912,955.50 $10,000,000.00 $5,941,295.80 2015 34 $1,085,685,348.00 $60,798,379.49 $54,284,267.40 $6,514,112.09 $10,856,853.48 $43,427,413.92 2016 42 $2,468,593,508.00 $138,241,236.45 $123,429,675.40 $14,811,561.05 $24,685,935.08 $98,743,740.32 2017 32 $1,126,216,337.00 $63,068,114.87 $56,310,816.85 $6,757,298.02 $11,262,163.37 $45,048,653.48 2018 35 $1,261,058,386.00 $70,619,269.62 $63,052,919.30 $7,566,350.32 $12,610,583.86 $50,442,335.44 2019 30 $1,104,928,520.00 $61,875,997.12 $55,246,426.00 $6,629,571.12 $11,049,285.20 $44,197,140.80 2020 26 $548,745,664.00 $30,729,757.18 $27,437,283.20 $3,292,473.98 $10,000,000.00 $17,437,283.20 2021 27 $610,927,076.00 $34,211,916.26 $30,546,353.80 $3,665,562.46 $10,000,000.00 $20,546,353.80 Total 286 $9,803,504,360.00 $548,996,244.16 $490,175,218.00 $58,821,026.16 $120,464,820.99 $369,710,397.01 Average 28.6 $980,350,436.00 $54,899,624.42 $49,017,521.80 $5,882,102.62 $12,046,482.10 $36,971,039.70 Year Number of Sales Sum of Sales Price
Potential Revenue from
5.6% Tax Rate 5% Tax Allocated Funds General Fund (0.6%) Revenue to School Fund Revenue to
Homeless/Affordable
Housing Fund
2012 18 $507,159,366.00 $28,400,924.50 $25,357,968.30 $3,042,956.20 $10,000,000.00 $15,357,968.30 2013 19 $691,573,864.00 $38,728,136.38 $34,578,693.20 $4,149,443.18 $10,000,000.00 $24,578,693.20 2014 11 $266,860,211.00 $14,944,171.82 $13,343,010.55 $1,601,161.27 $10,000,000.00 $3,343,010.55 2015 30 $1,033,022,848.00 $57,849,279.49 $51,651,142.40 $6,198,137.09 $10,330,228.48 $41,320,913.92 2016 39 $2,430,793,508.00 $136,124,436.45 $121,539,675.40 $14,584,761.05 $24,307,935.08 $97,231,740.32 2017 23 $1,042,978,837.00 $58,406,814.87 $52,148,941.85 $6,257,873.02 $10,429,788.37 $41,719,153.48 2018 30 $1,210,708,386.00 $67,799,669.62 $60,535,419.30 $7,264,250.32 $12,107,083.86 $48,428,335.44 2019 23 $1,024,768,520.00 $57,387,037.12 $51,238,426.00 $6,148,611.12 $10,247,685.20 $40,990,740.80 2020 20 $496,279,664.00 $27,791,661.18 $24,813,983.20 $2,977,677.98 $10,000,000.00 $14,813,983.20 2021 21 $504,059,005.00 $28,227,304.28 $25,202,950.25 $3,024,354.03 $10,000,000.00 $15,202,950.25 Total 234 $9,208,204,209.00 $515,659,435.70 $460,410,210.45 $55,249,225.25 $117,422,720.99 $342,987,489.46 Average 23.4 $920,820,420.90 $51,565,943.57 $46,041,021.05 $5,524,922.53 $11,742,272.10 $34,298,748.95 Year Number of Sales Sum of Sales Price
Potential Revenue from
5.6% Tax Rate 5% Tax Allocated Funds General Fund (0.6%) Revenue to School Fund Revenue to
Homeless/Affordable
Housing Fund
2012 4 $40,000,375.00 $2,240,021.00 $2,000,018.75 $240,002.25 $2,000,018.75 $0.00 2013 4 $39,790,000.00 $2,228,240.00 $1,989,500.00 $238,740.00 $1,989,500.00 $0.00 2014 4 $51,965,705.00 $2,910,079.48 $2,598,285.25 $311,794.23 $2,598,285.25 $0.00 2015 4 $52,662,500.00 $2,949,100.00 $2,633,125.00 $315,975.00 $2,633,125.00 $0.00 2016 3 $37,800,000.00 $2,116,800.00 $1,890,000.00 $226,800.00 $1,890,000.00 $0.00 2017 9 $83,237,500.00 $4,661,300.00 $4,161,875.00 $499,425.00 $4,161,875.00 $0.00 2018 5 $50,350,000.00 $2,819,600.00 $2,517,500.00 $302,100.00 $2,517,500.00 $0.00 2019 7 $80,160,000.00 $4,488,960.00 $4,008,000.00 $480,960.00 $4,008,000.00 $0.00 2020 6 $52,466,000.00 $2,938,096.00 $2,623,300.00 $314,796.00 $2,623,300.00 $0.00 2021 6 $106,868,071.00 $5,984,611.98 $5,343,403.55 $641,208.43 $5,343,403.55 $0.00 Total 52 $595,300,151.00 $33,336,808.46 $29,765,007.55 $3,571,800.91 $29,765,007.55 $0.00 Average 5.2 $59,530,015.10 $3,333,680.85 $2,976,500.76 $357,180.09 $2,976,500.76 $0.00 Year Number of Sales Sum of Sales Price
Potential Revenue from
5.6% Tax Rate 5% Tax Allocated Funds General Fund (0.6%) Average 5% Tax
Allocated Funds per Year
Average General Fund
Allocation per Year
