Title
Recommendation to Receive the Rent Program Regulatory Fee Study; and
Adoption of Resolution Adopting a Fee Program for the City’s Rent Review, Rent Stabilization and Limitations on Evictions Ordinance and Implementing Policies. (Community Development 265)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Receive the Rent Program Regulatory Fee Study and Adopt a Resolution Adopting a Fee Program for the City’s Rent Review, Rent Stabilization and Limitations on Evictions Ordinance and Implementing Policies.
BACKGROUND
On February 16, 2016, the Alameda City Council introduced the Rent Review, Rent Stabilization and Limitations on Evictions Ordinance (Ordinance 3148) to protect local tenants from the rapidly increasing cost of rental housing that is the result of rising rents and a tight rental market. The Ordinance was adopted on March 1, 2016, and went into effect March 31, 2016.
Also on February 16, 2016, the City Council appropriated $300,000 to implement Ordinance 3148 through June 30, 2016, and to fund a fee study. On April 5, 2016, the City Council approved an additional $493,000 in General Fund monies to fund the program through December 31, 2016, if a fee is not timely adopted.
The City contracted with SCI Consulting Group (SCI) to determine the costs of administering Ordinance 3148 and any related policies, such as the Capital Improvement Plan Policy, and to develop an appropriate fee that would cover the cost of the program. SCI is a public finance consulting firm with over 30 years of experience in helping public agencies in California with planning, justifying and establishing new revenues for public services and capital improvements.
For the Fee Study, SCI worked closely with the Alameda Housing Authority, the Finance and the Community Development Departments and the City Attorney Office to understand all of the administrative and enforcement procedures necessary to implement the Ordinance. The Fee Study has now been completed and staff is presenting the Study to the Council and recommending a Program Fee, effective July 1, 2016, to provide the funding for the program. [(see Exhibit 1, City of Alameda, Rent Program Regulatory Fee Study) (“Fee Study”)]
DISCUSSION
Program Fee
The amount of the fee imposed on rental property owners is a function of:
● The number of applicable rental units covered under Ordinance 3148;
● The amount of staffing to administer and enforce the program (e.g., receipt and tracking of rent increase notices, scheduling hearings before the Rent Review Advisory Committee (RRAC), reviewing Capital Improvement Plans, providing legal advice and support, billing and collection, enforcement activities, etc.);
● Contracted services (e.g., hearing officers, translators, court reporters, etc.); and
● Materials and supplies to support the administration of the Program (including office space and utilities, program software, printing, postage, office equipment, etc.).
Number of Units. For the Fee Study, SCI conducted a rigorous analysis of the March 2016 Assessor’s lien roll data provided by the Alameda County Assessor’s office. SCI found that 14,899 rental units may be subject to the Program Fee. This includes both “exempt” units, i.e., those rental units for which the rents may not be controlled by the City under the Costa Hawkins Rental Housing Act of 1995 and rental units whose rents the City may control. Exempt rental units include single-family homes, condominiums, townhouses, and multi-family units that received a certificate of occupancy after February 1995. Multi-family rental units, including duplexes that could be occupied before February 1995 are not exempt from rent control. The 14,899 rental units do not include rental units regulated by agreements or federal law, such as units that have Section 8 Housing Choice Vouchers, as these units are excluded under Ordinance 3148. While the Assessor’s data provide a high degree of accuracy, SCI recommends that the data be reviewed and verified annually as properties continually move in and out of the rental market.
Program costs. The costs associated with the administration and regulation of the Rent Program include direct and indirect labor costs, contracted services, and supplies costs. SCI has confirmed that the tasks, the estimated associated labor hours and supplies, as originally developed by the City and the Housing Authoring staff, are reasonable and accurate.
Costs attributable to the rent stabilization and eviction protection program are estimated to be approximately $1.95 million. Since the fee is for the first year of the program, an additional five percent (5%) ($93,000) has been included within the $1.95 million as a contingency and to create a working capital reserve in recognition there will likely be unanticipated costs associated with ramping up and/or changes to the program. Accordingly, staff recommends that the City Council establish an initial annual program fee of $131 per rental unit ($1.95 million divided by 14,899 = $131).
The program fee would be charged annually to rental property owners on a per residential unit basis. The program fee will be billed along with the business license fee (for those owners required to pay such fee) and billed July 1 of each year for those rental property owners who currently do not pay a business license fee, such as owners of single family homes that are rented.
Staff also recommends, consistent with other rent stabilization programs that have a program fee, that property owners may pass fifty percent (50%) of the program fees on to the tenant in equal installments over the course of twelve (12) months (or $5.46 per month), which would not be included as rent when property owners are calculating the percentage rent increase.
Comparison to other cities. Rent stabilization program fees vary considerably among Bay Area cities, depending upon the complexity of the program and how it is structured. Exhibit 2 is a sampling of cities in the Bay Area, and California, with some form of rent control, showing a wide range of program fees and staffing levels.
On one end of the spectrum is a complaint-based system. The cost of the program is determined by the number of tenant-initiated cases, for example, if a tenant considers a rent increase in excess of what is allowed under the ordinance, the tenant must initiate a complaint with the City. With a relatively low number of cases, such a program is modest in size.
