Community, Diversity, Sustainability and other Overused Words

Santa Monica City Council: Don't Defend Revenue-Losing Measure GS

An open letter to the Santa Monica City Council explains how sellers can avoid the huge tax increase on property sales

Dear Mayor Davis and Honorable Santa Monica City Councilmembers,

As you know, Measure GS, the Himmelrich-financed 5.6% transfer tax on properties $8+ million sold in Santa Monica, takes effect tomorrow, March 1, 2023.

As I predicted to you earlier, the impact of GS is already being seen. In the last 2 days, we have seen rapid real estate closures of at least three homes in N of Montana valued at $33,941,000, depriving the city of over $1,900,000 in Himmelrich tax for you to squander on consultants and real estate developer friends of yours. With another property on La Mesa likely to close today at $10,945,000, it'll bring the total pre-GS rapid sales to $44,886,000 (for just 4 homes!!) and a loss to SM of $2,513,000 in GS tax. So much for your friends' new Mercedes G-Wagon or trip to the Maldives by private jet!

And after March 1, the real estate industry and sellers of expensive properties here already have a plan (they're not stupid) for how to legally avoid this tax (which, when I confronted Mr. Himmelrich nearly a year ago after he started collecting signatures for this ballot measure, he admitted would likely happen and SM could do nothing about it) including:

1. placing the house into an LLC (corporation) and then selling shares of the LLC so the ownership doesn't change (means no readjustment in property tax either. Oops!);

2. Selling the house for $7,999,999 and selling furniture/art for the remainder of the sales price (deprives city of long term property tax as well with lower selling price - be prepared to see MANY sales at this price. Stupid laws make for silly behavior);

3. Not selling at all and renting out instead (reduces available housing for sale, increasing prices and reducing affordability).

As I said before, Measure GS will backfire! Moreover, as mentioned before, it's ILLEGAL because it violates the State Constitution and its law against new taxes that fund two separate things (in this case, schools and housing). You foolishly voted to spend millions of our tax dollars, which we don't have and need for libraries and at least 500 more police on foot patrol throughout the city, to mount a futile defense against lawsuits that will successfully challenge GS. Once you lose, you'll owe legal fees PLUS you'll have to pay BACK every cent of that tax collected (likely with interest!). So I implore you:

1. Halt the defense and accept that this tax is illegal and will lose in court, and that it's mere existence is harming city revenues and housing

2. If you don't do #1, do not spend a CENT of that money until the legal challenges are RESOLVED. Place it ALL into 6, 9, or 12 month US Treasuries at 5%+ interest so that the money cannot be touched AND so that you're earning interest on it until you very likely have to return the money. This is the responsible/ethical thing to do.

Imagine the city AND SMMUSD being in the hook to return tens of millions of dollars (or whatever is collected. Maybe $0??) and don't have it. What then? Another bond measure? Municipal and district bankruptcy? Please THINK.

I am happy to advise you on this out of patriotism for our city. See below for Zillow shots showing the real estate closings this week.

Thanks and very best,

Houman David Hemmati MD PhD


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