Office 100 $5,535,713,366.00 $309,999,948.50 $276,785,668.30 $33,214,280.20 $27,678,566.83 $3,321,428.02 Retail 28 $610,423,304.00 $34,183,705.02 $30,521,165.20 $3,662,539.82 $3,052,116.52 $366,253.98 Multi-Family 72 $1,640,355,712.00 $91,859,919.87 $82,017,785.60 $9,842,134.27 $8,201,778.56 $984,213.43 Single-Family 48 $548,800,151.00 $30,732,808.46 $27,440,007.55 $3,292,800.91 $2,744,000.76 $329,280.09 Condo 4 $46,500,000.00 $2,604,000.00 $2,325,000.00 $279,000.00 $232,500.00 $27,900.00 Other 34 $1,421,711,827.00 $79,615,862.31 $71,085,591.35 $8,530,270.96 $7,108,559.14 $853,027.10 Total 286 $9,803,504,360.00 $548,996,244.16 $490,175,218.00 $58,821,026.16 $49,017,521.80 $5,882,102.62 Average 28.6 $980,350,436.00 $54,899,624.42 $49,017,521.80 $5,882,102.62 $4,901,752.18 $588,210.26 Santa Monica Commercial & Multi-family Property Sales 2012-2021 Santa Monica Single-Family Home & Condo Sales 2012-2021 Santa Monica Total Property Sales 2012-2021
Santa Monica Property Transfers by Use
Appendix B: Data Summary For Santa Monica Sales of $8 Million Or More, 2012-2021
HOMELESSNESS PREVENTION
Funding Source 22-23(Budget) 21-22 (Budget) 20-21(Actuals) 19-20 (Actuals) 18-19 (Actuals) 17-18 (Budget) 16-17 (Budget) 15-16 (Actuals) 14-15 (Actuals) 13-14 (Actuals) Homeless Initiatives Staffing General Fund 827,389 797,159 538,013 738,379 620,582 601,965 583,906 566,388 549,397 532,915 Housing Division General Fund 1,587,411 1,514,067 1,808,939 1,978,602 1,772,312 2,045,469 1,678,772 1,664,189 1,457,675 1,429,840 Housing Authority (2020-23 pulls out HCV, CoC, EHV (below), 13-20 total division with programs included)
Federal funding (Section 8, HOME), other restricted housing funds from linkage fees, residual receipts) 2,726,347 2,092,228 2,037,682 22,280,381 19,046,101 20,162,245 18,164,465 16,609,620 16,564,587 17,150,696 HHSD Flex Funds General Fund 100,549 100,549 100,549 75,754 149,521 ARPA Emergency Assistance Federal ARPA funds 500,000 500,000 COVID Emergency Rental Assistance Program (ERAP) Federal ARPA funds, CDBG, HOME 3,121,314 CDBG Residential Rehab Federal CDBG - - - - 532,055 300,000 120,000 - - - Emergency Housing Voucher (EHV) Program Federal 1,419,455 657,155 - POD Program Measure GSH, General Fund 2,000,000 2,000,000 2,000,000 135,874 124,067 - 300,000 - - - HSGP - Homelessness Prevention TOTAL
LAFLA - General Community Legal Services General Fund 514,288 514,288 506,149 506,149 506,149 496,161 487,203 479,219 479,219 410,118 St. Joseph Center - Retention Program (FY 2019-20 to Present) General Fund and Local Return Funds 620,463 606,914 580,717 611,104 St. Joseph Center - Family Self Sufficiency (Pre-FY 2019-20) General Fund 187,532 183,303 179,510 176,129 176,129 176,925 St. Joseph Center - Shelter Plus Care (Pre-FY 2019-20) General Fund 42,309 41,317 40,428 39,635 39,635 39,377 Step-Up On Second - Sanctuary General Fund 126,816 126,816 115,964 131,852 131,852 128,823 126,106 123,684 154,605 154,141 Housing Subsidies TOTAL (Section 8, CoC, HOME, VASH, RDA) Federal HUD funds: Section 8, Serial Inebriate Grant (all below) Housing Choice Voucher (includes VASH, PBV) (included in Hsg Auth amt- row 5- before 20-21) 19,257,521 19,506,134 18,951,949
Continuum of Care (CoC) (included in Hsg Auth amt- row 5- before 20-21) 3,506,959 3,506,959 3,253,093 HOME (Tenant-Based Rental Assistance/TBRA) 495,428 495,428 418,800 742,570 539,019 1,073,603 481,792 203,617 258,219 290,740 Sr Housing Voucher Program 113,000 113,000 143,972 122,527 135,338 296,848 350,000 206,104 255,261 203,683 Tenant counseling General Fund - 120,000 120,000 - - - - - - - TOTAL $ 33,795,626 $ 32,650,697 $ 33,697,141 $ 27,323,192 $ 23,786,837 $ 25,329,734 $ 22,512,182 $ 20,068,585 $ 19,934,727 $ 20,388,435 Appendix C: Inventory Of Existing City Programs That Align With Ballot Measure Fund Allocations, 2012-2021 Administration
Ongoing on emergency income assistance
Programs and servicesto preserve tenancies