Measure GA

Shall the City Charter be amended to allow the annual rent control general adjustment to be based on 75% of the annual percentage change in the Consumer Price Index, but limited to an adjustment between 0% and 6%; and to give the Rent Control Board discretion, after a public hearing, to impose a dollar limit, within the 0-6% range, calculated using the same formula employed when imposing a limit under the existing general adjustment formula?

CITY ATTORNEY'S IMPARTIAL ANALYSIS OF MEASURE GA

BALLOT MEASURE AMENDING CITY CHARTER PROVISIONS GOVERNING THE COMPUTATION, APPLICATION AND ANNOUNCEMENT OF THE ANNUAL GENERAL ADJUSTMENT OF RENT CEILINGS FOR CONTROLLED RENTAL UNITS

This proposed measure would amend City Charter Sections 1803, 1804 and 1805 in order to change the way that the Rent Control Board establishes the annual general adjustment to rent ceilings for rent controlled units in Santa Monica.

At present, the City Charter does not specify a particular formula for use in computing the annual general adjustment. Instead, Charter Section 1805 requires the Board to adjust rents upward due to actual increases in landlords’ utility, tax and maintenance expenses or downward due to actual decreases in landlords’ tax costs. Additionally, Section 1805 allows the Rent Control Board to adjust ceilings up or down either for all controlled units or for particular categories of units and also allows the Board to postpone the effective date of the change.

The formula that the Rent Control Board currently utilizes to compute the general adjustment is known as the "component ratio to gross rent" formula. It is intended, in part, to yield a general adjustment reflecting changes in landlords’ actual costs; and the formula has the advantage of capturing some of those changes. However, the formula is complex; and the results it yields are consequently difficult to predict. Moreover, the results may not accurately reflect changes in landlords’ actual costs since reliable data about some cost categories is unavailable. Additionally, the Rent Board’s authority to make adjustments by category and to postpone the effective date both increase the difficulty of making accurate predictions about the general adjustment.

The proposed measure would establish a new adjustment formula and incorporate it into the City Charter. That formula would tie the general adjustment to the inflation rate by basing the adjustment on 75 % of the annual percentage change in the Consumer Price Index for the Los Angeles area, subject to two limitations. First, the proposal would limit the annual adjustment to a range of zero to no more than six percent. Second, it would grant the Rent Control Board the authority, after holding a public hearing, to impose a dollar limit on any year’s general adjustment according to a specified formula. Additionally, the proposed measure would make the general adjustment uniformly applicable to all controlled units and would require that the amount of the adjustment be announced, annually, by June 30th to be effective September 1st.

If the proposed City Charter amendment is adopted, future general adjustments would become more predictable and computations would be more readily verifiable. Thus, the process would be more transparent; and uncertainty would be reduced for both tenants and owners.

Finally, the proposed measure would eliminate an ambiguity in the wording of Section 1805(e), which lists the factors to be considered in granting individual adjustments. However, as currently worded, that section appears to apply also to the annual general adjustment. The proposed Charter amendment would clarify that 1805(e) applies only to individual adjustments.

/s/ Marsha Jones Moutrie, City Attorney

/s/ Joe Lawrence, Assistant City Attorney

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MEASURE GA

PROPOSAL OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA TO AMEND THE CITY CHARTER

Section 1803. Permanent Rent Control Board.

(g) RULES AND REGULATIONS: The Board shall issue and follow such rules and regulations, including those which are contained in this Article, as will further the purposes of the Article. The Board shall publicize its rules and regulations prior to promulgation in at least one newspaper of general circulation in the City of Santa Monica. The Board shall hold at least one (1) public hearing to consider the views of interested parties prior to the adoption of general adjustments of the decision before deciding whether to impose a dollar-amount ceiling on a general adjustment under Section 1805(b) or deciding to decontrol or reimpose control for any class of rental units under Section 1803(r). All rules and regulations, internal staff memoranda, and written correspondence explaining the decisions, orders, and policies of the Board shall be kept in the Board’s office and shall be available to the public for inspection and copying. The Board shall publicize this Article so that all residents of Santa Monica will have the opportunity to become informed about their legal rights and duties under Rent Control in Santa Monica. The Board shall prepare a brochure which fully describes the legal rights and duties of landlords and tenants under Rent Control in Santa Monica. The brochure will be available to the public, and each tenant of a controlled rental unit shall receive a copy of the brochure from his or her landlord.

Section 1804. Maximum Allowable Rents

(b) ESTABLISHMENT OF BASE RENT CEILING: Beginning one-hundred-twenty (120) days after the adoption of this Article, no landlord shall charge rent for any controlled rental units in an amount greater than the rent in effect on the date one year prior to the adoption of this Article. The rent in effect on that date is the base rent ceiling and is a reference point from which fair rents shall be adjusted upward or downward in accordance with Section 1805. If there was no rent in effect on the date one year prior to the adoption of this Article, the base rent ceiling shall be the rent that was charged on the first date that rent was charged following the date one year prior to the adoption of this Article. For tenancies commencing on or after January 1, 1999, which qualify for a vacancy rent increase pursuant to state law, the base rent ceiling is the initial rental rate in effect on the date the tenancy commences. As used in this subsection, the term "initial rental rate" means only the amount of rent actually paid by the tenant for the initial term of the tenancy. The base rent ceiling is the reference point from which the rent ceiling shall be adjusted upward or downward in accordance with Section 1805.

Section 1805. Individual and General Adjustment of Ceilings on Allowable Rents.

