An estimated $1 billion in new revenue generated from Los Angeles County’s latest sales tax increase will have to sit untouched as a lawsuit challenges the validity of the measure.
Measure ER, which was approved by voters on June 2, took effect Thursday.
However, the measure and any funds raised as a result of the sales tax hike will be dormant until the new lawsuit, filed by the Libertarian Party of L.A. County is settled, the county announced.
The lawsuit, which claims the measure and supporting state legislation are unconstitutional and should be nullified, was filed Aug. 31.
The lawsuit also states that the enactment of the tax would exceed sales and transaction tax limits set by the state in several cities across the county. However, Governor Gavin Newsom signed Assembly Bill 1768 a day before the June election, enabling the county to exceed the state tax level.
“The county cannot distribute the funds to hospitals, clinics or county health departments until the case is resolved,” L.A. County Chief Executive Officer Joseph Nicchitta wrote in a letter to the Board of Supervisors on Tuesday.
The new measure results in a half-cent (0.5%) sales tax increase in L.A. County for five years, with the goal of generating an estimated $1 billion annually to support healthcare and other essential services.
Measure ER, also known as the Essential Services Restoration Act, increased the county’s baseline sales tax rate from 9.75% to 10.25%. These rates vary across the county, with some cities reaching 11.25%, including Azusa, Calabasas, Compton, Gardena and Santa Monica.
Lancaster and Palmdale take the cake with the county’s, and believed to also be the country’s, highest sales tax rate at 11.75%.
Measure ER was proposed in order to address “significant funding losses tied to federal changes to Medi-Cal and other reductions that are impacting LA County’s healthcare and public health system,” according to L.A. County Public Health.
Critics say voters approved Measure ER – a half-percentage-point sales tax hike – believing the money would plug health care funding shortfalls, with the Los Angeles County Taxpayers Association saying the community had been “deceived” into supporting the measure.
The Democratic-controlled LA County Board of Supervisors put the measure on the June ballot – and it squeaked through by just 25,770 votes, with just over one million voting Yes, imposing the new tax across a county of about 10 million people.
LA County’s new sales tax hit cash registers Thursday, tacking an extra half-cent onto every taxable dollar Angelenos spend after a sneaky $10 million union campaign slammed as “deceitful.”
The county describes the lawsuit as “meritless.”
“A meritless lawsuit filed to invalidate Los Angeles County’s Measure ER sales tax will strip the County’s most vulnerable patients of life-saving care and do irreparable damage to the regional healthcare system,” city officials said.
While the courts decide the matter, a process that could take two years or longer, state law requires the tax revenue to be placed in an escrow account, where it must remain unspent.
“Unless the lawsuit is withdrawn, residents will continue paying the tax, but no services will be funded with the newly generated revenue until the case is resolved,” city officials said in a news release.
Plaintiffs in the lawsuit also claim naming it Measure ER is misleading, implying the tax dollars would go directly to emergency rooms or services.
“There was no certainty that a dime of Measure ER funds during its five-year life would be spent on anything related to health care, let alone ’emergency response’ or ’emergency room’ matters,” the lawsuit states.
County Counsel Dawyn Harrison believes the county followed the law and will overcome the lawsuit, she wrote in a statement.
Aidan Chao, chairman of the Los Angeles County Taxpayers Association, said Angelenos voted for Measure ER because of a glossy, deceptive nearly $10 million special-interest campaign backed by health care groups and organized labor.
“They deceived the community into thinking this was a medically focused measure that was all about beating Trump, when in fact it was a new tax that will never go away and will cost families from the low hundreds to $1,000 a year,” he told the California Post.
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