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Santa Monica, C1IIfornia, September 6, 1978
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FROM:
Mayor and City Council
City Staff
SEP 1 2 1978
SUBJECT. Status of Post Proposltion 13 Rent Relief
Introduction
The report presents information regarding the status of State Legislation
and of developments in other cities with regard to rent rollbacks, freezes
and pass throuqh of Propositlon 13 tax savinqs
It also provides information
regardlng the voluntary efforts of landlords and analyzes the ordlnance pro-
posed by the Santa Monica Fair Housing AllIance and the ordinance recently
enacted 1 It Los Jl.,nge 1 es. ,_'
I i
Backgr~_und
At the July 25, 1978 meeting, the City Councll recelved a proposed ordinance
from the Santa ~1onica Falr HouslnG Alliance and heard presentations from
resldents. landlords and others regarding the proble~ of lncreased rents
fOlloWing the passaqe of Propositlon 13. The Council subsequently directed
that the issue be brought up agaln after thlrty days had passed. at which
time the problem would be reconsidered in the light of State legislation
and of voluntary efforts being undertaken by the housing industry.
S~ate legislatlon
In the past thirty days, the Legislature has had before it four prooosals
which would affect Propositlon 13 tax savings. None of the four proposals
was enacted.
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SEP 1 2 1978
TO:
Mayor and Ci ty .nci 1
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September 6, 1978
1 S8 2224 (Carpenter) Property Tax Reduction Pass-On was defeated in
the Senate during the week of August 21 by a 22 to 11 vote. It would
have required owners of residential property to pass through 80% of
thelr net Proposition 13 tax savinqs. If landlords failed to do thlS,
tenants could withhold 50% of their December, 1978 rent (see Attachment 1).
2. AB 2986 (Bates) Renter Property Tax Relief Act of 1978 was defeated
21 to 12 in the Senate. It would have rolled back rents on all rental
property to May 31 levels effective 1n January, and required a pass
through of 80% of the landlords' gross savings from Proposltion 13. If
landlords failed to do so, tenants could withhold a portion of the
monthly rent. Rents could be ra1sed thereafter if tenants received
a truthful and detailed accounting of the reasons. Landlords who had
not raised rents since December 1, 1977 would have been exempt (see
Attachment 2).
3. ACA2 {McCarthy) November Ballot Amendment was defeated during the week
of Auqust 14 due to the failure of its proponents to secure extension
of the deadline for submittal of ballot measures. Among other things, the
meaure would have increased the renters' income tax credit from $37 to $300.
4. AB 2848 (HughesJ__Rebate of Proposition 13 Savings in Form of Improvemen~~
died on the Senate floor prior to adjournment. It would have requlred land-
lords to use property tax savings to repair or improve rental units which
violate local~ state or federal laws aoverning health, safety, sanitation
and housing standards.
TO:
Mayor and Ci ty .unci 1
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September 6, 1978
!::!..ot Line Efforts, and Voluntary Complianc~
Three hot lines have been available to Santa Monica renters 1n order to
measure the scope of the problem and/or to assist in securing voluntary
landlord compliance: the Governor's Hot Line in Sacramento~ co-sponsored
by the housing industry; the Los Angeles Area hot line, also sponsored
by the housing industry, and the Santa Monica hot line sponsored by the
Santa t10ni ca Fan HOUSl ng All i ance. The City of Los Angel es has a1 so
conducted an independent survey of voluntary actions by landlords.
The industry sponsored hot 11nes operated in the following way. If a
tenant from Santa Monica called the Governor's Hot Line or the Los Angeles
area hot line. the complaint was then referred to the Apartment Associat1on
of los Angeles - Western Clties for procesSlng. The Associatlon then contacted
the owners who had inltiated rent increases since the passage of Proposltion
13 and requested them to decrease rents to the May 31 level. to freeze rents
at that level through December and to share savings derived from ProDosit1on
13 as they are able.
