Title
Recommendation to Receive the Fiscal Year 2020-21 Rent Program Regulatory Fee Study; and
Adoption of Resolution Adopting a Tier-Structured Annual Rent Program Fee for the City’s Rent Control, Limitation on Evictions and Relocation Payments Ordinance and Implementing Regulations: $132 for “Fully Regulated Units” and $84 for “Partially Regulated Units.” (Community Development 265)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
After City Council’s adoption of the revised Rent Ordinance (Ordinance No. 3250) in 2019, staff secured services from SCI Consulting Group (SCI) to complete a Fee Study for Fiscal Year (FY) 2020-21, in order to determine the program costs under the revised Ordinance. The Fee Study (Exhibit 1) found that program costs have increased based on the additional services required under the revised Ordinance. The revised Ordinance imposes rent control on the majority of rental units. All rental units are subject to the just cause termination provisions of the Ordinance, including payment of relocation benefits. Multi-family units built before February 1995 are subject to an annual general adjustment and maximum allowable rents.
Based on the Fee Study, staff recommends the City Council adopt a tiered fee structure for FY 2020-21 as follows: a $132 fee for rental units subject to all provisions of the Ordinance (“Fully Regulated Units”) and a $84 fee for rental units exempt for the rent control provisions (“Partially Regulated Units”). The proposed fee has been off-set by $300,000 in Rent Program fund balance revenue being applied to the fee calculation. Additionally, in order to provide a financial incentive to property owners to become landlords of privately owned rent-subsidized units, primarily in the Housing Choice Voucher (Section 8) Program, staff also recommends eliminating the Program Fee for those landlords. If that were to occur, funds from the General Fund would need to be allocated to the Rent Program Fund to make up that difference. Based on the number of Section 8 Vouchers, this cost is $78,000. As recommended by staff to City Council at its May 20, 2020 budget workshop, these funds have been included in the mid-cycle budget (FY 20-21) to be adopted by the City Council on June 16, 2020.
BACKGROUND
In 2016, the City Council voted to pay for the initial year of administering the Rent Program with General Fund revenue in order to gather more data and information about the cost of program services before implementing a program fee. On June 7, 2017, after a full year of program operations, City Council considered a Rent Program Fee Study, prepared by SCI, and determined it had sufficient data to adopt a $120 fee per rental unit, effective July 1, 2017.
At the time that fee was adopted, staff stated that it would conduct an updated Fee Study for FY 2018-19, which would set the program fee for the following fiscal year. As a new program, it was anticipated that costs may change with more time, as staff implemented streamlined procedures and provided education to the community on tenant and landlord rights and responsibilities. The Fee Study for FY 2018-19 recommended a reduced program fee of $106 per unit due to the Program’s cost savings in the previous year. City Council adopted the $106 fee for FY 2018-19 and FY 2019-20.
In 2019, the City Council adopted numerous amendments to the Rent Ordinance, resulting in significant changes to program services. As part of the amendment process, staff informed Council that an updated Fee Study would be conducted to identify the costs for administering program services under the revised Ordinance and implementing regulations.
For the last three years, landlords were required to pay the program fee and no portion of the fee was allowed to be passed-through to the tenant. The current Rent Ordinance includes a provision that allows a landlord to pass-through 50% of the program fee to tenants. Therefore, beginning FY 2020-21, 50% of the program fee may be passed on to tenants, provided the pass-through is charged in twelve equal installments. As discussed more fully below, if landlords of privately owned, rent-subsidized units are not required to pay the Program Fee, then there are no program fees to be passed through to those tenants.
DISCUSSION
In September 2019, City Council adopted the Rent Control, Limitations on Evictions and Relocation Payments to Certain Tenants Ordinance (Ordinance No. 3250). This ordinance 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 the Consumer Price Index, revising how relocation benefits are calculated, eliminating no cause terminations, and extending protections to tenants with Section 8 Vouchers.
Given the new ordinance, it was important to update the Fee Study to ensure that sufficient funds were being collected to administer the ordinance and its implementing regulations. As before, the fees will be used to reimburse the City of Alameda (City) departments for reasonable direct and indirect costs and contracted services attributable to administering the Rent Program. The City retained SCI to conduct a FY 2020-21 Fee Study. To prepare the Fee Study, SCI worked closely with the Housing Authority (which administers the Rent Program through a contract with the City), the Finance and the Community Development Departments and the City Attorney’s Office to understand all of the program services, administrative requirements and enforcement procedures necessary to implement the Ordinance and related regulations. The Study found that the total annual program costs are just over $2 million ($2,016,518).
