CITY COUNCIL
MEETING
Tuesday, Dec. 5, 2023
Staff Presenter:
Bill Chapin,
Rent Program Director
Capital
Improvement
Plan (CIP)
Policy Update
Procedural History
2 • May 11 & June 6, 2023: Council adopted a temporary moratorium on Capital Improvement Plan (CIP) applications for properties with 25+ units and directed staff to return with recommended changes to the Rent Program’s CIP Policy. • October 25, 2023: Council introduced for First Reading an ordinance to modify the CIP Program.
• November 21, 2023: Council declined Second Reading of the ordinance and directed Staff to return with the previous First Reading Staff Report on CIP .
What is Alameda’s CIP Policy?
3 • Intent: Maintain quality of City’s rental housing stock and encourage certain types of long-term improvements while providing tenant protections. • What it does:
• Allows landlords to submit proof of qualifying improvements and pass costs through to tenants. • Moderates the costs of the pass throughs by spreading them over the useful life of improvements.
• Requires landlords to provide relocation assistance if tenants must be displaced. • Policy Documents: Established by Resolution 15138, implemented by Rent Control Ordinance Regulation 23-01.
Capital Improvement Plans are a longstanding provision of the City’s Rent Program
CIP Policy Update
4 • CIP Resolution Predates Current Rent Ordinance: Certain provisions and definitions of CIP Policy are not in harmony with enhanced Rent Ordinance. • Few Applications, Fewer Qualify: Just 14 applications since 2016. All but four rejected, most because they did not meet cost threshold requirement. • Inadequate Tenant Protections: South Shore Apartments CIP application demonstrated that current method for calculating CIP pass throughs, when combined with AGA and banking, can result in extreme rent increases.
Current policy is outdated and not achieving its stated goals Alternative: Fair Return Petitions
5 • What is “Fair Return”?
• Constitutional right to a fair return on investment, including rental property • Rent control jurisdictions must have a process in place to ensure landlords receive a fair return • “Maintenance of Net Operating Income” (MNOI)
• Alameda’s Fair Return Petition Process:
• Refined and updated in September 2019 as part of enhanced Rent Ordinance • Landlord makes case for an upward rent adjustment in an administrative hearing • Hearing Officer makes determination based on evidence, including documentation of MNOI • Petition could include amortized cost of capital improvements “Base Year” (2015)
revenue – expenses = $$$
Current Year (2023)
revenue – expenses = $$$Adjusted for inflation
CIP Policy Comparison
6 Staff researched how recovery of capital improvements is handled in 22 California jurisdictions with rent control:
• 9 of 22 jurisdictions have a CIP application separate from the fair return petition process, including Alameda.
• Only Alameda employs a cost threshold to qualify for a CIP • Only Alameda does not currently have a cap on the dollar amount of a CIP pass through.
Capital improvements in other jurisdictions
Two Policy Options:
Option B : Eliminate CIP
• Eliminate CIP by repealing Resolution
15138
• Landlords of any size property would
continue to be eligible to use the
existing Fair Return petition process
• Updated Fair Return petition to
include section on Capital
Improvements and comprehensive
amortization schedules
Option A : Revised CIP Policy
• Adopt new CIP Policy that adds tenant
protections while allowing more
projects to qualify.
• Draft proposal maintains moratorium
limitation, i.e. only properties with
less than 25 units may apply
• Properties with 25+ units may use
existing Fair Return petition process
7 CIP Policy Update (Option A) - Highlights
8 Eligible Recovery Based on Property Size
2-4 Units = 100% Pass Through
5-15 Units = 75% Pass Through, 100% for seismic upgrades 16-24 Units = 50% Pass Through, 100% for seismic upgrades 25 or more Units = No CIP (Fair Return remain available) Caps on Pass Through Initial calculation not to exceed 5% of current rent. Annual rent increase (AGA and Banking) + CIP not to exceed 8%.
Minimum Threshold $10,000 overall and $1,000 per unit (both must be satisfied) Tenant Hardship Exemption Tenants may be eligible for exemption from CIP Increase based on income
Qualifying Improvements Expanded
Utilities for energy efficiency/conservation
Fire sprinklers & alarm systems
Replacement of stairs or railings
Lead remediation (staff requesting amendment)
Temporary Relocation Only Permanent Relocation not permitted Distribution of Tiers Based on Property Size
9 Option A
Proposed Cost
Recovery
# of
Properties Total Units
2- to 4-unit properties 100% 1,939 4,836
5- to 15-unit properties 75% 519 3,469
16- to 24-unit properties 50% 40 750
25+ unit properties No CIP 67 4,644
TOTAL fully regulated properties 2,565 13,699
Temporary Relocation Tenant
Assistance Program
10 • On October 25, 2023, Council Approved staff’s recommendation to establish a Temporary Relocation Tenant Assistance Program
• Staff has already begun implementation of this Program • No additional action or funding is requested by Staff 11 Staff Recommendation:
11 Update the existing CIP policy by either:
A. Introducing the ordinance revising CIP policies by enhancing tenant protections, clarifying authorized improvements, and eliminating CIP for properties with 25 or more units. (Option A), OR
B. Introducing the alternative ordinance that would eliminate and discontinue all CIPs. (Option B).