(a) ANNUAL GENERAL ADJUSTMENT: The Board may, after holding those public hearings prescribed by Section 1803(g), set and adjust upward or downward the rent ceiling for all controlled rental units in general and/or for particular categories of controlled rental units deemed appropriate by the Board. Such an adjustment, however, need not take effect immediately, and the Board may decide that new rent ceilings shall not take effect until some reasonable date after the above stated time periods No later than June 30 each year, the Board shall announce the percentage by which rent ceilings for eligible units will be generally adjusted effective September 1 of that year.
(1) The adjustment shall be equal to seventy five percent of the percentage increase in the Consumer Price Index (All Urban Consumers, Los Angeles, Riverside, Orange County region, or any successor designation of that index that may later be adopted by the U.S. Bureau of Labor Statistics) as reported and published by the U.S. Department of Labor, Bureau of Labor Statistics, for the 12-month period ending as of March of the current year.
(2) In determining the allowable percentage increase, numbers of .04 and below shall be rounded down to the nearest tenth decimal place and numbers of .05 and above shall be rounded up to the nearest tenth decimal place.
(3) Subparagraph 1 of this subsection notwithstanding, in no event shall the general adjustment be less than zero percent or greater than six percent
(b) DOLLAR-AMOUNT CEILING:
Each year the Board shall generally adjust rents as follows:
(1) Adjust rents upward by granting landlords a utility and tax increase adjustment for actual increases in the City of Santa Monica for taxes and utilities.
(2) Adjust rents upward by granting landlords a maintenance increase adjustment for actual increases in the City of Santa Monica for maintenance expenses.
(3) Adjust rents downward by requiring landlords to decrease rents for any actual decreases in the City of Santa Monica for taxes. The Board may, in its discretion, impose a dollar-amount limit to any annual general adjustment. The dollar-amount limit shall be calculated using the following methodology:
(1) The Board shall determine the eighty fifth percentile of the maximum allowable rent of all controlled units;
(2) The Board shall then determine the eighty fifth percentile of maximum allowable rent of all controlled units with a base rent established before January 1, 1999;
(3) The dollar-amount limit shall be the average of the two rents arrived at under paragraphs (1) and (2) multiplied by the annual general adjustment determined under paragraph (a) of this Section.
In adjusting rents under this subsection, the Board shall adopt a formula of general application.
(e) In making individual and general adjustments of the rent ceiling, the Board shall consider the purposes of this Article and the requirements of law. In making an individual downward adjustment, the Board may consider decreases in living space, furniture, furnishings, equipment, or services; substantial deterioration of the controlled rental unit other than as a result of ordinary wear and tear; or failure on the part of the landlord to provide adequate housing services or to comply substantially with applicable housing, health and safety codes. In making an individual upward adjustment, the Board may adopt employ as its fair return standard any lawful formula, including but not limited to one based on investment or net operating income. The Board shall consider all factors relevant to the formula it employs; sSuch factors may include: increases or decreases in operating and maintenance expenses;, the extent of utilities paid by the landlord;, necessary and reasonable capital improvement of the controlled rental unit as distinguished from normal repair, replacement and maintenance;, increases or decreases in living space;, furniture, furnishings, equipment, or services;, substantial deterioration of the controlled rental unit other than as a result of ordinary wear and tear, failure on the part of the landlord to provide adequate housing services or to comply substantially with applicable housing, health and safety codes, federal and state income tax benefits;, the speculative nature of the investment;, whether or not the property was acquired or is held as a long term or short term investment;, the landlord’s rate of return on investment;, the landlord’s current and base date Net Operating Income;, and any other factor deemed relevant by the Board in providing the landlord a fair return.
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ARGUMENT IN FAVOR OF TAX MEASURE GA

PROPOSAL OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA TO AMEND THE CITY CHARTER

Measure GA is good for tenants. It would simplify the calculation of the General Adjustment, the annual rent increase for controlled rental units. At this time, the General Adjustment (GA) is calculated using a complex formula that can be confusing. Measure GA would amend the Rent Control Law so that the annual GA will be equal to 75% of the percentage change in the Consumer Price Index (CPI) for the Los Angeles area. For example, if the CPI is 2%, the GA would be 1.5%.

The CPI is the rate of inflation measured by the federal government. A CPI-based approach results in a similar but slightly lower GA than those calculated over the past 30 years. An inflation-based adjustment provides predictability for both tenants and landlords and the simplified calculation is cost-effective. The CPI is commonly used in industry and government.

Measure GA will increase protections for renters by limiting the maximum possible adjustment for future annual rent increases. Each year, based upon the CPI, the General Adjustment could be as low as 0% and no more than 6%. The maximum possible General Adjustment of 6% would be reached only if the annual inflation rate for the Los Angeles area is 8% or higher. If inflation increased to 8% or above, the General Adjustment would be limited to 6%.

To ensure rent security for tenants, this measure would retain the Rent Control Board’s discretion to determine an annual maximum increase or dollar ceiling, using the same methodology currently used to determine a maximum increase.

The Santa Monica Rent Control Board proposed these amendments and protections, and the Santa Monica City Council voted unanimously to place them on the ballot. Santa Monicans for Renters’ Rights voted unanimously to endorse Measure GA at their annual Convention.

Vote Yes for Measure GA!

/s/ Pam O’Connor, Santa Monica City Council Member

/s/ Jennifer Kennedy, Santa Monica Planning Commissioner

/s/ Dennis Zane, Former Mayor & Santa Monicans for Renters’ Rights Co-founder

/s/ Patricia Hoffman, Santa Monicans for Renters’ Rights Co-chair

/s/ William L. Winslow, Santa Monica Rent Control Board Chair

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