Unlike in the past where landlords of all rental units paid the same fee, the Fee Study recommends a tiered fee structure, depending on whether the rental unit is a “Fully Regulated Unit” or a “Partially Regulated Unit”:
• 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 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 (such as units with tenants participating in the Section 8 program and not owned by the Housing Authority or by certain 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 3250, except for the rent control provisions that limit annual rent increases to an Annual General Adjustment.
There are an estimated 11,195 Fully Regulated Units in the City and an estimated 2,697 Partially Regulated Units in the City, Costs associated with administering the rent control and just cause/payment of relocation benefits provisions of the program were allocated only to Fully Regulated Units; costs associated with administering only the just cause/payment of relocation benefits provisions of the program were allocated only to Partially Regulated Units. As a result, the annual fee for Fully Regulated Units is higher than the fee for Partially Regulated Units.
As stated above, the Fee Study found that the total cost for the program is approximately $2 million. The Study determined that under a tiered fee structure, the annual per unit fee to reasonably recover the full costs associated with the administration and enforcement of the Rent Program is $154 for Fully Regulated Units and $106 for Partially Regulated Units. The Fee Study also identified that the Rent Program had a fund balance of approximately $400,000 for the FY ending June 30, 2020, primarily due to the Rent Program not being fully staffed until recently.
The availability of revenue in the Program Fund Balance provides an opportunity to apply a portion of these funds to the FY 2020-21 fee to reduce the fee by relying on fees previously collected but not utilized for program administration. Staff is therefore recommending that the fees be reduced for FY 2020-21 by applying a portion of the fund balance to the cost of the FY 2020-21 Program administration. Staff does not recommend using the full fund balance as the services under the new ordinance are relatively new and maintaining some fund balance is prudent until program costs are more fully understood. Staff recommends that $300,000 in available fund balance be applied to the FY 2020-21 Program cost. This would reduce the fee for Fully Regulated Units by $22, to $132, and reduce the fee for Partially Regulated Units by $22, to $84.
By way of comparison, the table below shows the annual rent program fees charged in other East Bay jurisdictions that have rent control programs.
|
FY2019-20 Fee Per Rental Unit |
|
Berkeley |
$250 |
|
Mountain View |
$101 |
|
Oakland |
$101 |
|
Richmond |
Fully Covered Units - $212 Partially Covered Units - $112 |
Of the 2,697 Partially Regulated Units, staff estimates that nearly 930 units are privately owned rent-subsidized units, primarily units in the Housing Choice Voucher (Section 8) program. For the following reasons, staff is recommending that landlords in the privately owned rent-subsidized rental market be exempt from paying the Program Fee. The City of Alameda 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. Consequently, the Housing Authority is working to implement a number of incentive programs to encourage landlord participation in these programs.
To further that goal, staff is recommending that the City use General Fund money to pay the Rent Program Fee on behalf of participating landlords. The total estimated cost to the General Fund for covering the landlords’ Program Fee for approximately 930 units is $78,000. City Council concurred with staff’s recommendation as presented at its May 20, 2020 budget workshop and the mid-cycle budget for FY 2020-21, scheduled for adoption on June 16, 2020, appropriates this funding as requested.
Based on the FY 2020-21 Fee Study, and the availability of Rent Program fund balance, staff recommends that the City Council accept the Fee Study and adopt a resolution setting the program fee for FY 2020-21 of $132 for Fully Regulated Units and $84 for Partially Regulated Units. As to landlords of rent-subsidized units, primarily units in the Housing Choice Voucher (Section 8) program, the Partially Regulated Unit fee would be eliminated, with the General Fund making up the difference. While the fee for the upcoming fiscal year is slightly higher than the previous fee for Fully Regulated Units, and lower for Partially Regulated Units, it is important to note that this will be the first year that landlords may pass through up to one-half of the fee to their tenants. As a result, the cost of the program to landlords will actually decrease and tenants will pay their fair share of the cost for Rent Program services.
