City Council
Report
City Council Meeting: July 26, 2022
Agenda Item: 11.D
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To: Mayor and City Council
From: Douglas Sloan, City Attorney, City Attorney's Office, Administration Subject: Adoption of Resolutions for Proposed Ballot Measures on the November 8, 2022 Election Amending Article XVIII of the City Charter Recommended Actions
1. Per City Council direction on July 12, 2022, adopt the attached resolution (Attachment A) placing a measure on the November 8, 2022, ballot that would amend Article XVIII of the City Charter reduce the Annual General Adjustment from 6% to 3%, effective January 1, 2023 to be placed on the November ballot; and
2. Per Council direction on July 12, 2022, adopt the attached resolution (Attachment B) placing a measure on the November 8, 2022, ballot that would amend Article XVIII of the City Charter to authorize the Rent Control Board to freeze or modify otherwise-allowed annual general adjustments to rent ceilings during a declared state of emergency by the President of the United States, the Governor, or upon a declaration of a local emergency by the City Council or Director of Emergency Services, while maintaining the landlord’s ability to petition for an upward rent adjustment; and
3. Authorize City Councilmembers to file written arguments for or against and direct the City Attorney to prepare an impartial analysis for each measure.
Executive Summary
At its April 28, 2022 meeting, the Santa Monica Rent Control Board (the “Board”) voted to recommend that the City Council place on the ballot for the November 8, 2022, general election amendments to the City Charter, as follows:
1. Add new Section 2304.5 to Article XXIII of the City Charter to require the registration of all Nonrentcontrolled Rental Units;
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2. Modify Article XVIII, Section 1806(a)(8)(iv) and (v) of the City Charter to require that an owner intend to occupy a unit for at least three years instead of one year before evicting a tenant, and occupy the unit within sixty (60) days of vacancy;
3. Modify Article XVIII, Section 1803(e) of the City Charter to allow Rent Control Board Commissioners to be elected to a maximum of three full terms to align with City elected officials; and
4. Modify Article XVIII, Section 1803(d) of the City Charter to state that an election need not be held if the number of qualified candidates does not exceed the number of open Rent Control Board positions.
At its June 9, 2022 meeting, the Board voted to propose an additional charter amendment giving the Board discretion to modify or suspend the annual general adjustment during declared emergencies.
The Board believes that these amendments are in the public interest because they would provide greater transparency about rental and occupancy rates for all rental units; would strengthen tenant protections from unnecessary displacements; would streamline elections to improve governmental functions; and would protect tenants during a declared state of emergency.
The City Council considered the Board recommendations at its July 12, 2022 meeting and provided the following direction to City staff:
5. Instead of adding new Section 2304.5 to Article XXIII of the City Charter to require the registration of all Nonrentcontrolled Rental Units, prepare an ordinance at a later date for Council consideration, to require such registration given that Article XXIII already gives the City Council flexibility to implement its housing policies by ordinance, and more time is needed to receive community and staff input before adoption of such a program;
6. Revise the proposed ballot language to require an owner to intend to occupy a unit for two years, unless extenuating circumstances exist; 3 of 9
7. Retain existing Charter language regarding term limits of Rent Board Commissioners;
8. Add new ballot measure language that would lower the cap on the annual general adjustment from 6% to 3% and reduce the 2022 general adjustment from 6% to 3% effective January 1, 2023; and
9. Revise the proposed ballot language to allow the City Council to suspend or reduce rent adjustments during a federal, state, or local declared state of emergency.
Discussion
The July 12, 2022 staff report (Attachment C) provides the justification for the proposed charter amendments for owners to evict tenants for owner-occupancy; revise election procedures; revise Commissioner term limits; and authorize the Rent Control Board to freeze or reduce otherwise-allowed annual general adjustments to rent ceilings during a federal or state declaration of emergency. Council agreed with these provisions with some modifications but requested that a ballot measure also allow for the emergency freeze or adjustment upon a declaration of a local emergency by the City Council or the Director of Emergency Services. Council also requested that staff come back with language to reduce the existing 6% cap on the Annual General Adjustment in Article XVIII of the City Charter.
