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Dueling Letters Offer Two Takes on Mayor's Transfer Tax
By Jorge Casuso
June 14, 2022 -- Dueling letters representing radically opposing views of Mayor Sue Himmelrich's proposed transfer tax hike are quickly making the rounds and triggering debate.
One of the letters -- both of which are dated June 5 -- is from former Mayor Dennis Zane, a close adviser and former campaign manager for the mayor, who is widely viewed as representing Santa Monica's political establishment.
The other is written by Marc L. Verville, a relative newcomer to Santa Monica's political scene whose expertise in finance recently earned him a seat on the City's Audit Subcommittee.
For many, Zane represents a City government that has long relied on Santa Monica's wealth to bankroll social initiatives ranging from affordable housing to homeless services.
Verville has rapidly become the leading critic of what opponents view as the City's reckless spending policies that are increasingly taxing residents to maintain a bloated bureaucracy.
Those clashing views are represented by Zane's response to a letter by Councilmember Phil Brock, who proposed a counter initiative to what he views as Himmelrich's "outrageous" measure ("Letters -- Denny Zane's Transfer Tax Letter to Brock," June 5, 2022).
And by Verviile's response to Zane's letter accusing the former mayor of failing to grasp "basic math" and "the fundamentals of economics" ("OPINION -- Marc Verville's Rebuttal to Denny Zane," June 5, 2022).
At the center of the debate is Mayor Himmelrich's proposed “Funding for Homelessness Prevention, Affordable Housing, and Schools” ballot measure.
The measure -- which Himmelrich says has the signatures needed to be placed on the November 8 ballot -- would charge a real estate transfer tax (RETT) of $53 per $1,000 on properties valued at $8 million or more.
In his letter, Zane accuses Brock of "unreasonably" mischaracterizing Himmelrich's proposal as representing an “800% increase” in the Real Estate Transfer Tax that will be “unfair to many residents and property owners.”
"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%."
In fact, Zane wrote, "the Real Estate Transfer Tax (RETT) in Santa Monica and most other cities has been very, very low for decades."
Zane views transfer taxes -- which were initially used to pay for the paperwork involed in a property transfer, not to fund basic City services -- as a "serious alternative source of funding" for California cities.
The funds raised would help pay "the costs of helping to affordably house our low income seniors and work force, as well as our homeless population."
Zane notes that in 2020, San Francisco raised its highest transfer tax to 6 percent of the total sales price, while Los Angeles has placed a measure on the November ballot to increase its highest transfer tax to a total of 5.95 percent.
Himmelrich'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," Zane wrote.
"In fact, it’s less than the 6% real estate developers typically pay their brokers when such a sale is made."
The proposed 5 percentage point (704%) increase in the tax would create an additional and immediate $400,000 liability on a property at the $8 million level, regardless of when it was purchased," Verville wrote.
"That is the basic math that seems to elude both Mr. Zane and Ms. Himmelrich," he wrote.
"A $400,000 increase cannot be classified as 'tiny' in anyone’s language except, perhaps, in Mr. Zane’s," Verville said.
"The point is that the transaction values against which the tax rate is applied are huge and have been rapidly increasing for decades."
Zane and Verville are also at odds on who exactly the tax would impact.
Zane disagrees with Brock's contention that "many" properties would be subject to Himmelrich's proposed tax.
He notes that in 2019, the last full year before the coronavirus shutdown, "only 45 out of more than 800 transactions" exceeded the $8 million threshold.
"I wager that most of these sales over $8 M, maybe all, are either multi-family or commercial properties," Zane said. "There is no reason to believe these type of property transactions likely involve Santa Monica residents."
Zane's inability to identify who would be impacted by the tax, Verville countered, "represents an unimaginable disdain for the city’s residents and property owners."
While proposing the tax, "neither Mr. Zane nor Ms. Himmelrich felt responsible enough to the residents to do their homework and identify just what types or properties would be impacted.
"Mr. Zane notes that 'that (would) require going to Norwalk to examine individual transfer deeds.'
"So, while blithely proposing a $400,000 tax increase on residents’ transactions, the proponents of this tax cannot be bothered to identify who in the city will be most impacted."
Verville said he did an analysis of property transactions in the past 12 months and found that residential sales accounted for the lion's share of transactions.
Of the 45 transactions that would have been covered under Himmelrich's proposal, 34 were single family homes and five were apartment buildings.
In his response to Brock, Zane wrote, "If any of these transactions are single family homes then they are very, very large homes, closer to what some might call 'mansions.'"
In a June 2 letter to the City Council, Zane opposed Brock's counter measure -- which would charge a much smaller tax of $15 per $1,000 only on commercial properties that sell for more than $8 million.
The measure the Council voted to study, Zane wrote, "literally asks you as a Council to stand up for the interests of the very wealthiest property owners."
"The value of their very expensive properties -- like the $330 million Champaign Towers -- derives from the location, location, location of their properties in Santa Monica -- from the very attractive nature of our community."
Zane also questioned the nature of Brock's proposed general tax, which addresses a menu of budget line items that can change over time, a shortcoming the former mayor said he would address in a future letter.
Verville counters that Himmelrich's proposal focuses too narrowly on housing, while failing to provide funding for the infrastructure it would require.
The Himmelrich measure, Verville wrote, "is being marketed as reflecting the city’s values, but the proposal shields the resulting cash flow from the city’s elected representatives’ spending priorities, which negates the democratic expression of the city’s values."
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