All Program Fees would be effective on July 1, 2020. However, as with other fees and taxes imposed by the City this year, such as the business license tax, for which the City has deferred payment for 60 days beyond the usual delinquent date, staff recommends the delinquent date for Program Fees likewise be deferred from July 31, 2020, to September 30, 2020, with penalties and interest on any late fees not accruing until September 30, 2020.
The Fee Study recommends that in the absence of material and substantive changes to the Rent Ordinance, City Council revisit the Program Fee every five years to ensure the fees are covering actual program costs. Staff will also continue to track Program fund balance and factor available funds into the calculation of the annual fee.
ALTERNATIVES
The City Council could:
• Adopt a resolution establishing an annual tiered rent program fee of $132 for Fully Regulated Units and $84 for Partially Regulated Units and allocating General Fund money to pay the rent program fee on behalf of landlords participating in the Section 8 program as recommended by staff.
• Decline to apply available fund balance to the FY 2020-21 fee or apply a different amount of fund balance revenue to off-set the fee. Declining to apply the fund balance revenue as recommended would result in a $154 fee for Fully Regulated Units and a $106 fee for Partially Regulated Units.
• Modify the fee schedule. For example, a fee could be required for accessing hearing services, separate from the annual fee. This would reduce the cost for the Fully Regulated Units by $40,000, and reduce the fee by $3.
• Rather than using the General Fund to cover the full Program Fee for landlords of rent-subsidized units, use the General Fund to cover only one-half of the Program Fee and require the landlords to pay their share with no allowable pass through to the tenant, resulting in a $42 fee for those landlords when the fund balance is applied.
• Impose the full amount of the Program Fee ($84 when the fund balance is applied) on landlords of rent-subsidized units with the understanding that no portion of the fee could be passed through to tenants.
• Decide not to increase the $106 fee for Fully Regulated Units and subsidize the difference ($26/unit) using General Fund money and, for equity, reduce the fee for Partially Regulated Units by the same amount ($26/unit) using General Fund money.
• Decide not to impose any program fees on landlords and use the General Fund to pay for the full cost of the Rent Program, estimated at $2,016,518.
FINANCIAL IMPACT
The intent of the fee is to ensure full cost recovery of the Rent Program by the users of the Program. The fee, as recommended by the Fee Study, ensures full cost recovery and no additional impact to the General Fund. If the 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 May 20, 2020 budget workshop), the impact on the General Fund is $78,000. Note that this is a decrease of $17,000 over the amount included in the FY 20-21 budget.
As proposed, the FY 2020-21 fee is reduced by utilizing $300,000 in available Rent Program fund balance. Staff is not recommending applying the entire fund balance to the FY 2020-21 fee because, as noted above, the current Rent Ordinance is relatively new and the full extent of the cost of program implementation is not known at this time. Maintaining a reduced fund balance is prudent until program costs are more fully known.
It is projected that the rent program fee will provide $1.7 million in revenue in FY 2021. The proposed Fiscal Year budget currently reflects $1.3 million in revenue. The FY 2020-21 budget will be updated to reflect the full revenue amount and the $78,000 General Fund contribution when staff returns to City Council with a budget update in October.
Staff will evaluate the fund balance and program costs at the end of FY 2020-21 (June 2021) and determine if fund balance revenue can be applied when setting the FY 2021-22 fee.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
Adoption of this fee is consistent with the purposes and intent of the Ordinance 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 IMPACTS
There are no climate impacts to adopting this service agreement.
RECOMMENDATION
It is recommended that the City Council:
1. Receive the Fiscal Year 2020-21 Rent Program Regulatory Fee Study; and
2. Adopt a resolution establishing a tier-structured annual rent program fee of $132 for fully regulated units and $84 for partially regulated units.
CITY MANAGER RECOMMENDATION
The City Manager concurs with the recommendation that City Council receive the FY 2020-21 Rent Program Regulatory Fee Study and adopt the proposed resolution establishing a tier-structured annual rent program fee of $132 for fully regulated units and $84 for partially regulated units.
Respectfully submitted,
Debbie Potter, Community Development Director
Financial Impact section reviewed,
Nancy Bronstein, Interim Finance Director/Human Resources Director
Exhibit:
1. Fee Study
Cc: Eric Levitt, City Manager