Title
Recommendation to Receive the Fiscal Year (FY) 2018-19 Rent Program Regulatory Fee Study; and
Adoption of Resolution Setting a Rent Program Fee for the City’s Rent Review, Rent Stabilization and Limitations on Evictions Ordinance and Implementing Policies for Fiscal Year 2018-19. (Rent Stabilization 265)
Body
To: Honorable Mayor and Members of the City Council
From: Elizabeth D. Warmerdam, Acting City Manager
Re: Recommendation to Receive the Fiscal Year (FY) 2018-19 Rent Program Regulatory Fee Study; and Adoption of Resolution Setting a Rent Program Fee for the City’s Rent Review, Rent Stabilization and Limitations on Evictions Ordinance and Implementing Policies for Fiscal Year 2018-19
BACKGROUND
In 2016, the Council voted to pay for the initial start-up of the Rent Review, Rent Stabilization and Limitations on Evictions Ordinance (ordinance) with General Fund revenue in order to gather more data and information about the cost to administer the program prior to implementing a program fee. On June 7, 2017, after a full year of program operations, Council considered a Rent Program Fee Study, prepared by SCI Consulting Group (SCI), and determined it had sufficient data to adopt a rent program fee effective July 1, 2017. A fee of $120 per rental unit was adopted by resolution for Fiscal Year 2017-18.
At the time the fee was adopted, staff stated that it would conduct an updated Fee Study for FY 2018-19, which would set the rent program fee for the next fiscal year. It is important to update the Fee Study on an annual basis in the initial years of the ordinance while landlords and tenants continue to be educated on their rights and responsibilities under the ordinance and staff continues to work on evolving issues and concerns related to implementing the ordinance. In the next several years, it is anticipated that the Fee Study will be updated less frequently. Accordingly, the attached resolution envisions periodic review at the discretion of the Community Development Department.
The Fee Study for FY 2018-19 is attached as Exhibit 1. Based on the Fee Study, staff is recommending that the City Council adopt a resolution setting a rent program fee of $106 per unit for FY 2018-19. The fee would be effective July 1, 2018.
DISCUSSION
As noted above, the FY 2017-18 program fee was adopted in June 2017. Billings for FY 2017-18 were mailed out in November 2017, and a second notice was mailed in April 2018. These two mailings resulted in 81% compliance with payment of the rent program fee. Over $1.3 million dollars has been collected. Expenditures for the program are estimated to be $950,000 for FY 2017-18. While expenditures are less than the fees collected, this is largely due to the fact that the Rent Program was without a Director for six months. A new Director started on May 7, 2018. Not only were there salary savings from the vacancy, but important projects like purchasing and setting up a database and conducting extensive landlord and tenant outreach did not occur in FY 2017-18.
Staff believes that it will achieve compliance with the payment of the rent program fee closer to 100% in FY 2018-19. Billing will start earlier, and second, as well as third notices will be sent as needed. Sending multiple notices is consistent with billing for the City’s business license tax. With a full staff, more education and outreach will also help increase the compliance rate.
The City retained SCI to conduct a Fee Study for FY 2018-19. To prepare the Fee Study, SCI worked closely with the Housing Authority, the Finance and the Community Development Departments and the City Attorney’s Office to understand all of the administrative and enforcement procedures necessary to implement the ordinance and to determine the costs associated with implementing the ordinance. These total annual costs (determined to be $1,586,800) were then applied to all of the rental units subject to the fee (13,389 units) to fix an annual cost/fee per rental unit of $119 per unit.
The Fee Study notes that the City collected approximately $382,000 more than will be expended in the current fiscal year. Some of these funds will be used to cover one-time expenses such as a Rent Program database and the cost of the FY 2018-19 Fee Study. One-time expenses are estimated to be $50,000. That leaves a balance of $330,000. Based on the recommendation contained in the Fee Study, it is proposed that a $160,000 “credit” be applied to the FY 2018-19 cost of administering the program, which results in a $13 reduction in the proposed per unit fee, for a FY 2018-19 fee of $106 per unit. The remaining $160,000 would be retained in the Rent Program Fund and would be available if needed to fund unforeseen Program costs during the upcoming fiscal year. If these funds are unused at the end of the FY, it is anticipated that there would be a credit back for the next fiscal year. While a credit is not uncommon during the initial years of a new program, it is expected that the cost of administering the Rent Program will stabilize in the next several years and there will be more predictability in the annual fee amount.
The Fee Study found that the proposed fee is reasonable and recovers the full costs associated with the administration and enforcement of the regulations for both rental property owners and residential tenants. Finally, the Fee Study found that the fee 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.
Based on the FY 18-19 Fee Study, staff recommends that the City Council adopt a resolution setting a rent program fee of $106/unit for FY 2018-19. The fee would be effective on July 1, 2018.
FINANCIAL IMPACT
In the event that a Program Fee is not adopted for the next fiscal year, there will be substantial cost to the General Fund. It is anticipated that the cost of implementing the program will be approximately $1.45 million annually. This includes Program Administrator and City Attorney costs, but excludes the estimated $142,000 in Finance Department labor and services expenses that would have been necessary to oversee and implement the program fee.
If the Council continues to require a fee to pay for the program, there will be no effect on the General Fund as the program will be administered in a manner that achieves full cost recovery.
It is also anticipated that as part of the ordinance update that will be brought to the City Council for consideration in December 2018, staff will also propose a means of enforcement for the collection of the Program Fee, similar to the Business License Tax and Waste Management fee.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Adoption of this fee is consistent with the purposes and intent of the Ordinance and implementing Policies.
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.
RECOMMENDATION
Receive the FY 2018-19 Rent Program Fee Study and adopt a Resolution Setting a Rent Program Fee for the City’s Rent Review, Rent Stabilization and Limitations on Evictions Ordinance and implementing policies for Fiscal Year 2018-19.
Respectfully submitted,
Debbie Potter, Community Development Director
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibit:
1. FY 2018-19 Rent Program Fee Study