City Council
Report
City Council Meeting: August 3, 2022
Agenda Item: 11.A
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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 Articles XVIII of the City Charter Recommended Actions
1. Per Rent Control Board direction, adopt the attached resolution (Attachment A) placing a measure on the November 8, 2022, ballot that would amend Article XVIII of the City Charter to revise requirements for owners to evict tenants for owner-occupancy; revise election procedures; and reduce the Annual General Adjustment, while maintaining the landlord’s ability to petition for an individual rent adjustment; and
2. Per Council direction, 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 otherwiseallowed annual general adjustments to rent ceilings during a declared state of emergency by the President of the United States, the Governor, the County of Los Angeles 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 individual 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; 2 of 11
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.
At its July 12, 2022, meeting (Attachment C), the City Council considered the Board recommendations and provided the following direction to City staff:
1) 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; 2) Revise the proposed ballot language to require an owner to intend to occupy a unit for two years, unless extenuating circumstances exist; 3) Retain existing Charter language regarding term limits of Rent Board Commissioners;
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4) 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 5) 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.
At its July 26, 2022, meeting (Attachment D), Council discussed alternative proposals to the 6% to 3% proposal discussed in the July 12, 2022, staff report, but ultimately deferred making a decision for another week, giving the Rent Control Board time to review the alternative proposals.
The Rent Control Board met on July 28, 2022, and voted to adopt a net 3% reduction in the general adjustment, as further discussed in the Rent Control Board staff report (Attachment E).
Discussion
As further discussed, below, due to unprecedented inflationary impacts caused by global supply chain disruptions and COVID-19 hardships, many households face an ever-increasing threat of eviction due to the inability to pay rent. 2020 Fair Housing Assessment
In accordance with state Housing Element law, the City researched and drafted a fair housing assessment, which is included in the City’s latest draft Housing Element. The fair housing assessment indicates that 14,460 renter households in the City are cost burdened (meaning they pay over 30% of their income for rent), representing 31.6% of renter households. There are 10,225 households in Santa Monica experiencing severe housing cost burden (meaning they pay over 30% of their income for rent), of which 2,930 of these households are families.
Approximately 11.7% of Black and 8.6% of Hispanic/Latino family households in the City were cost burdened even before the COVID-19 pandemic.
Rent Control Board 2021 Annual Report
As of April 5, 2022, the online dashboard at Housingiskey.com shows that 3,037 Santa 4 of 11
Monica tenants and landlords filed complete applications for the California COVID-19 Rent Relief Program by the March 31st deadline. Almost 2,000 households (1,878) have received assistance, averaging $15,220 per household. To date, more than 28.5 million dollars has been distributed to local tenants and landlords to cover unpaid rent and utilities. But many applications across the state remain unprocessed. Swift legislative action extended eviction protections for COVID impacted tenants, however, these protections ended on June 30th.
Legal Aid Foundation Data
The Legal Aid Foundation for Los Angeles (LAFLA) has been retained by the City to provide comprehensive eviction prevention services, including a Right to Counsel Program funded through the City Attorney’s Office. LAFLA has provided extensive written comments on the continuing effect of the COVID-19 pandemic, which constitutes further evidence of the need for immediate action to address the compounding negative impacts of the 6% rent increases authorized to go into effect on September 1, 2022, and the looming threat of evictions faced by LAFLA’s clients. These comments are in Attachment E.
Reducing the current cap on the Annual General Adjustment To mitigate the looming threat of evictions caused by the 6% increase in the maximum allowable rent (MARs), effective September 1, 2022, Council has focused intently on ways to modify the annual general adjustment authorized by the City Charter, as further discussed, below.
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 5 of 11
affordable rents while providing owners with a fair return.
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 an individual adjustment 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 eligible units, freeze for others), Los Angeles County unincorporated areas (freeze) and City of West Hollywood (freeze), among others.
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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.
Two alternative proposals to address the general adjustment were discussed at the Council meeting on July 26, 2022 and at the Rent Control Board meeting on July 28, 2022. One proposal consists of a modified reduction to the general adjustment formula in Charter Section 1805 to reduce the 6% adjustment in effect on September 1, 2022 to a net 3% average increase for the period from September 1, 2022 – August 31, 2023.
The other proposal would temporarily reduce the 6% adjustment by decreasing rents for rent-controlled units with rents that are less than the median of the MARs for 2021 for 0- ,1-, 2-, and 3-bedroom units, respectively.
