Title
Adoption of Resolution Adopting a Tier-Structured Annual Rent Program Fee for the City’s Rent Control Ordinance and Implementing Regulations, which Establishes the Proposed Annual Rent Program Fee for Fiscal Year 2021-22 of $148 for Fully Regulated Units and $100 for Partially Regulated Units; Allocates General Fund Money to Pay the Rent Program Fee for Fiscal Year 2021-22 on Behalf of Landlords Participating in the Section 8 Program; and Extends the Due Date for Rent Program Fees for Fiscal Year 2021-22 from July 31, 2021 to September 30, 2021, with Penalties and Interest on Any Late Fees Not Accruing Until September 30, 2021. (Community Development 265) [Not heard on April 20, 2021]
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
After City Council’s adoption of the amended Rent Ordinance (Ordinance No. 3250) in 2019, staff secured services from SCI Consulting Group (SCI) to complete a Rent Program Regulatory Fee Study for Fiscal Year (FY) 2020-21 (Fee Study) to determine the program costs under the amended Ordinance. In 2020, based on the Fee Study, City Council adopted a tiered fee structure: 1) one for rental units subject to all provisions of the Ordinance (Fully Regulated Units); and 2) another for rental units exempt for the rent control provisions (Partially Regulated Units). The Fee Study also recommended using the Consumer Price Index (CPI) to adjust the Rent Program Fee in the absence of any material and substantive changes to the Ordinance.
Consistent with last year’s Fee Study and for the reasons set forth below, staff recommends the continued use of the tiered fee structure with the following fees, without a fund balance reduction, calculated using a CPI adjustment consistent with the Fee Study: 1) $148 for a Fully Regulated Unit; and 2) $100 for a Partially Regulated Unit. Due to the continued economic impact of COVID-19, staff recommends that City Council approve the following: 1) Funding of privately owned, rent subsidized units from the City of Alameda’s (City) General Fund to encourage continued landlord participation in the Section 8 program; and 2) Extending the due date for Rent Program fees (consistent with other fee deadlines) from July 31, 2021 to September 30, 2021, with penalties and interest on any late fees not accruing until September 30, 2021.
BACKGROUND
In 2016, the City Council voted to pay for the program costs for the initial year of administering the Rent Stabilization Program with General Fund revenue. This allowed staff to gather more data and information about the cost of program services before implementing a Rent Program Fee. Relying on a series of fee studies that were prepared between 2017 and 2019, City Council adopted the fees shown below:
|
Fiscal Year |
2017-18 |
2018-19 |
2019-20 |
2020-21 |
|
Fee Per Unit |
$120 |
$106 |
$106 |
Fully Regulated: $132 Partially Regulated: $84 50% Pass-through |
In September 2019, the City Council adopted the Rent Control, Limitations on Evictions and Relocation Payments to Certain Tenants Ordinance (Ordinance No. 3250), and the Rent Stabilization Program became the Rent Program. Ordinance No. 3250 established enhanced program services for the Rent Program, including requiring a rent registry, establishing an Annual General Adjustment of rent based on 70% of the percentage change in CPI, revising how relocation benefits are calculated, eliminating “no cause” terminations, and extending protections to tenants with Section 8 Vouchers. Staff informed the Council that an updated Fee Study would be necessary to identify the costs for administering program services under the amended Ordinance and implementing regulations.
In 2020, staff collaborated with SCI Consulting Group and worked closely with the Housing Authority (which administers the Rent Program under contract) to understand all of the program services, administrative requirements and enforcement procedures necessary to implement the Ordinance and related regulations. In June 2020, Council adopted a tiered fee structure, depending on the unit’s regulatory status under local law:
• Fully Regulated Units
Multi-unit properties (two or more units on a legal lot of record) for which a certificate of occupancy was issued prior to February 1995. These units are subject to all provisions in Ordinance No. 3250.
• Partially Regulated Units
Single-family homes, condominiums, townhomes, permitted accessory dwelling units on the same lot as a single-family home, rent-subsidized units (e.g., Section 8 program, not owned by the Housing Authority or by certain other non-profit organizations) and units at multi-unit properties for which a certificate of occupancy was issued after February 1995. These units are subject to all provisions in Ordinance No. 3250, except for the rent control provisions that limit annual rent increases to an Annual General Adjustment.
At the June 16, 2020 City Council meeting, CDD staff presented the Fee Study, which recommended that City Council:
• Adopt a tier-structured annual Rent Program Fee of $132 for Fully Regulated Units and $84 for Partially Regulated Units. (These fees were reduced from $153 and $105 fees that SCI had opined were justified by their regulatory cost analysis, due to a $400,000 fund balance from the previous year.)
• Fund privately owned, rent subsidized units from the City’s General Fund to encourage continued landlord participation.
• Extend the due date for Rent Program Fees (to coincide with other fee deadlines) from July 31, 2020 to September 30, 2020, with penalties and interest on any late fees not accruing until September 30, 2020.