Statew1de, approxmately 14.300 calls regarding rent increases were processed
by the Governor's Hot Line. Results from the 3,051 landlords contacted in-
dicate that 12% of the landlords would rollback rents to the May 31. 1978
level, 57% would freeze rents at the current level and 31% were w1lling to
pass on Proposition 13 savings 1n some form (see Attachment 3). These
figures did not include calls referred to the local hot lines.
The Los Angeles Hot L1ne contacted approximately 1.400 landlords of which
18 6% refused to comply, 39.2% pledged total compliance (rollback. freeze
TO:
Mayor and City ~ncll
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September 6, 1978
and pass through) and 42.2% pledged partial compliance. Overall, 47.1%
of the landlords were wl1ling to rollback rents, 73.910 would freeze
and 62% were will1ng to pass on savings 1n some form (see Attachment 4).
The City of Los Angeles also init1ated its own survey Wh1Ch lndicated
less voluntary compllance on the part of landlords than the Los Anqeles
Hot Llne. In a random sampling of households, lt was discovered that
11% of tenants received a rent increase Slnce June 1. Of the renters
interviewed, 11.1% had received a freeze commitment (however, one in
every three had an eXlsting lease) and 7.2% had received a promise of pass
through of Proposltion 13 tax savings (see Attachment 5).
In Santa Monica. 82 complalnts of rent lncreases were forewarded to the
Apartment Assoclation of Los Angeles - Western Clties by the Governorls
and Los Angeles Hot Lines and by the Mayor's Office. These 82 complaints
relate to increases by 48 landlords at 70 different addresses. The
Apartment Association was able to make contact wlth 20 of the owners. Of
these twenty, eleven refused to comply with any aspect of the voluntary
program: freeze, rollback and/or pass through, and the remaining nine pledged
partial compllance. No landlord agreed to all three aspects of the voluntary
program. Of the nine pledging compliance on one or two aspects, four were
wl1ling to rescind their recent increase~ four were willing to freeze and three
were wllling to pass along Proposition 13 tax savlngs (see Attachment 6).
Information provided by the Santa Monica Falr Houslnq Alliance regardinq its
Hot line indicates that from 500 to 600 tenant complaints were received.
According to SMFHA~ the maJOrity of the calls related to rent increases. These
TO: Mayor and City ~ncil
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~ September 6, 1978
complaints involved 158 buildings In Santa Monica. Rather than calling
landlords directly, the St1FHA approach is to encourage tenants to form
tenant associatlons and to negotiate directly for rent relief. Approximately
thlrty tenant assoclations have been formed with the result that renters in
ten buildlngs have been able to secure either a complete or partial reduction
ln the rent increase.
In order to place the Santa Monlca data into perspective~ some comparlson
flgures are useful. For example, it is estimated by the Apartment Association
that the~are approximately 3.600 owners of rental units in the City. Com-
plalnts of rent increases processed by the association lnvolved 48 landlords.
or 1.3% of the total estlmated owners. (SMFHA dld not provide statistics
on the number of landlords). Likewlse. it is estimated by the City's
Planning Department that there are 4,790 multiple dwelling units buildings
in the City. Complaints of rent increases processed by the Apartment Assoclation
and SMFHA involved from 70 to 158 different addresses, or from 1.5% to 3.3%
of the total.
It should be noted however, that the above figures do not necessarily relate
to the number of units for which rents have been increased. There are approxi-
mately 36,500 rental units ln the Clty. Wlthout knowledge of whether complalnts
represent individual or building-wide lncreases lt cannot be determined what
percentage of these units have received rent increases. This. in turn, makes
it difficult to assess the scope of the problem in more than a general way.
The Santa Monica Hot Lines were not set up to provide this level of detail.
TO: t~ayor and Ci ty end 1
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September 6. 1978
Counc1l Correspondence from Landlords
The City Council has received one hundred and five letters from landlords
dUf1ng the perlod of July 26 to August 11 regarding the 1ssue of rent
leg1slatlon. Many of these letters took the form of a pledge of voluntary
compliance (see Attachment 7).