Staff now seeks direction on which proposal to place on the ballot and will combine whichever proposal is approved with ballot language previously approved by the City Council to require that an owner intend to occupy a unit for two years unless extenuating circumstances exist and revise certain election procedures.
RCB authority to suspend or modify GA 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 or 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 7 of 11
a local emergency by the County of Los Angeles, 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 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 8 of 11
consumer prices, low wages, and rising rents place households at risk of homelessness. Alternatively, Council could direct staff to come back with a local eviction moratorium ordinance as an emergency ordinance before September 1, 2022.
Direct Financial Assistance
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 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.
Options
Council may consider options to what was considered at the prior meeting.
Option 1: Limiting the time that the Annual General Adjustment is capped at 3% and request the City Council and Rent Control Board convene prior to the November 2024 election to discuss permanent equitable solutions to General Adjustment provisions in the Charter. Under this option, the proposed revisions to the Annual General Adjustment would remain in effect until August 31, 2025. This could be accommodated 9 of 11
by adding a new provision in Section 1805(a), as follows:
(6) The amendments set forth in Charter Section 1805(a), Subsections (3) and (4) above, if approved by the voters at the November 2022 election, shall sunset and shall no longer be in effect following August 31, 2025, and at such time these specified Subsections shall revert to the provisions in effect as of November 2022 prior to the election. Between January 1, 2024, and May 1, 2024, the Rent Control Board and the City Council shall hold hearings and consider additional ballot measures to address permanent equitable solutions to the General Adjustment provisions.
Option 2: Adjust the timing when the Annual General Adjustment cap is reduced from March 1, 2023 to February 1, 2023. As discussed earlier in this staff report, the City is committed to deploying resources to assist renters impacted by the 6% increase in rents that will go into effect on September 1, 2022. Extending the implementation date to March 1, 2023 as discussed at the July 26, 2022 City Council meeting will require additional resources to assist renters. Given that the City is still assessing the amount of assistance that will be needed, adjusting the implementation timeline to February 1, 2023 will have the effect of reducing the time in which renters will be impacted by the 6% rent increase and will either allow the City to deploy its limited resources to help more households or provide more resources to households. If City Council were to adjust the timeline to February 1, 2023, the following would be the proposed change to Section 1805 (a):
(4) Commencing on February 1, 2023, the general adjustment during the period from February 1, 2023, through August 31, 2023, shall be 0.8% of the maximum allowable rent (MAR) in effect as of August 31, 2022, with a maximum dollar amount limit of nineteen dollars ($19) (“Adjusted GA”).
Absent an individual adjustment pursuant to subparagraphs (c) through (h) of this Section, the MAR during this seven month transition period shall be the MAR in effect as of August 31, 2022, plus the Adjusted GA.
Notwithstanding the Board’s June 2022 announcement of the 2022 general adjustment, the MAR for any period after August 31, 2023, shall 10 of 11
be calculated pursuant to this Section 1805 as if the General Adjustment for the entire period from September 1, 2022 through August 31, 2023, had been three (3) percent, with a maximum dollar amount limit of seventy dollars ($70).
Option 3: Council may request the Rent Control Board to look at ways to reduce the tenants’ share of registration fees, at least temporarily while the impact of rent increases are being felt.
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 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.
Attachments
Attachment A – Resolution placing a measure on the November 8, 2022, ballot that would amend Article XVIII of the City Charter to revise requirements for owners to evict tenants for owner-occupancy; revise election procedures; and reduce the General Annual General Adjustment.
Attachment B - Resolution 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 suspend 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, the County of Los Angeles, or upon a declaration of a local emergency by the City Council or Director of Emergency Services. Nothing in this section precludes a landlord from filing a petition for an upward rent adjustment per Section 11 of 11
1805 of the City Charter.
Attachment C – July 12, 2022 City Council staff report
Attachment D – July 26, 2022 City Council staff report
Attachment E – July 28, 2022 Rent Control Board staff report Prepared By: Susan Cola, Assistant City Attorney
Approved Forwarded to Council
Attachments:
A. RC-ExA-Resolution for Change to GA
B. RC-ExB-Resolution for emergency authority
C. RC-ExC-CC July 12, 2022 Staff Report
D. RC-ExD-CC July 26, 2022 Staff Report
E. RC-ExE-RC July 28, 2022 Staff Report
F. Written Comments