ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF EAST PALO ALTO INCREASING THE BUSINESS TAX TO TWO AND A HALF PERCENT (2.5 %) OF
GROSS RECEIPTS ON OWNERS OF RESIDENTIAL RENTAL UNITS AND
PROHIBITING THE PASS-THROUGH OF THE TAX TO TENANTS
THE PEOPLE OF THE CITY OF EAST PALO ALTO ORDAIN AS FOLLOWS:
Section 1. Findings and declarations.
The People of East Palo Alto find and declare as follows:
a. Business taxes on the rental of residential property may be increased by a vote of the people.
b. Any increase in this tax cannot be passed on to tenants protected by the City’s rent ordinances and regulations and likely will not be passed on to other renters since landlords already typically charge rents to the maximum the market will bear. c. Residential rents in East Palo Alto have increased primarily due to high demand due to East Palo Alto’s location in the center of Silicon Valley, and large number of jobs created nearby.
d. In 1984 the citizens of East Palo Alto passed a strong rent control system that allowed a fair return to landlord investment while not permitting large increases to the residents. In 1999 the State legislature weakened East Palo Alto’s system by imposing “vacancy decontrol” on rent stabilized apartments, which allows landlords to raise rents without limitation whenever a new renter moves in. Over 85% of East Palo Alto’s older rental apartments have now had vacancy increases. Newer buildings are entirely exempt from rent stabilization.
e. As a result of “vacancy decontrol” and unprecedented market forces, real (inflationadjusted) rents in East Palo Alto have increased and renters are paying more in rent, over and above the inflation adjustment for what is necessary for a fair return. f. Increased rents transfer income from East Palo Alto residents to landlords of large rental properties, the majority of whom live outside of East Palo Alto. This transfer creates hardships for low and moderate-income tenants, drains the economic health of the community (less money for families to spend on local shopping and services) and increases the need for public services of all kinds, including affordable housing and homelessness prevention.
g. By expanding the coverage of the tax imposed in 2016 and increasing the amount of the business tax on residential rents, this measure will capture a part of the rental income stream for the benefit of the entire community.
Section 2. Section 5.08120 of the East Palo Alto Municipal Code is amended to read as follows:
5.08.120 Rental of real property
Every person or entity engaged in the business of renting or letting a building, structure or other property, or a portion of such building, structure or property, within the city for any purpose, including residential rentals except for those paying the tax imposed under Section 5.08.125, shall pay an annual license fee as provided in the fee schedule established by the city.
Section 3. Section 5.08.125 of the East Palo Alto Municipal Code is amended to read as follows:
5.08.125 Rental of residential real property.
A. This section shall govern the taxation of gross receipts from the rental of residential units in the city of East Palo Alto.
B. Every person or entity engaged, including through an interest in another entity, in the business of renting or leasing dwelling units in the City of East Palo Alto shall pay an annual tax of two and one-half percent (2.5%) of gross receipts.
C. Gross receipts from the following categories of dwelling units shall not be subject to this section, but shall be subject to section 5.08.120:
1. Dwelling units owned by a nonprofit corporation renting affordable housing;
2. Dwelling units whose rents are controlled under state or federal law, deed restrictions, or agreements with public agencies, at rental rates that are affordable to households earning no more than eighty percent (80%) of AMI and whose tenants must be income-qualified;
3. Units occupied by tenants receiving monthly rental assistance (such as Section 8 vouchers or Shelter + Care) from the County of San Mateo Department of Housing;
4. Any dwelling unit during the first three (3) years after the issuance of a certificate of occupancy;
5. An individual room without kitchen facilities rented in a residential dwelling unit; and
6. An Accessory Dwelling Unit (ADU) or Junior Accessory Dwelling Unit (JADU) as defined in Section 18.96.020.
D. Any person or entity otherwise subject to the tax imposed under this section may seek a one year hardship exemption due to exceptional circumstances. The rent stabilization administrator may approve such applications for good cause, such good cause being determined in accordance with standards set out in the City Rent Stabilization and Just Cause for Eviction Ordinance, Chapter 14.04 of the East Palo Alto Municipal Code.
Such approvals shall be in writing and specifically state the factors that constitute good cause. Any hardship exemption shall be effective for one tax year only, after which it will expire. Taxpayers who seek hardship exemptions must reapply every year.
E. The city council may reduce the tax rate set forth in this Section and may terminate any such reductions without further voter approval.
F. The tax imposed by this chapter shall not be passed on to existing tenants in the form of rent increases or in any manner, including reduction in services or added charges for services, unless such pass-through is constitutionally required. Any violation of this provision shall be a defense for a tenant in an unlawful detainer action. A violation of this provision shall be enforceable by an affected tenant.
G. The city council may use the funds generated for any purposes deemed necessary and appropriate for the benefit of the residents of East Palo Alto. Periodically, council shall review housing policy, housing programs, and related issues to determine how and to what extent the city should establish and fund such programs, if any, to increase the supply of affordable housing and protect residents from displacement and homelessness, including the provision of rental assistance, in light of the city's budget cycle and other relevant funding cycles.
Section 5. Conflicting Measures.
This measure is intended to be comprehensive and fully address and occupy the field of taxation of receipts from the rental of dwelling units, and real property and buildings in general. It is the intent of the people of the City of East Palo Alto that in the event this measure and any other measure relating to taxation of receipts from the rental of dwelling units, or real property and buildings in general, appear on the same ballot, the provisions of the other measure shall be deemed in their entirety to be in conflict with this measure. If this measure receives a greater number of affirmative votes than any conflicting measure or measures, this measure shall prevail in its entirety, and all provisions of such other measure or measures shall be null and void in their entirety. If this measure is approved by the voters but does not receive a greater number of affirmative votes than any other measure(s) appearing on the same ballot relating to taxation of receipts from the rental of dwelling units, or real property and buildings in general, then this measure shall take effect to the extent not in conflict with any other measure(s).
Section 6. Severability.
If any word, phrase, sentence, part, section, subsection, or other portion of this Ordinance, or any application thereof to any person or circumstance is declared void, unconstitutional, or invalid for any reason, then such word, phrase, sentence, part, section, subsection, or other portion, or the prescribed application thereof, shall be severable, and the remaining provisions of this chapter, and all applications thereof, not having been declared void, unconstitutional or invalid, shall remain in full force and effect. The People of the City of East Palo Alto hereby declare that they would have passed this ordinance, and each section, subsection, sentence, clause and phrase thereof, irrespective of the fact that any one or more sections, subsections, sentences, clauses or phrases had been declared invalid or unconstitutional.