Santa Monica Lookout Opinion
OPINION -- Dueling Tax Measures Offer Voters Easy Choice
By Marc L. Verville
July 23, 2022 -- Next Tuesday the City Council will vote on placing Phil Brock’s Transfer Tax initiative on the November ballot. The Council must vote Yes to give the voters the choice.
Brock’s measure acknowledges that the City’s financial situation is not yet back to pre-Covid status. It also acknowledges that the situation is temporary, which is why it includes a sunset clause. It would provide a bridge while the recovery continues to address the issues of safety and resident access to critical services. Brock’s initiative would generate funds to expand the Fire Department’s Community Response Unit that has made a notable difference in management of the critical homeless situation.
Within 5 years from that point, the City projects that the annual general fund revenues will be about $65 million per year higher than they were pre-Covid, under the City’s existing tax structure. This does not even account for the anticipated impact of a revitalized Downtown and Promenade, which will add another $25 to $40 million per year in general fund revenues from improved sales taxes, on top of these basic City projections. There will also be major new hotels opening in the interim, adding more Transient Occupancy Tax revenue.Confusion and misdirection endemic to Himmelrich's proposal
Against this financial backdrop, Mayor Sue Himmelrich’s privately funded ballot initiative inexplicably proposes to hit residents with one of the highest transfer taxes in the state. If the mayor believes her own finance department’s projections and the overall City outlook, why is it now necessary to also directly tax the residents, in perpetuity?
One answer may be Ms. Himmelrich’s admission in a neighborhood group meeting that wasteful city spending was a problem before she was seated on the Council and that she could not make headway with the issue. So, that suffices for a perpetual resident tax?
But the financial illiteracy gets worse. Since affordable housing generates virtually no property tax revenue under state law, it is only a net driver of escalating city municipal costs. By dedicating funding only to affordable housing construction in perpetuity, without also providing funds for infrastructure and services, the setup will only destabilize the city’s future finances, generating the need for yet more direct taxation.
Then there is the question of what Ms. Himmelrich’s proposal does with the money. That is as confusing as the justifications. For starters, there are no stated outcomes to the spending. No defined scale. No success criteria. The only stated and quantified objective is collecting more money from the residents. Forever.
So, what are the issues supposedly addressed by this initiative?
While the HUD tables are labeled for Santa Monica, it’s pretty clear that Los Angeles County income data is being used as there does not appear to be a Santa Monica Area Median Income (AMI). The Himmelrich initiative’s “Section II: Findings And Purpose” only references the Los Angeles County AMI data being used to calculate the “burdening.”
This is also what our own Rent Control Board (RCB) uses in their 2021 Annual Report Affordability Analysis. The RCB report notes that “According to the U.S. Census Bureau, the median household income for Santa Monica is higher than the Los Angeles AMI. . . .” How much higher? Almost 25 percent higher, at $98,300. What is rent burdened at $80,000 is not rent burdened at $98,300. The $18,300 difference equates to $458 per month in additional income available for rent.
We can corroborate other data points on the issue. The RCB’s 2021 Annual Report references the “Housing is Key” state program that awards Covid-19 rent relief. To date, 2,337 Santa Monica households have received awards. This is only 24 percent of the claimed 9,585 rent burdened households. The award number as of April 5 was 1,878 households so with only 459 added in the last 3.5 months, the program seems to be winding down. Other reference points in the RCB report show that 434 means-tested fee waivers were granted in Santa Monica in 2021, less than 2 percent of total controlled units.
Finally, pre-1999 controlled units and market-rate controlled units leased in the last 6 years make up 69 percent of all rent-controlled units. Both the recent market-rate controlled units and the market rate non-controlled units have been leased out on a means tested basis by housing providers so that rents max out at 30 percent of income.
The data does not support the assertion of massive rent burdening. The casual approach to problem quantification as the basis for public policy is simply unacceptable.
Rent burdening is a risk factor in homelessness?
The report noted that “The majority of single adults who will experience first-time homelessness or a return to homelessness are already clients of mainstream County agencies, which presents opportunities for intervention. . . . These clients are very vulnerable and are interacting with multiple systems, such as the mental health and criminal justice systems.”
The actual level of research done for this perpetual proposal was revealed in a neighborhood group discussion with Ms. Himmelrich on the tax initiative. She disputed my assertion that the tax would disproportionately impact the residents by claiming that she had personally reviewed county transaction data. I supported my conclusion based on the review of the prior 12 months of broker transaction records. My conclusions were later confirmed with an admission that Ms. Himmelrich had looked at only 2 months of sales records.
This theme of superficial problem definition and analysis permeates the entire Himmelrich transfer tax initiative. It demonstrates clear disdain for the voters and the residents. It is marketed solely with virtue signaling to justify the objective of endlessly collecting more money from residents, not addressing their core concerns. The fact that it is permanent and shielded from future Councils is unacceptable. As such, this initiative has no merit and is destructive.
What little real research that was done was simply polling research. What really mattered was to determine the marketing approach to voters. It’s clear that Ms. Himmelrich considers polling research to be the only research required for policy formulation. It is self-evident that basing public policy entirely on polling can only make for disastrous policy. Santa Monica has suffered through enough bad policy. We do not need any more.
The Council must vote to present the voters with the more reasonable financial bridge alternative initiative presented by Councilmember Brock which is intended to address real resident concerns, on a temporary basis. In the meantime, they city needs to get serious about getting its financial house in order.
Marc L. Verville is vice chair of the Santa Monica Audit Subcommitte. He lives in Sunset Park.
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