On the other end of the spectrum is a more rigorously enforced model, where the onus is on the landlord to register and certify initial rent amounts and seek approval to increase the rent above the permitted rate due to capital improvements and/or other allowed justifications. Landlord registration requires intensive public education and outreach, and data collection. Accordingly, the program fee for this type of program is significant.
Alameda’s Ordinance 3148 implements a hybrid approach: it requires landlords to initiate the rent review process by registering for rent increases above five percent (5%), yet focuses on working with tenants and landlords to resolve disputes before the RRAC hearing. In addition, Ordinance 3148 provides new services to monitor tenant evictions and landlord initiated Capital Improvement Plans. As a result, Alameda’s staffing levels and program fees are in mid-level range of the cities listed in Exhibit 2.
Fee Associated With the Hearing Officer Process
Under the Ordinance, if the RRAC makes a decision on a rent increase above five percent (5%), and the rental unit is a non-exempt rental unit (i.e., a multi-family unit that could be occupied before February 1, 1995), either the landlord or the tenant who is dissatisfied with the decision may initiate a process to have a neutral hearing officer hear and issue a binding decision as to the rent increase.
Since that hearing process is only available for landlords and tenants of non-exempt rental units, staff recommends a separate fee be charged for initiating this hearing process. SCI found that the cost of this process is $4,705, including contracting for the services for a hearing officer. In order for a party dissatisfied with the decision of the RRAC to have a stake in this petition/hearing process, and to discourage both landlords and tenants from filing frivolous petitions, staff recommends that the City require an initial 10% payment ($471) by a landlord who appeals and a 5% ($235 rounded) payment by a tenant who appeals. The remaining costs will be apportioned to all the owners of the non-exempt rental units the following fiscal year when the actual costs of this part of the program are better known and the program fee is recalculated.
Imposing the Program Fee and Annual Calculation
The City Council has adopted a robust rent stabilization and eviction protection program. The SCI Fee Study found that the structure of the program is fair and well designed to limit the effects of rapid rent increases, and the associated risks of eviction. To be successful, this program has to be fully funded and fully staffed. The Fee Study found that the proposed fee is reasonable and recovers the full costs associated with the administration and enforcement of the new regulations for both rental property owners and residential tenants. Finally, the Fee Study found that the fee (paid by both the landlord and the tenant), is allocated in a fair or reasonable relationship to the payer’s burden on, or benefits received from, the City’s rent stabilization and eviction protection program. If this Program Fee were not imposed on rental property owners and their tenants, the City’s General Fund would absorb the cost to administer the various programs which would be an unfair burden on taxpayers of the community who neither own rental property nor are renters.
Therefore, staff recommends that City Council adopt a Program Fee of $131 per rental unit. Staff also recommends that the City Council adjust the fees after the first year of the Rent Program based upon an update of the Fee Study. Thereafter, on an annual basis, the City should evaluate whether or not the Fee can be adjusted by the change in the Consumer Price Index or if another update is necessary. The amount of the Program Fee will be set initially and thereafter annually by City Council by resolution.
A fee resolution has been prepared for City Council to adopt. This resolution will be effective immediately upon its adoption, but it will not be operative until July 1, 2016.
FINANCIAL IMPACT
On April 5, 2016, as part of the approved Services Agreement with the Alameda Housing Authority to administer the program, the City Council approved an allocation in the FY 2016-17 Budget of an additional $493,000 in General Fund to pay for the cost of the nine-month Services Agreement ($300,000 was previously appropriated). These funds will be used beginning on July 1, 2016 to fund the Services Agreement in the event that a Program Fee is not in place at that time.
The General Fund monies appropriated to date will partially fund the Program to pay the Housing Authority through December 31, 2016 for its services, if no fee is adopted. Without a fee, additional General Fund monies would need to be appropriated to fund the Program for City Attorney, Finance and Community Development costs incurred before December 31, 2016 as well as all costs after January 1, 2017.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Adoption of this fee is consistent with the cost to administer Ordinance 3148 and Implementing Policies.
ENVIRONMENTAL REVIEW
Under the California Environmental Quality Act (CEQA) Guidelines, a project does not include 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. Therefore, the Council action to adopt this resolution to create a means to fund implementation of Ordinance 3148 is not a project under CEQA.
Moreover, even if adoption of this resolution were a project as defined by CEQA (i.e., an activity that has the potential for causing a significant effect on the environment) where the activity shows with certainty that there is no possibility that the activity in question (the adoption of the resolution) will have any significant effect on the environment, the activity is not subject to CEQA, CEQA Guidelines, section 15061(b)(3). Here, there is no evidence that this resolution will have any effect on the environment.
RECOMMENDATION
Receive the Rent Program Regulatory Fee Study, and adopt a Resolution Adopting a Fee Program for the City’s Rent Control, Rent Stabilization and Limitations on Evictions Ordinance and Implementing Policies.
Respectfully submitted,
Debbie Potter, Community Development Director
By
Eric Fonstein, Development Manager
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. City of Alameda, Rent Program Regulatory Fee Study
2. Comparison to Other Cities