• Evaluate actual costs every five years, in addition to adjusting the Rent Program Fee using the CPI in the absence of any material or substantive changes to Ordinance No. 3250.
The City Council approved the recommendations. Staff is now recommending that the City Council adopt a new Rent Program Fee for FY 2021-22 consistent with the Fee Study.
DISCUSSION
FY 2021-22 Rent Program Fee using CPI
The Fee Study had determined that under a tiered fee structure, the annual per unit fee to recover reasonable costs associated with the administration and enforcement of the Rent Program is $153 for Fully Regulated Units and $105 for Partially Regulated Units. The Fee Study also recommended that the Rent Program Fees be increased annually, using the CPI.
Accordingly, based on the Fee Study’s recommendations for FY 2020-21, staff calculated the rent fees using a CPI adjustment, as set forth in the chart below.
FY 2021-22 Rent Program Fee, with CPI adjustment:
|
Fiscal Year |
FY 2020-21 |
FY 2021-22 * |
|
Fully Regulated |
$153 |
$154 |
|
Partially Regulated |
$105 |
$106 |
* Rent Program Fee adjusted by 1% CPI and rounded down to the nearest dollar.
Assuming that the number of units is unchanged from last year’s count, and a 100% collection rate, the proposed Rent Program Fees would generate a total of $2,009,912 in revenues in FY 2021-22, as shown below:
Rent Program Projected Fees based on CPI:
|
Unit Type |
Estimated Units (#) |
|
Proposed Rent Program Fee |
|
Total Rent Program Budget |
|
Fully Regulated Units |
11,195 |
|
$154 |
|
$ 1,724,030 |
|
Partially Regulated Units |
2,697 |
|
$106 |
|
$ 285,882 |
|
|
Total Projected Rent Fees |
$ 2,009,912 |
The revenues generated are expected to be $2,009,912, and the FY 2021-22 Rent Program budget anticipated expenses is $2,097,768. The higher expenses stem from:
• Increased costs incurred under the Service Agreement with the Housing Authority (increase of $81,559)
• Larger-than-anticipated volume of rent petition hearings and enforcement work (on track to reach $147,500, whereas only $40,000 was budgeted).
Staff estimates that there may be a fund balance of approximately $175,000 at the end of this FY 2020-21 and if the CPI increase was also applied for FY 2021-22, a small fund balance of approximately $83,000 would remain.
In recognition of the impact of COVID-19 on both tenants and landlords and to avoid creating a fund deficit this fiscal year, staff recommends: (i) applying the fund balance (approximately $175,000) from this fiscal year as shown in the middle column below, and (ii) increasing the rent program fee less than a full CPI increase, as shown in the middle column below. By increasing the proposed rent fee by $16 to $148 for a Fully Regulated and by $16 to $100 for a Partially Regulated Unit, staff anticipates that the Rent Program will continue to be fully-funded, but may exhaust its fund balance this year.
|
Fiscal Year |
FY 2020-21 Actual |
FY 2021-22 Using $175k |
FY 2021-22 with CPI adjustment |
|
Fully Regulated |
$132 |
$148 |
$154 |
|
Partially Regulated |
$84 |
$100 |
$106 |
|
Est. Fund Balance at beg of fiscal year |
$400,000* |
$175,000 |
$175,000 |
|
Est. Fund Balance at end of fiscal year |
$175,000 |
$0 |
$83,000 |
* In FY 2020-21, $300,000 of the estimated $400,000 fund balance was used to reduce the Rent Program Fee.
Rent Program Fees projected using a portion of the fund balance:
|
Unit Type |
Estimated Units (#) |
|
Proposed Rent Program Fee |
|
Total Rent Program Budget |
|
Fully Regulated Units |
11,195 |
|
$148 |
|
$ 1,656,860 |
|
Partially Regulated Units |
2,697 |
|
$100 |
|
$ 269,700 |
|
|
Total Projected Rent Fees |
$ 1,926,560 |
Staff recommends making a partial CPI adjustment for the proposed Rent Program Fee for Fiscal Year 2021-22 so as to bring the Rent Program Fee to $148 for a Fully Regulated and to $100 for a Partially Regulated Unit. Staff will continue to monitor the budget annually and propose a comprehensive Fee Study in the event of either a change in the Ordinance or if the Rent Program costs exceed the amount of revenue generated by the Rent Program Fee. As before, landlords may continue to pass through up to one-half of the Rent Program Fee to their tenants.
Rent-Subsidized Units
Last July, City Council approved staff’s recommendation to pay the Rent Program Fee on behalf of landlords of the approximately 930 landlords who provide privately owned, rent-subsidized units, primarily through the Housing Choice Voucher (Section 8) program.
For the following reasons, staff continues to recommend that City Council pay the Rent Program Fee on behalf of landlords of privately-owned, rent-subsidized rental units. The community has experienced a shortage in the number of landlords willing to participate in the Housing Choice Voucher Section 8 and similar rent subsidy programs. Without participation from landlords, tenants with a voucher may not find housing in the city. The Housing Authority is working to implement a number of incentive programs to encourage landlord participation in these programs.
