Qualified Tenant Subsidy: Help When the Rent Is Too Damned High

One of the ideas to emerge from the City Council’s rent stabilization discussion concerns a ‘qualified tenant’ benefit. Those who pay too much in household income for rent could find relief from the city. An estimated 400 households could qualify under the program. The objective: to cushion rent increases with a cash subsidy. Councilmember Bob Wunderlich proposed to target rent stabilization protections to tenants “who really need it.” What’s it all about?

The ‘qualified tenant’ subsidy was proposed by Councilmember Wunderlich to cushion rent increases for qualifying households. If the city provides the equivalent of 1% or perhaps 2% of the maximum allowed annual rent increase for needy households, then the allowed rent increase could be slightly higher for the balance of tenants. The estimated cost of providing the subsidy is about $500,000 a year.

Now, Beverly Hills generously supports a range of social assistance programs each year with grants (including housing rights legal services). But grants are normally appropriated though an annual review process. This tenant subsidy would stand apart as both a continuing program and as a cash handout, which the city generally does not do.

Not surprisingly, the City Council reception to the idea in November was a big ‘maybe.’ Councilmembers agreed to discuss it further. The city’s consultant conducted a preliminary analysis and forwarded a rent subsidy memo to Council in December that suggested possible parameters. Council then talked about three possible approaches to identifying a ‘qualified subset’ of tenants:

  1. Households with rents below the lowest 20th percentile of RSO rents (rents that fall into the bottom fifth of all rents);
  2. Households that are housing ‘cost-burdened’ (more than 30% of household income devoted to rent); and
  3. Households with more than three to five years of tenancy (focusing the subsidy on established city households).

An important aspect of the subsidy program is that it is intended to relieve the burden on the qualified class of tenants presented by an incrementally higher maximum allowed annual rent increase. Councilmember Wunderlich had supported a slightly higher range of 4% to 8% for the CPI-linked allowed rent increase. Councilmember Lili Bosse and Vice-Mayor John Mirisch wanted a lower range of 3% to 7%. Wunderlich made clear that he supported the higher range on the condition that the qualified tenant subsidy cushioned the impact for households in need.

(At that November 20th meeting Council ’compromised’ on a range of 3.5 to 7.5% as we discuss in Good News and Bad News on the Allowed Annual Rent Increase.)

The range is important to tenants because the low end of that range acts as a floor that protect landlords when inflation is low. If consumer prices don’t rise much, and the landlords’ costs are moderate, the floor would still allow a landlord to demand a significant increase. For the qualified tenant, the city’s cash rent subsidy would take one or two percentage points off — a considerable relief when the difference between the rate of rent increase and the Social Security cost of living adjustment is one or two percentage points!

The Subsidy: From Novel Idea to Uncertain ‘Pilot’ Program

City Council seemed uncertain as to how to proceed when the idea was discussed in November. Then mayor Julian Gold pushed back by questioning how much an open-ended cash subsidy would cost the city. What happens if additional households qualify? Would the existing benefit be shared more widely or would the cost simply grow with need? These are prudent questions that signaled he was not sold. “We’ll look at it,” he said then before swiftly moving on to the next topic.

In December with the memo in hand, Council tentatively agreed to a qualified tenant subsidy pilot program. However some uncertainty was signaled by the December 18th staff report which identified it as a “possible amendment” to the rent stabilization ordinance. Note this conditional language:

City Council discussed the establishment of a rent subsidy program. Tenants would qualify for a rent subsidy if they meet the following qualifying factors: 1) lowest 20% area median income and are rent burdened, meaning that the tenant spends more than 30% of their income for rent; and 2) have a length of tenancy in the City of Beverly Hills for at least five years. The City would allocate a set annual fund amount, for example $500,000, through the budget process that would be made available commencing July 2019 as part of the 2019–2020 fiscal year. There would be an application process to determine the need for the funds, and funds would be made available to qualified applicants on a pro rata distribution basis.

There is no ‘will create a program’ language but there are plenty of ‘woulds.’ The staff report continued, “Staff recommends that an assessment be conducted to establish the current need for the program.” The report went on to suggest a pilot program for the first year. And the kicker: “Funds would not be guaranteed and would be made available only as allocated annually through the annual budget process.”

You don’t have to be an analyst to understand that an incrementally-higher allowed rent increase predicated on a cash subsidy program that must be renewed each year is a recipe for needy tenant anxiety!

Moreover, a  fee study for the rent stabilization program conducted at the request of City Council pointedly labels the qualified tenant subsidy as “optional.” And the fee study separates the cost of administering the subsidy program from the rent stabilization program operations cost. Were the city serious about the program it would of course be built-in to the RSO program budget.

Perversely the fee study recommends assessing a whopping $344 per unit subsidy administration fee on the very households to which a subsidy would be awarded instead of spreading that cost across all 7,700 RSO households. That would add up to about $450 per subsidized unit (half of the $197 RSO fee plus the $344 qualified tenant administration fee). In contrast to the subsidy fee, the RSO program fee is slated to be paid by every unit.

What does the $344 fee buy? A full-time management analyst ($137k in salary and benefits) to make sure that the subsidy is properly targeted. That entails means-testing households for example and tracking tenancies to ensure the fee is properly allotted.

Our Take

Ring-fencing the qualified subsidy fee from the broader RSO program and framing it as a one-year pilot program does not inspire confidence in the durability of the program absent very strong political support. And making that whopping estimated $344 subsidy administration fee payable by subsidized households would seem like a poison pill.

Which is fine because tenants should rather see a more moderate allowed rent increase and no subsidy program that having 95% of tenants pay an incrementally higher maximum rent increase while just 400 or so households get some cash help from the city. Landlords like the idea, though, because it is in effect a cash transfer from the public purse to the landlord.

However we wonder why Mayor Gold did not seem interested. First, it comports with his stated interest to focus city rent control on households that need it. As the landlords have said, if City Hall wants to subsidize tenants let City Hall cut the check!

Second, the idea was presented by Councilmember Wunderlich as a means to allow a higher maximum allowed annual rent increase than might otherwise be supported by a Council majority. That would seem to align with Mayor Gold’s perspective too.

Third, the rent stabilization program administration is self-sustaining: costs are recovered through the RSO fee. Were the cost of administering the subsidy built into the RSO program budget through a slightly higher fee, administration of the program would be cost-neutral. That should appeal to Gold as well.

And finally, we’ve seen Mayor Gold not bat an eye at spending $1.5 million for lights and decorations for the triangle during a single holiday season. Who does the limited pot of subsidy money (estimated at $500k) get a rough ride?