Summarizing these pledges in terms of the three areas of voluntary compliance.
64 (6l%) were wllling to freeze rents and 42 (40%) appeared will1ng to pass
through property tax savings 1n the form of a rebate or reduced rent. Two
landlords who had given rent 1ncreases were resc1nding them. but is unknown
how many of the correspondents actually had 1nitiated rent increases. It
appears that many of them had not glven 1ncreases during the past several
months. Twenty three landlords elther gave no indication of intent to
comply or offered reasons for unwlllingness to take voluntary act1on.
Rent Related Ordinance/Charter Amendments In Other California Cities
Some form of rental relief has been or is currently be1ng proposed in a
number of California c1ties (see Attachment 8). Two c1ties have already
enacted ordinances (El Monte and Los Angeles) and initiative ord1nances have
qualif1ed for the November ballot 10 three others (Berkeley~ Dav1s and Palo
Alto). In the City of Mountain Vlew an initiative ordinance which failed to
qual1fy was placed on the ballot by City Council act10n and in San Francisco
two proposed ordinances will be voted on 1n November: an initiative and an
alternative drafted by several members of the Board of Supervisors. The Cities
of Santa Cruz and San Diego both received petitions for initlative charter
amendments but the initiat1ve San Diego fa1led to qualify.
TO: Mayor and City emd 1
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September 6, 1978
The most common type of ordinance proposed is similar to the one suggested
by the Santa Monica Fair Housinq Alliance. It wlll be on the November
ballot ln Berkeley, Davis, Mountaln View, Palo Alto and San Francisco.
These ordinances all contain three basic provisions: freeze, rollback
and pass through. Two of them expire in one year and three contlnue
indefinately. Four of the five proposals rollback rents to the June 6
level and the flfth rolls back rents to June 1. With regard to pass through
provislons of Proposltion 13 savin~s. four of the ordlnances specify a pass
through of 100% of savings and the fifth specifies an 80% pass through. All
five of the ordlnances provide for subsequent rent increases WhlCh are tled
to a specifled percentage of lncrease and/or to documented increases in
fees, to increases in the cost of maintenance and operation, or to the cost
of lrnprovements. All five ordinances rely on the courts for enforcement.
An alternative approach is that taken in El Monte (moratorium on rent increase)
and in Los Angeles (moratorium with rollback). No attempt is made to force
landlords to share Propositlon 13 savings. but rather to give relief to those
tenants whose landlords are ,nitiating rent increases in the face of anticipated
tax savings. Both of these ordlnances have a dispute resolution mechanism
short of the courts in the fOrM of a tenant-landlord mediatlon board. If
mediation fails, the tenant must seek remedy in the courts.
The third approach is the one proposed by a number of supervisors in San Franclsco.
This is a tax savings rebate ordinance (without any orovision for freeze or roll-
back) which specifies a 100% pass through of Proposition 13 tax savings for a
two year period. It also establlshes mandatory public medlation for rental
TO: ~1ayor and Ci ty _mcil
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September 6, 1978
disputes upon the request of any owner or tenant. Enforcement of the
ordinance is through the courts.
The fourth basic approach is the establishment of a body enpowered to
regulate rents through approval or disapproval of rent increases. This
will be on the November ballot in the form of a charter amendment in
Santa Cruz. A s1rnilar charter amendment initiative fa1led in San D1ego.
C1ty Attorney's Analys1s of Rent Relief Ordinances
The City Attorney has analyzed the ordinance proposed by the Santa Monica
Fair Hous1ng Alliance and the ordinance enacted by the Los Angeles City
Counc1l. These ordlnances represent the two most common approaches to post
Proposit1on 13 rent relief. The City Attorney concludes that the City of
Santa Monica may, under its police power. impose temporary controls on rent
if a sufficlent factual basis eXlsts to justify the action proposed. The
text of the City Attorney1s analyses follows:
I. Santa Monica Fair Rent Relief Ordinance
The rent ordinance has four signlflcant provislons. Section 3 provides for a
rent freeze for a six month period following the adoption of the Ordinance.
