RSO Study Session #4: Council Presses Pause Button

In four City Council sessions on rent stabilization to date, we have seen a few hasty decisions by City Council. At the December 18th meeting we urged councilmembers to press the ‘pause’ button so important issues could be more thoroughly discussed. Council largely agreed. While some consensus found consensus, others were set aside.

At the December 18, 2018 City Council meeting there were three items on the agenda: a draft rent stabilization ordinance (for Council amendment and approval); a proposal to add six staffers to the rent stabilization office; and an administrative change to convert several part-time temporary positions to permanent part-time. Of those Council only agreed to the last. Additional permanent hires would have to wait until the next meeting.

Most important, the draft ordinance did not find support. Despite Mayor Gold’s deliberate haste to bring it to Council and wrap-up the rent stabilization policy process, some tenants said that many loose ends remained and there were unintended consequences that would flow from decisions made in the November meeting (read our recap).

The draft ordinance also contained some ‘Easter egg’ surprises. Such as an expanded concept of ‘owner’ for the purpose of owner-occupant; now it would include five generations, not the current three generations of family members. Another was an entirely new means of calculating the proposed luxury exemption; its reach would expand to include more renting households.

Most worrisome was a pass-through provision related to seismic retrofit that would have had tenants pay “cost of interest.” Over a very long 27-year amortization period, tenants would be on the hook BIG even if landlord didn’t borrow any money to fund the retrofit.

Renters Alliance spoke on all of these issues. We recommended pressing the pause button. Renters Alliance member Chuck Moffitt (pictured) led the charge. And Council did press the pause button.

Problems With the Process

Councilmember Bob Wunderlich was first to support a pause. “I don’t think we’re ready to adopt an ordinance tonight,” he said. “The [draft] ordinance is long and there’s lots of language to be looked at and to be vetted. We need to have multiple eyes look at it to raise issues and concerns.”

Bob Wunderlich 2018-12-18
Councilmember Bob Wunderlich is the first to raise questions about rushing the rent stabilization ordinance at the December 18, 2018 City Council RSO hearing.

That was exactly right: through two successive rounds of facilitated dialogues and much written and oral comment from the public, there was a shared sense among tenants and landlords that we still didn’t have a seat at the policy table. We have our three minutes at the microphone for perhaps ten major policy options. We could only watch as councilmembers riffed without our input.

Mayor Gold said, “I feel like ‘Let’s Make a Deal’” as the Council returned to some horse-trading. Councilmember Lili Bosse blanched. “From my perspective I will not vote for this ordinance at all if we go down this path,” she said.

I think it’s probably one of our darkest moments… there are people who live in these homes and they will have to pay for moving, to pay for first and last month, et cetera. We all recognize we want to allow for an owner to bring in a family member. But the individual in the other unit has a family as well, and can be moved out of their unit. It is absurd: 10%, 20% [of the fee]. They deserve to have a home just like a family member. — Councilmember Lili Bosse

For Councilmember Bosse, who has emerged as a tenant’s most consistent (and vocal) supporter, the horse-trading was moving the process in the wrong direction.

Lili Bosse 2018-12-18
Councilmember Lili Bosse wants to put the brake on the horse-trading.

For Councilmember Mirisch, the deal-breaker was the lack of substantive discussion about preserving our relatively affordable rental housing. In earlier meetings he proposed the city offer landlords financial incentives to keep their properties maintained and on the rental market through the state’s Mills Act (an historic preservation program).

Councilmembers had indicated some interest but it had not yet been addressed. Time was up for him. “For me the key is having a Mills Act program, otherwise I ain’t going for it,” he said of the rent stabilization ordinance. “I’ve spoken about it but it’s been ignored.”

Ultimately, Mayor Gold’s push once again to wrap-up the rent stabilization ordinance stalled. Action would have to wait for a future Council meeting. Left unaddressed were several important issues: how should the rent stabilization program fee (estimated at $197 annually) be shared? To what extent should the seismic retrofit cost and water reliability charge be passed-through to tenants?

Consensus Issues

City Council nevertheless in its discussion more-or-less arrived at consensus on several important issues.

The proposed duplex exemption stays. As described in our November meeting recap, move-in by a beneficial owner could trigger an exemption from rent stabilization for a duplex property. A household renting in a duplex today could be harmed because: 1) tenant protections (including the CPI cap on the allowed annual rent increase) would go away if an ‘owner’ occupied the adjacent unit; and 2) if no owner is resident now, when one moves in then either of the two households renting in that duplex could be displaced. (However a Chapter 5 tenant could not be bounced out.) Council unanimously agreed on this duplex exemption in November.