Reducing the current cap on the Annual General Adjustment On or about November 6, 2012, Section 1805 of the City Charter was amended to allow for an Annual General Adjustment to the rent ceiling based upon the percentage increase in the CPI, with a maximum increase of 6%. The Costa-Hawkins Rental Housing Act (Civil Code sections 1954.50 to 1954.535), allows owners to charge fair market rents upon vacancy of controlled rental housing units in accordance with Civil Code section 1954.52 (also known as “vacancy decontrol”). Due to vacancy decontrol allowed by the Costa-Hawkins Rental Housing Act and the unprecedented spike in inflation due to the global pandemic’s interruption of supply chains and fluctuations in demand, the current 6% cap creates an imbalance in the dual goals of maintaining affordable rents while providing owners with a fair return. 4 of 9
The global pandemic due to COVID-19 has caused unprecedented hardships, disruptions, and long-term impacts that continue to negatively affect Santa Monica’s residents. Reducing the rent cap from 6% to 3% would strike the correct balance in times of higher inflation given that property owners continue to have the benefit of setting the initial rents at any amount upon a vacancy and, thus, can account for any maintenance cost increases. Moreover, an owner would still be able to petition for a rent increase if the reduced adjustments would prevent the owner from obtaining a fair and reasonable return.
While there has been some relief in the form of rental assistance, and other efforts to prevent displacement, those programs are winding down while the pandemic’s impacts continue to be felt. The County of Los Angeles extended its eviction moratorium on January 25, 2022. This moratorium applies to tenants residing in incorporated cities within the County of Los Angeles. Effective June 1, 2022 through December 31, 2022, a residential tenant whose household income is at 80 percent Area Median Income or below and who is unable to pay rent incurred from June 1, 2022, through December 31, 2022 is protected from eviction under the County Moratorium, so long as the reason for the nonpayment was financial impacts related to COVID-19, and the residential tenant has provided notice to the landlord to this effect and self-certified their income level and financial hardship within certain timeframes (see https://dcba.lacounty.gov/noevictions/ for more information on the County’s eviction moratorium as well as self-certification forms).
Inflation rates continue to spike and rising costs are hampering residents’ ability to recover from the loss of income and unexpected expenses that many experienced during the pandemic’s first two years. COVID-19 cases are increasing even as mitigation measures, such as masking and social distancing, are no longer required.
Other rent stabilization jurisdictions have been able to adjust to these conditions by freezing, lowering, or implementing caps on rent increases for controlled units, including Oakland (3% cap), City of Los Angeles (freeze), City of Beverly Hills (3.1% cap for 5 of 9
eligible units, freeze for others), Los Angeles County unincorporated areas (freeze) and City of West Hollywood (freeze), among others.
The existing Annual General Adjustment formula in City Charter Section 1805 also provides for a dollar-amount ceiling, which is based upon the average of the 85th percentile of maximum allowable rent for all rent-controlled units and the 85th percentile of the maximum allowable rent for all rent-controlled units with a base-rent established before January 1, 1999 multiplied by the 6% annual general adjustment (effective September 1, 2022). According to the Rent Control agency, this dollar cap is $140.00 per month. Similar to the 6% cap, a $140.00 per month increase imposes severe hardship on tenants.
Assuming that the voters approve a reduction in the annual general adjustment cap from 6% to 3% with a $70.00 per month cap, this change would be effective as of January 1, 2023.
To accomplish this change, Section 1805(a) could be amended as follows:
(a) Annual General Adjustment. No later than June 30 each year, the Board shall announce the percentage by which rent ceilings for eligible units will be generally adjusted effective September 1 of that year.
(1) The adjustment shall be equal to seventy-five (75) percent of the percentage increase in the Consumer Price Index (All Urban Consumers, Los Angeles, Riverside, Orange County
region, or any successor designation of that index that may later be adopted by the U.S. Bureau of Labor Statistics) as reported and published by the U.S. Department of Labor, Bureau of Labor Statistics, for the twelve (12) month period ending as of March of the current year.
(2) In determining the allowable percentage increase, numbers of .04 and below shall be rounded down to the nearest tenth 6 of 9
decimal place and numbers of .05 and above shall be
rounded up to the nearest tenth decimal place.
(3) Subparagraph 1 of this subsection notwithstanding, in no event shall the general adjustment be less than zero percent or greater than six (6) three (3) percent; and
(4) Notwithstanding the Board’s June 2022 announcement of the 2022 general adjustment, commencing on January 1,
2023, the 2022 general adjustment during the period from January 1, 2023 through August 31, 2023, shall be three percent (3%) of the maximum allowable rent (MAR) in effect as of August 31, 2022, with a maximum dollar amount limit of seventy dollars ($70) (“Adjusted GA”). The Adjusted GA shall be the general adjustment by which the MAR is
calculated for purposes of future general adjustments.