Section 4 provldes for a rent rollback which establishes the rent in effect
on May 31,1978 as the effective rent for the period beglnn1ng thirty days after
the adoption of the ordinance and continuing until the exoiration of the freeze.
Section 5 provides for a pass-through from landlord to tenant of a rent reduction
equ1valent to the proDortionate share of the landlord1s property tax reduction
result1ng from Proposition 13. Fourth. the landlord is required to disclose his
operating expenses to his tenants and to notify them of any rent raises occurring
TO: Mayor and Ci ty enci 1
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September 6t 1978
after the expiration of the freeze with a clear and detailed financial
statement documenting the reason for the increase.
The California Constitution. Article XI, Sect10n 7 states:
LI A county or a C1 ty may make and enforce withi n its
limits all local, po1lce, sanitary and other ordinances
and regulations not in confllct with general laws."
Section 400 of the Santa Monica City Charter authorizes the city to:
IIMake and enforce all laws and regulations in respect
to municipal affairst subject only to such restrictions
and limltations as may be provlded in the Charter and in
the Constitution of the State of California"
In Birkenfeld v. City of Berkeley, 17 Cal,3d 129.130 Cal. Rptr.
465, 550 P.2d 1001 (1976) the Supreme Court of California upheld a rental
control ordinance as a valid exercise of the City's police power, stat1ng that:
"It 1S settled Call form a law that legislatlOn regulating
prices or otherwlse restrlcting contractual or property
rights is within the police powers if its operative provisions
are reasonably related to the accomplishment of a legitimate
governmental purpose."
130 Ca1.Rptr. 486.
LJhile there may be forthcoming state leg1s1ation affecting both rent control
and the pass-through of Proposition 13 tax decreases, so far there has been no
legislation that would pre-empt or conf11ct with the ord1nance proposed by SMFHA.
The date chosen as the starting point for the fixing of maximum rent, May 31t
1978, appears to be reasonably related to the purpose of controlling alleged
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Mayor and City ~ncil
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September 6, 1978
exorbitant rents because it approxlmates a pOlnt in time before the
passage of Proposition 13, when the open market dld not reflect certaln
knowledge of the results of the electlon.
ThlS office has serious doubts, however, that the stated purposes of the
proposed ordinance will support an extensive exercise of the Dolice power.
The stated purposes of the proposed ordinance are to provide an immediate solution
to rent increases and to pass along the beneflts of Propositlon 13 to all
resldents. The relationshlp be~/een these stated purposes and the public
peace, safety, morals, health and welfare of the community is tenuous. Without
more specific information linking the desirabllity of controlling rent lncreases
and passing through property tax benefits to a valid exercise of the police
power, the ordinance would be highly susceptible to attack on constltutlonal
grounds.
In 81rkenfeld the California Supreme Court suggested that a proper purpose
of a rent control ordinance would be"
"A growing shortage of housing units resultinq in a low
vacancy rate, rapidly rising and exorbitant rents explolting
this shortage. and the continuing deterioratlon of the existin~
housing stock constitute a serious housing problem affecting
the lives of a substantial proportion of those Berkeley residents
who reside in rental housing. These condltions endanger the
public health and welfare of the City of Berkeley and especially
the health and welfare of the poor, minorities, students and the
aged. The purpose of this Article, therefore, is to alleviate the
TO: Mayor and City 4ItnCi1
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September 6. 1978
hardsh1p caused by this problem by establishing a Rent
Control Board empowered to regulate residential housing
and rentals in the City of Berkeley."
130 Cal.Rptr. 490. n.29.
If particular housing problems are stated in Justificat10n of a rent control
ordinance. the C1ty must be prepared to prove that these problems actually
exist in order to withstand a legal attack upon the ord1nance.
