CULVER CITY MEASURE RE November 3, 2020 SUMMARY Culver City has experienced decades of underinvestment in its public facilities and employee pensions. Now, the economic damage from the novel coronavirus pandemic has sharpened the City’s financial distress. At the same time, the owners of property in the City have enjoyed approximately 10% year-over-year land price appreciation over the last decade. Measure RE would establish a progressive real estate transfer tax (RETT) in Culver City. The tax, which is payable only at the time of sale and would only impact about 30% of real estate transactions, would generate an estimated $6 million per year of new general fund revenue in most years, and substantially more in many years. BACKGROUND A RETT is a tax assessed on the gross sale price of a property at the time of transfer— like a sales tax on real estate. While general law cities collect a RETT of 0.055%, charter cities are permitted to assess a greater RETT. Culver City’s current RETT is 0.45%, which is the same as the City of Los Angeles. Some California cities impose significantly higher rates and some have established graduated marginal rate structures. Culver City faces serious financial challenges. The City has significant deferred maintenance, aged public facilities, and great service demands. The City also faces substantial unfunded pension liabilities totaling approximately $225 million over the next 15-20 years. With COVID-19, the City slashed its general fund budget by 17.5%, a total of $25 million this year. ANALYSIS Measure RE proposes to leave the existing RETT the same for all property sale proceeds less than $1.5 million, as well as all proceeds from sales of property consisting solely of deed-restricted affordable housing and the first sale of newly constructed multifamily housing. All other sale proceeds would be subject to a graduated marginal RETT as 1 follows: These marginal rate thresholds are tied to inflation to prevent “rate creep” over time. 1 Rev. 9/9/2020 Portion of property sale proceeds Rate Less than $1.5 million 0.45% (existing rate) $1.5 million to $2,999,999 1.5% $3 million to $9,999,999 3% $10 million and up 4% Measure RE also introduces a marginal rate structure, similar to income tax brackets. That means that no matter what the sale price is, the tax on sale proceeds less than $1.5 million will remain 0.45%, while the portion between $1.5 million and $2,999,999 will be taxed at 1.5%, and so on. In a typical year without any major property sales, this rate structure would produce an additional $6 million in general fund revenue. Any significant real estate transactions would generate substantially more. Additionally, RETT does not necessary correlate with fluctuations in other local taxes, which could mitigate the volatility that plagues most municipal budgets in California. In the near-term, Measure RE would help restore important programs cut from the 2020-2021 budget, such as services for children and seniors, environmental programs, and more, as well as investments in deferred maintenance. In the mid-term, it would help allow the City to meet its pension obligations and maintain public facilities. Additionally, Measure RE could provide a source of funding for the City’s Housing Authority when the current funding, which is financed through the wind down of the City’s Redevelopment Agency, is exhausted. Measure RE would be a rare example of a progressive local tax. Also, given that much of the value of Culver City real estate transactions is in land rather than improvements, Measure RE recaptures value that has primarily been created by the public. Measure RE is a general tax, and therefore requires only a majority “yes” vote. For a more detailed case for RETT reform, please see “A Call for Real Estate Transfer Tax Reform,” by Shane Phillips, available at https://escholarship.org/uc/item/ 6wv6k272 Rev. 9/9/2020