One of the more interesting proposals to emerge from the City Council’s rent stabilization discussion concerns a benefit for a ‘qualified subset’ of tenants who pay a low-dollar rent to pay more than 30% of household income in rent. An estimated 400 households under the program could ‘qualify’ for a cash subsidy to cushion rent increases. Councilmember Bob Wunderlich proposed it as a way of focusing rent control on “those who really need it” and Council supported it. Yet now it seems pushed to the back burner.
The ‘qualified tenant subsidy’ was proposed by Councilmember Wunderlich this summer. Council agreed to discuss it and in October assigned the city consultant’s to conduct a preliminary analysis. That qualified subset memo came back to Council in November with suggested program parameters. Council then discussed three possible approaches to defining a ‘qualified subset’ of tenants (those eligible for a cash subsidy from the city):
- Households with rents below the lowest 20th percentile of RSO rents (rents that fall into the bottom fifth of all rents);
- Households that are housing ‘cost-burdened’ (more than 30% of household income devoted to rent); and
- Households with more than three to five years of tenancy (focusing the subsidy on established city households).
Councilmember Wunderlich estimated that a cash subsidy could effectively cushion rent increases for qualifying households by providing the equivalent of 1% or perhaps 2% of any year’s increase. His idea was that if the city addressed those households-in-need with the subsidy, then the maximum allowed annual rent could higher for the rest of the tenants.
Councilmember Wunderlich then suggested that the proper range for a CPI-linked maximum allowed annual rent increase be 4% to 8%. Mayor Julian Gold liked that range. The range is very important for tenants because the low end of the range acts as a floor to protect landlords: when inflation is low (or zero) and consumer price increases slow down, the landlord can still demand the floor. That would be 4%. (To put it in perspective, tenants are not happy today that the allowed increase is 4.1%. Imagine if all costs dropped in an economic recession and landlords were still allowed to demand 4%!)
However Councilmember Lili Bosse and Vice-Mayor Mirisch wanted a lower range: 3% to 7%. At that November 20th meeting Council ’compromised’ on a range of 3.5 to 7.5% which I have called a false compromise because there is no gain for tenants.
The Subsidy: From Novel Idea to Uncertain ‘Pilot’ Program
Mayor Julian Gold has pushed back on the direct tenant subsidy. He questioned how much it would cost the city; whether that cost would grow; what would happen if more households qualify; and whether there could ever be an end to that kind of benefit. Prudent questions but it signaled he was not sold. “We’ll look at it,” he said finally before swiftly moving on to the next topic.
Council did tentatively agreed to a qualified tenant subsidy. However the program is presented in the December 18th staff report as a “possible amendment” to the rent stabilization ordinance. Note the conditional language:
City Council discussed the establishment of a rent subsidy program. Tenants would qualify for a rent subsidy 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. — December 28th staff report p. 10 (emphasis added).
Notice that here there is no ‘will create a program’ language. But there are plenty of ‘woulds.’ You know, if the program was actually created.
Indeed the prospect of a subsidy program seems in doubt. “Staff recommends that an assessment be conducted to establish the current need for the program” says the staff report (emphasis mine). The only sure thing about the way this program is talked about is that City Council actually did discuss it.
The staff report continues, “Staff will return at a later date to determine the specific funding allocation and a pilot program for the first year to commence in fiscal year 2019–2020.” Note the ‘pilot’ qualifier. The language concerning the funding, too, reads like a hedge. “Funds would not be guaranteed and would be made available only as allocated annually through the annual budget process.” Clearly somebody took a look at the concept and didn’t like it!
Non-supporters of the qualified tenant subsidy will find more to like in the fee study conducted at the request of City Council. It pointedly labels this program as “optional.” Also the fee study segregates the cost of administering this subsidy from the cost of the broader rent stabilization program. And, perversely, the fee study recommends assessing the whopping $344 per unit for administering it not on across all RSO households — like every other aspect of the rent stabilization program — but assessing it only on the subsidized households (estimated at 400).
The subsidized family would pay not only the usual $197 RSO fee (as determined by the study) but the $344 too. That’s a big bill for a subsidized family.
That extra fee would fund a full-time management analyst ($137k in salary and benefits) that the fee study finds is necessary to administer the program. That will give ammunition to a councilmember who would shoot down this program because they want to cap city hires.
The head-scratcher is why Mayor Gold is not interested in the program. First, it comports with his stated interest to focus city rent control on households that need it. Second, it was presented by Councilmember Wunderlich explicitly as a means to allow the maximum allowed annual rent increase to be higher for non-subsidized tenants. Third, rent stabilization program administration in general is self-sustaining and the fee study heaps the cost of the subsidy administration on recipient households.
And finally, we’ve seen Mayor Gold not bat an eye at spending $1.5 million for a single season of city holiday decorations. But this limited pot of money at $500k gets the green eyeshade treatment. Must be the principle of the thing.
- As I explain in a longer explanation about the maximum allowed annual rent increase, the percentage increase allowed in any year is indexed to the change in consumer prices (CPI). What the range does is put a floor and a ceiling on it. In high-inflation times the ceiling protects tenants. But we have never seen CPI rise to 8%. So the ceiling is really theoretical for tenants. However the floor is very important because it protects landlords when inflation declines. Even when CPI is 1% or 2% or 3% the landlord would still be able to raise the rent 4% if the range for the maximum allowed annual rent increase allows a floor as high as 4%. Until this year CPI was well below 4% and has been for many years. This year it reached 4.1%. ↩