The proposed ordinance does not provide for adjustments for 1nflation~ cap1tal
expenditures or other extenuating C1rcumstances. The freeze and rollback are
for a def1n1te period of a few months duratlon. This ~ay be distinquished
from the situation 1n B1rkenfeld. where the Court said:
"It 1S clear that 1f the base rate for all controlled umts
were to remain as the maX1mum rent for an indefinite period
many or most rent ceilings would be or become conflscatory
for such rent ceilinqs of indefinite durat10n an adjustment
mechanism is const1tutionally necessary to provide for changes
in circumstances and also provide for the previously mentioned
sltuations in which the base rent cannot reasonably be deemed to
reflect general market conditions. The mechanism is sufficient
for the required purpose only if 1t is capable of providing
adJustments in maximum rents without a substantially greater
incidence and degree of delay than is practically necessary."
130 Cal.Rptr. 494.
The section in the proposed Fair Rent Ordinance concern1ng remedies for
v1olation of its substance of provisions presents two problems. First, the
TO: Mayor and City~ncil
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September 6. 1978
remedies seem to be wholly 1n favor of the tenant; no landlord remedies are
prov1ded there1n. Second, the sole mechanism for adjustment contained in the
proposed ordlnance appears to be recourse to small claims court. The Council
should be wary of passing legislation that provides no mechanisms for minor
adJustments other than use of the courts. as such statutes tend to clog the
courts with relatively minor matters and are looked upon w1th so~e judicial
disfavor. The remedies section of any proposed ordinance should be carefully
drafted to avoid conflict with the California Civil Code and the Code of
C1vil Procedure. and to provide equitable and reciprocal remedles for landlord
and tenant alike.
II. Los Angeles Rent Control Ordinance
The City of Los Angeles' ordinance provides for a rent rollback to May 31, 1978
levels and for a freeze with allowances for lncreases under certain circum-
stances. The ordinance does not provide for a Proposlt1on 13 pass-through
or for disclosure of financial data or justiflcation of rent increases occurring
after the expiration of the freeze. Disputes regarding rent increases are
to be heard and determined by a Landlord-Tenant Mediatlon Board, rather than
by immediate recourse to the courts.
The factual base for the Los Angeles ordinance rests on hearlngs conducted
by the Council in 1977 WhlCh established:
"That there 1S a growing shortage of decent. safe and
sanitary housing units resulting in a critically low vacancy
rate and rising exorbitant rents exploit1ng thlS shortage;
that this condition 15 having a detrimental effect on the
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Mayor and C1 ty .mcil
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September 6, 1978
lives of a substantial number of the Los Angeles residents
who reSl de 1 n Y'ental housing and is endangering the health
and welfare of such res1dents. especially creating hardships on
senlor citizens~ persons on fixed incomes. and persons of low
1 ncome. . . "
It may thus be seen that the Los Angeles ordinance is more llmited 1n nature
and rests on f1rmer ground than the SMFHA ordinance. Of particular signifi-
cance 1S the allowance of rental 1ncreases for rental units voluntarily vacated
on or after June It 1978 and prior to the end of the moratorium, for rental
units which have been found by the City to be in violation of the Building
and Safety Code, and for rental units for which capital lmprovement costs
are incurred. Provision for adJustments of rent to allow for increased
costs necessarlly incurred 1S indispensable to the validity of a permanent
rent regulation and certainly helpful in establishing the validity of a
temporary rent regulation.
The use of mediation or arbitrat10n services to resolve rent disputes may
afford landlords and tenants alike with a faster, less expensive and equally
fair remedy than direct recourse to the courts. Thus. the possib11ities of
alternat1ve dlspute-resolving procedures could be explored.
Prepared by: RICHARD KNICKERBOCKER
City Attorney
JEANNE L. KENNEDY
Administrative Assistant
RK: JLK: da r