The total estimated cost to the General Fund for covering the landlords’ Rent Program Fee for approximately 930 units is $93,000.
Rent Program Fee Date and Collection
All Rent Program Fees would be effective on July 1, 2021. Last year, the City deferred payment for 60 days beyond the usual delinquent date for fees and taxes imposed by the City. Due to the ongoing economic impact of COVID-19, staff recommends the delinquent date for Rent Program Fees be deferred from July 31, 2021 to September 30, 2021, with penalties and interest on any late Rent Program Fees not accruing until September 30, 2021, as was done last year.
These budget projections assume 100% collection of revenues. As was documented in the Fee Study, the collection rates for the Rent Program Fee have varied between 85% and 89%. This year, staff increased the collection rates above 90%. Ultimately, staff recognizes that it may need to engage a third party agency to enhance the collection rate.
ALTERNATIVES
The City Council could:
• Approve the proposed tiered Rent Program Fee of $154 for Fully Regulated Units and $106 for Partially Regulated Units, based on CPI, and allocate General Fund money ($98,580) to pay the Rent Program Fee on behalf of landlords participating in the Section 8 program as recommended by staff.
• Impose no CPI adjustment, use the fund balance to supplement the program, and set the Rent Program Fee at $148 for Fully Regulated Units and $100 for Partially Regulated Units, which may result in a budget deficit therefore requiring an allocation of General Fund money to pay the Rent Fee on behalf of landlords participating in the Section 8 program and to cover the deficit in the Rent Program Fee for Fully and Partially Regulated Units.
• Impose no CPI adjustment and keep the Rent Program Fee at its current level: $132 for Fully Regulated Units and $84 for Partially Regulated Units, which may result in an even larger budget deficit of $305,624; and allocate General Fund money to pay the Rent Program Fee on behalf of landlords participating in the Section 8 program and to cover the shortfall in the Rent Program Fee for Fully and Partially Regulated Units.
• Modify the Rent Program Fee schedule and program approach. For example, a separate fee could be required for accessing hearing services, in addition to the Rent Program Fee. This may reduce the cost for the Fully Regulated Units by $147,500 (current projected cost for hearing services), and reduce the Rent Program Fee by $13. However, staff does not recommend this option as it may create unequal access if the additional fee required to request a hearing prevents an applicant from requesting this service.
• Decide not to impose any Rent Program Fees on landlords and use the General Fund to pay for the full cost of the Rent Program, estimated at $2,097,768. Staff recommends against this option as it cuts against the goal of ensuring the Rent Program is revenue neutral.
FINANCIAL IMPACT
The intent of the Rent Program Fee is to ensure full cost recovery of the Rent Program by the users of the Rent Program. The fee, as recommended, ensures full cost recovery with no anticipated additional impact to the General Fund. If City Council elects to cover the cost of the Rent Program Fee on behalf of landlords participating in the Section 8 program (as anticipated based on the June 16, 2021 City Council decision), the impact on the General Fund is approximately $93,000.
It is projected that the Rent Program Fee will provide approximately $1.9 million in revenue in FY 2021-22.
Although a fund balance currently exists, staff recommends against applying it to the proposed fee this fiscal year and instead will evaluate the fund balance and Rent Program costs at the end of FY 2021-22 (June 2022) to determine if fund balance revenue can be applied when setting the FY 2022-23 fee.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Adoption of this Rent Program Fee is consistent with the purposes and intent of Ordinance No. 3250 and implementing regulations.
ENVIRONMENTAL REVIEW
This action is not a project as defined in Public Resources Code section 21065 and California Environmental Quality Act (CEQA) Guidelines section 15378(b)(4), as it constitutes the creation of a government funding mechanism or other governmental fiscal activity that does not involve any commitment to any specific project that could result in a potentially significant physical impact on the environment.
CLIMATE IMPACT
There are no climate impacts anticipated in adopting the Rent Program Fee.
RECOMMENDATION
Staff recommends that the City Council:
1. Adopt a resolution to establish the proposed annual Rent Program Fee for Fiscal Year 2021-22 of $148 for Fully Regulated Units and $100 for Partially Regulated Units;
2. Allocate General Fund money to pay the Rent Program Fee for Fiscal Year 2021-22 on behalf of landlords participating in the Section 8 program; and
3. Extend the due date for Rent Program Fees for Fiscal Year 2021-22 from July 31, 2021 to September 30, 2021, with penalties and interest on any late fees not accruing until September 30, 2021.
CITY MANAGER RECOMMENDATION
I recommend that the City Council either move forward with staff’s recommend or alternatively based on the economic pressures, the City Council could maintain the current fee for one year.
Respectfully submitted,
Lisa Nelson Maxwell, Interim Community Development Director
By,
Lisa Fitts, Community Development Program Manager
Financial Impact section reviewed,
Annie To, Finance Director
cc: Eric Levitt, City Manager