Denny Zane's Transfer Tax Letter to Brock

June 5, 2022

Dear Councilmember Brock,

I am responding to your letter in the Lookout News recently regarding the voter initiative being circulated by Mayor Himmelrich, her husband and SMRR Co-Chair Mike Soloff, and Santa Monica Democratic Club President Jon Katz. ("OPINION -- Councilmember Brock's Open Letter on Transfer Tax," June 2, 2022).

I believe your letter contains several significant mischaracterizations of Mayor Himmelrich’s proposed measure.

For example, your letter misleadingly states that the Mayor’s proposed measure includes an “800% increase” in the Real Estate Transfer Tax that will be “unfair to many residents and property owners.”

I believe these assertions unreasonably mis-characterizes their proposal.

The proposed Real Estate Transfer Tax (RETT) actually proposes a modest increase of 5 percentage points. Your letter uses a misleading percentage increase comparison to exaggerate their proposed increase, not acknowledging that the initial base rate is a very tiny 0.6%.

And the claim that “many” residents and property owners will be affected by this tax is contrary to fact. A small number of property owners will be affected, likely less than 50 in any given year, based on historical record, and it is unclear whether even a majority of such transactions involved residents of Santa Monica.

In 2019, the most recent normal full calendar year before the COVID pandemic, only 45 out of more than 800 transactions that occurred that year exceeded $8 M, a little more than 5% of total transactions. 95% of transactions that year would have been unaffected, and the affected 45 transactions involve a miniscule percentage of all the real properties in the City. This number of transactions being subject to the proposed tax is far from being “many” – more like a very lucky few.

I wager that most of these sales over $8 M, maybe all, are either multi-family or commercial properties. (Note: The Assessor’s office gives no information that allows properties to be identified as single family or multifamily residential or commercial—that requires going to Norwalk to examine individual transfer deeds.)

There is no reason to believe these type of property transactions likely involve Santa Monica residents. If any of these transactions are single family homes then they are very, very large homes, closer to what some might call “mansions.” And, given increasing ownership of luxury homes in Santa Monica by investors for rental purposes, and those able to own multiple homes, even these types of transactions may well not involve Santa Monica residents.

A notable fact is that the Real Estate Transfer Tax, in Santa Monica and most other cities, has been very, very low for decades. RETTs were created back when property owners in California paid property taxes closer to the national average. Often called Documentary Transfer Taxes, these taxes had been very low because cities did not rely upon them to fund city services. They relied on property taxes primarily. RETTs were designed at that time only to cover local government’s cost of processing the paper work involved in a real estate transaction.

But with property taxes slashed (California is now in the lower third of the nation), with the dramatic federal tax cuts for wealthy property owners enacted under former President Trump, and with cities all over California in need of new revenues to cover growing costs -- including the costs of helping to affordably house our low income seniors and work force, as well as our homeless population -- the Real Estate Transfer Tax has become a serious alternative for many cities.

For example, in 2020 San Francisco increased its highest RETT to 6% of the total sales price. A Los Angeles City measure that has qualified for the November 2022 ballot will increase its highest RETT by 5.5% to a total of 5.95%.

A Santa Monica’s proposal to increase our highest RETT by 5% to a total of 5.6%, and to apply it only on luxury or high-end real estate is hardly excessive. In fact, it’s less than the 6% real estate developers typically pay their brokers when such a sale is made.

Councilmember Brock, I have disagreements as well with respect to priority investments should the City Council pursue your proposed alternative Real Estate Transfer Tax measure. I will share those differences in another letter if this discussion moves forward.

Former Mayor Denny Zane is Co-Chair, Santa Monicans for Renters’ Rights

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