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Los Angeles Times

Tuesday November13, 2012

Lobbying Effort Derails Plan for L.A. Tax on Real Estate Sales
Officials who were planning a measure that would tax property transactions to fund key services are now backing a sales tax hike. The switch would hit the working class harder.

By David Zahniser, Los Angeles Times

If Los Angeles City Council members vote Tuesday to place a sales tax hike on next year's ballot, they will have delivered a major victory to the real estate industry.

The city's top budget official spent six months laying the groundwork for a March ballot measure that would have increased the tax on real estate sales, saying it would provide much needed revenue to a city in crisis.

But two weeks ago, City Administrative Officer Miguel Santana abruptly changed course, working with council President Herb Wesson to abandon the real estate measure and push instead for a tax on retail sales, one that would generate twice as much money but also hit working-class Angelenos harder.

That shift followed furious efforts by the region's real estate lobby to kill the proposed tax on property transactions. Those groups sent mailers to voters attacking the idea. And behind the scenes, they presented city leaders with polling numbers saying voters would reject the real estate measure but handily approve a sales tax hike.

The machinations provide the latest example of special interest clout at City Hall. Last month, Councilman Ed Reyes confirmed that his strategy for developing new regulations for digital billboards was first drafted by an outdoor advertising company that is at risk of losing 79 electronic signs.

Harvey Englander, whose lobbying company represents a coalition of 10 real estate groups, said his clients were in "virtually every meeting and conversation" that his firm had with Santana on the tax plan. Those groups wanted to come up with a solution, he said, and not just be "the party of 'no.'" So they made the case that a general sales tax would do more to address the city's financial crisis while spreading the pain more evenly.

"We don't think Realtors should be the only ones to carry the burden. We think everyone should," Englander added.

Wesson unveiled his sales tax plan Oct. 30, a day before the vote to draft measures for the March 5 ballot. Advocates for working-class residents complained they were not consulted on the proposal, which would add a half-cent tax to every dollar in taxable sales.

"We have the real estate industry funding what is clearly not an unbiased third-party poll to provide cover for elected officials to do their bidding," said Larry Gross, executive director of the Coalition for Economic Survival. He assailed the proposal as harmful to low-income residents.

Wesson said the sales tax hike, if approved, would provide more than twice as much money as a real estate tax measure - effectively erasing next year's $216 -million budget shortfall. He offered few details about the origins of the proposal, saying he backed it after talking to people in "various political campaigns."

Asked to specifically identify them, Wesson spokesman Ed Johnson responded: "He talks to a lot of people."

Santana said it was "no secret" that he had been talking with Englander and the city's real estate groups over the last two months. But he downplayed their influence, saying the biggest factor in getting the sales tax hike on the ballot will probably be the fact that so many similar measures were approved in other cities in last week's election.

"We welcome a dialogue with anybody that wants to talk about it," he added.

Santana first recommended a real estate sales tax hike to Mayor Antonio Villaraigosa and the council in April, as part of his three-year financial rescue plan. In that 52-page report, he called for two March ballot measures: a doubling of the tax on real estate sales and a hike in the parking tax from 10% to 15%. Together, he said, the measures would generate up to $150 million annually.

Real estate groups opposed the increase, saying it would wreak havoc in a city reeling from foreclosures and declining home values. They formed the nonprofit advocacy group Los Angeles Citizens Against Discriminatory Taxes, with Englander's firm as their representative.

At Santana's urging, the council voted in August to analyze the real estate and parking tax measures. He and Chief Legislative Analyst Gerry Miller discarded the idea of a general sales tax increase, saying such a move could send consumers outside the city.

"People vote with their dollars," Santana told the council at the time. "And ultimately, there would be an argument made that people would simply go to Glendale or to Beverly Hills or to ... another part of the county to purchase their items."

Real estate agents kept up the pressure, sending voters more than 100,000 pieces of mail denouncing the proposal. Laura Olhasso, speaking for three real estate groups, told the council the industry had a poll showing that 70% of voters opposed the real estate tax hike after learning the money would go toward public safety, street repairs, keeping city workers employed and avoiding municipal bankruptcy.

"We'd be happy to meet with you and show it to you so you can see it yourself," she told the council.

Santana again backed the real estate tax on Oct. 17. This time, he reworked it in an attempt to win over the real estate industry, promising that the tax increases would only apply to home sales worth more than $365,000.

Real estate boards oppose that plan too, Englander said. And they responded by offering more polling data.

A second poll commissioned by the industry concluded that a sales tax hike would garner support "in the high 50s" from likely voters - a much better response than the real estate measure, Englander said. A third found 64% of likely voters favored or were leaning toward a half-cent sales tax hike, one pitched as a way to preserve public safety.

Englander said he informed Wesson and Santana of the results. With the sales tax hike now on the verge of reaching the ballot, backers will need to find someone to help run the campaign.

Asked if he would be interested in the job, Englander responded: "Absolutely."

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