Council said that anyone from four generations related to the beneficial owner would qualify as an ‘owner occupier.’ That would mean a renting household could be displaced for the landlord’s use when a grandchild, say, moves in. (As mentioned above, that could trigger a duplex exemption so expect this provision to be applied liberally!) Under the current ordinance the allowance is three-generations; Council appears ready to expand that to include grandchildren, too, in addition to an owner’s parents, siblings, or children. (As it happens, the expansion was championed by Councilmember Les Friedman who counts five grandchildren in his family, he told the Weekly in 2014.) Any would satisfy the ‘owner’ requirement, as would Again, Chapter 5 tenants could not be bumped and under a previously-agreed provision, no teacher, nor a family with kids in a Beverly Hills school, could be terminated during the school year.

Probationary tenancy is alive and well. As envisioned by Councilmember Mirisch, the first year of any new tenancy would be a ‘trial year’ after which the landlord could choose to discontinue renting to a ‘problem tenant.’ But no reason is needed for that decision and no finding need be made to invoke it. Nor is any relocation fee required to be paid. As Councilmember Wunderlich correctly asked, “We have the process for [terminating] a disruptive tenant, so why do we need a process beyond that?” Indeed the probationary tenancy would return no-just-cause termination to our books. The proposal divided City Council (Wunderlich and Bosse dissented) as it did in November. Mayor Gold quickly assented, though, and with the concurrence of Councilmember Friedman and Mirisch it gained a 3-2 vote.

The range for the maximum allowed annual rent increase remains unchanged: a floor of 3.5% and a ceiling of 7.5%. As explained in earlier post, Good News and Bad News on the Allowed Annual Rent Increase, this allows a landlord to hit the tenant with a 3.5% increase even when inflation is near zero (as it was for much of the past quarter-century). That’s exactly how Councilmember Wunderlich presented it:

The concept is that landlords, even if CPI was below 3.5%, could still raise the rent by 3.5%… [because] it gives those landlords who say that their expenses rise more rapidly than CPI the ability to have a modestly higher rent increase in a low CPI environment.

Never mind that no landlord has substantiated any claim for needing a higher-than-CPI increase. Never mind that no landlord has provided financials to support their claim to need a higher rent increase. And never mind that Renters Alliance has seen financials for several example properties in Beverly Hills and each shows a net operating income (profit) in the vicinity of 70% — a margin many businesses could only dream about! Still, according to Councilmember Wunderlich the extra bottom-line padding was necessary to preserve the housing stock. (Never mind that we have seen the degradation of our rental housing despite allowing landlords a 10% rent increase for decades!)

Relocation fees for tenants displaced by landlord use will be paid in full. This is a reversal from the November meeting, wherein Council agreed to prorate fees at 10% for each year of tenancy. Today Councilmember Bosse pushed hard to reverse it. “Our intention is to provide relocation fees,” she said several times. “The full fee.”

However a landlord can bring a hardship claim to the (future) rent commission if they need relief from paying the relocation fee. Now it is not clear what criteria or guidelines the commission would use; none has been formulated. The landlord can request a reduction in the fee — or even no fee at all — but the required 6-month notice to tenants is not negotiable, Council said.

Tenants and landlords would be outnumbered by homeowners on the ‘rent commission’ under the current proposal. Though homeowners have no interest in multifamily issues, they will outnumber both tenants and landlords by three-to-two as the commission adjudicates tenant-landlord issues. That includes matters like relocation fees and terminating a ’disruptive tenant’ and more. However that wasn’t the kind of body that was proposed (and agreed) by tenants and landlords. Now we are a minority on our own commission! Council clarified that an alternate will be appointed for the tenant and landlord seats and terms will be staggered. (How the staggered-term concepts works when only one member each will represent tenants and landlords is an open question.)

Next Steps

Helen Morales 2019-12-18
Helen Morales, Deputy Director for Rent Stabilization.

On February 5th at its evening meeting, City Council will again reconvene to discuss rent stabilization. This will likely be the final substantive discussion on the issue. Now we don’t know what will be on the agenda. Likely Council will want to take care of some unfinished business: pass-throughs, percentage of seismic retrofit paid by tenants, specifics on sharing the rent stabilization program fee with tenants, the ‘luxury exemption,’ and perhaps the ‘qualified tenant’ subsidy.

Those are central aspects of the rent stabilization ordinance and enabling processes, but we have many, many more issues important to tenants that have not been addressed. How to address them in the context of Council lightning rounds is the key challenge.

Will we see more horse-trading? Or will we have a voice in a process that is more accepting of meaningful public input on specified policy decisions? Mark your calendars and plan to attend on February 5th. Please contact Renters Alliance with any concerns you have.

City Council 2018-12-18
Mayor Julian Gold rows against the current at the December 18, 2018 City Council RSO hearing.