If you want to discover the reality of California’s existence, here’s some advice: don’t watch any “reality” television that’s based in Southern California.
I’ll be more specific: don’t buy into Netflix’s Selling Sunset, currently in its sixth season of chronicling/mythologizing the rough-and-tumble world of high-end Los Angeles real estate.
Why single out this series, when there’s plenty other low-hanging California fruit on the reality vine (I’m looking at you, Housewives)?
It’s not just because Selling gives the chauvinistic impression that it’s perfectly normal for professional women in Beverly Hills to (a) stuff themselves into barely-there dresses and stiletto heels and (b) with their back-biting cattiness, treat the workplace with all the calm and dignity of a mean-girls sorority during pledge rush.
Rather, it’s that the premise of the show—remarkably attractive women making a killing moving remarkably expensive properties in California’s largest city—doesn’t hold up.
At least, not at the moment.
Here’s why.
Last November, Los Angeles voters overwhelmingly approved Measure ULA, creating a revenue stream for housing projects and homelessness prevention. The source of that stream: beginning last month, an additional 4% tax on local properties sold or transferred for more than $5 million—that tax rising to 5.5% when the sales of transfer figure surpasses $10 million (at the time of the vote, Los Angeles imposed a 0.45% tax on property transfers).
The effect on Los Angeles’s real-estate market?
March, the last month before the new tax kicked in, both came in and went out like a transactional lion: 126 homes and condos in the city of Los Angeles selling for more than $5 million, according to the Multiple Listing Service. And with a whiff of panic in a rush to finish deals before the tax kicked in, the Los Angeles Times noted, sellers slashed prices and had escrows fast-tracked before the calendar turned to April.
As for April, the lion turned into a lamb—a hobbled lamb, at that. The same high-end market that averaged four transactions per day in March produced all of two property sales surpassing $5 million over the 30 days of April—a $5.7 million deal in Brentwood and a $7.5 million transaction in Venice. (To better understand the difference between life in coastal and inland California, here’s a Zillow search of homes in Los Angeles listed for sale at north of $5 million versus what’s available for the same price in Sacramento and Fresno.)
I’ve never worked in Hollywood, but this much I know: Selling Sunset wouldn’t be as compelling viewing if, instead of glamorous women showing off listings, the same realtors were filmed idling around the office courtesy of a dead market.
Or, worse yet, if a camera were parked outside a Los Angeles courthouse waiting for the next shoe to drop: a ruling on a lawsuit that would overturn Measure ULA.
Or, worse yet, parking a camera outside a Los Angeles courthouse waiting for the next shoe to drop: a ruling on a lawsuit that would overturn Measure ULA (technically, it’s not one but two lawsuits – one from a landlord advocacy group, the other from a private developer– that were merged into a single case by a county judge last month.
Meanwhile, Los Angeles finds itself in a fiscal mess of the electorate’s pro-tax making. The city could start spending the early revenues from Measure ULA. But what happens if a judge rules against the ballot measure, meaning home sellers would be entitled to refunds?
Or, there’s the possibility of Measure ULA vanishing altogether courtesy of a November 2024 statewide ballot measure would change current state law by requiring two-thirds approval of California referenda that impose new local tax increases – and grandfathering the rules so that it applies to Measure ULA (that measure receiving 58% support last November).
There’s one other aspect to the Measure ULA saga worth noting: the perils of believing precampaign promises.
In selling Measure ULA’s virtues to the public, its supporters claimed that the property-transfer tax would generate $875 million annually (that math based on real estate sales for the first half of 2022). Then, along came this UCLA analysis that raised the anticipated revenue figure to $923 million.
However, those estimates didn’t take into account higher interest rates and the prospect of homes not moving while Measure ULA remained in legal limbo. Thus Los Angeles’s city administrative officer produced this report in mid-March stating that the new tax will produce $672 million over the next year.
Sadly, Los Angeles isn’t the only corner of California with a reality disconnect when it comes to taxes and spending. Look no further than the State Capitol, where Governor Gavin Newsom’s math doesn’t jibe with that of the state’s Legislative Analyst’s Office (LAO).
After Newsom reported a $32 billion deficit in the “May Revise” of the budget proposal first introduced in January , a LAO report characterized Newsom’s budget plan as carrying “considerable downside risk.” Why so? Because of the possibility of an economic recession eating into California’s primary revenue sources: personal income, corporate, and sales taxes.
Newsom’s nearly $32 billion in projected red ink was $9.3 billion deeper than the budget numbers he trotted out in January. Why the discrepancy? The not-so-reliable practice of trying to guestimate how much the Golden State’s wealthiest residents will send to Sacramento (in California, almost 100,000 taxpayers with incomes above $1 million—about one-half of 1% of all state tax returns—pay about 40% of all California personal income taxes),
One final note about California and funny budget math: a line-item in the governor’s spending plan, which, it turns out, is something of a window onto the Golden State’s current state of affairs.
Part of the governor’s approach to dealing with the swelled deficit was to eliminate some $6.7 billion in budgeted but unspent money. That includes about $200 million remaining in last year’s “Middle Class Tax Refund” (a payment of up to $1,050 per resident that first showed up in mailboxes and bank accounts at the same time voters received their November mail-in ballots).
How did California manage to overestimate the refund total? Various factors went into who qualified for the giveback, beginning with income thresholds. But state lawmakers also decided that refunds would only go to Californians still living in the state on the date their payment was processed. Translation: more Californians leaving the Golden State has meant more money still in the kitty.
Welcome to California’s grim reality: higher taxes, dodgy revenue numbers, and fiscal scheming.
Not exactly Netflix fodder, is it?