Authority to suspend or modify the general adjustment during emergencies At its July 12 meeting, the City Council considered the Rent Control Board’s proposal to amend the Charter to give the Board the authority to suspend of modify the otherwiseallowed Annual General Adjustment during declared states of emergency in order to protect tenants’ health and safety. The Council, instead, directed staff to bring back proposed language to give the City Council that authority instead of the Rent Control Board. This is problematic, however, insofar as the Board would still be responsible for regulating rent controlled units and overseeing or processing the petition process for rent adjustments based upon fair return. Therefore, staff is recommending that the Board be allowed to suspend or modify Annual Rent Adjustments upon a declaration of a local emergency by the City Council or the Director of Emergency Services.
To effectuate this change, staff is recommending that the Council reconsider its direction and approve language that would amend Article XVIII to give the Board that authority as proposed. Staff’s recommendation is based on two factors: 1) the structure of the Charter and its delegation of authority; and 2) competing state law which 7 of 9
would preclude suspension of rent increases by the City Council outside the rent control framework in Article XVIII of the City Charter.
State law governs rent increase limits for units not covered by Rent Control. As a result, the City Council cannot amend the Charter to limit rent increases for non-controlled residential rental units because that would conflict with state law. Given that only rentcontrolled units would be impacted by this change, any amendment must be to Article XVIII, which is under the purview of the Rent Control Board. The Board governs the Rent Control Law and is responsible for its administration, including petitions for hearings for rent adjustments.
The Board’s authority, however, would be limited under this proposal in that it can only be exercised after the City Council or other governing body has declared a local, state or federal emergency and only if necessary to protect the public’s health and safety.
And, as always, property owners can avail themselves of the rent increase petition process if a suspension or modification of the annual adjustment precludes them from receiving a fair and reasonable return. Ideally, the County’s eviction moratorium should work in concert with the voters’ approval of the Annual General Adjustment formula and the City’s financial support to rent-burdened tenants to fill the gap for the period during which the 6% increase remains in effect. As explained, above, based upon the existing Annual General Adjustment formula in the City Charter, the 6% Annual General Adjustment (or $140.00 per month cap), will become effective on September 1, 2022, and will likely result in more rent-burdened Santa Monica households, on top of an existing affordability crisis worsened by COVID. In less than two years, Santa Monicans have received approximately $38M in COVID rent relief. Despite this assistance, the pandemic, rising consumer prices, low wages, and rising rents place households at risk of homelessness.
In June, the City’s Community Services Department (CSD) and Rent Control agency released a Housing Needs Survey which was available online and on paper at City Hall, Parks, Libraries, and key service providers, included in the Rent Control summer mailer, promoted on City social media channels, and available through 311. The survey, which 8 of 9
gathered data about current needs and the expected impacts of the Rent Control General Adjustment, closed in mid-July. Data analysis is underway.
CSD staff will provide an update to Council later this summer on the means and methods to provide Santa Monicans facing severe rent burdens due to the pandemic, household income, rising rents, disability, age, and/or other criteria with local homelessness prevention assistance this fall, first tapping budgeted $750,000 ARPA dollars. Staff will draw on the City’s experience with the early-pandemic Emergency Rental Assistance Program, which was able to operate quickly and efficiently, due to a simple program design and a sole-source partnership with a local non-profit. In the fall, CSD staff will present the HOME ARP Allocation Plan for the expenditure of an additional $2.2M of federal one-time funds. In the meantime, the City has executed an agreement with LAFLA to implement the expanded eviction prevention services approved by Council on May 11th. County COVID-19 tenant protections remain in place for households at 80% of AMI through December 31, 2022.
Environmental Analysis
The proposed resolutions and/or ordinance are exempt from the provisions of California Environmental Quality Act (CEQA) pursuant to 15061(b)(3) of the State Implementation Guidelines (common sense exemption). Based on the evidence in the record, it can be seen with certainty that there is no possibility that the proposed resolutions and/or ordinance may have a significant effect on the environment.
Financial Impacts & Budget Actions
Based on past practice, the Rent Control Board would reimburse the City for any additional costs incurred by the City as a result of placing the measures and/or ordinance on the November ballot.
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Prepared By: Susan Cola, Assistant City Attorney
Approved Forwarded to Council
Attachments:
A. RC-ExA-Resolution Art XVIII
B. RC-ExB-Resolution for Emergency Authority
C. RC-ExC-July 12, 2022 Staff Report
D. Written Comments
E. PowerPoint Presentation