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sr-050879-8aCA RLK:SSS:mc Council Mtg. OS-a8-79 T0: Mayor and City Council FRO24: City Attorney SUBJsCs': Rental Housing Reform Law Supplemental Staff Report Introduction San.a Monica, California +~AY 8 ~9, This supplemental report transmits an ordinance to codify, clarify and implement Article XVIII of the City Charter, the Rent Control Charter Amendment. This ordinance was drafted for the April 24, 1979 City Council meeting. A public hearing cvas held; after raising several questions about various sections of the ordinance, the City Council continued the hearing to the May 8, 1979 meeting. The report contains responses to specific questions raised by the City Council, suggests three (3) modifications in the text of the ordinance, provides an index of the ordinance to facilitate analysis and voting, and recommends that the Council adopt the ordinance. Analysis I. QUESTIONS AND RESPONSES. A. Does The Council Have Authority To Adopt This Ordinance? Yes. The basic power of a legislature to implement a constitutional provision is firmly established. (A City Charter is its MAY. ~ 993~~ fundamental governing document, and is functionally equivalent to a State or National constitution.) The landmark case of Chesney vs. Byrom, 15 Cal. 2d 460, 101 P2d 1106 (1940) states the principle as follows: 11It is clear that the constitu- tional provision in question is self-executing, but it does not follow that legislation may not be enacted to facilitate its operation and place safeguards around the exercise of the right thereby secured so long as the right itself is not curtailed or its exercise unreasonably bur- dened. 'Legislation may be desireable, by way of providing convenient remedies for the protection of the right secured, or of regulating the claim of the right so that its. exact limits may be known and under- stood; but all such legislation must be subordinate to the con- stitutional provision, and in fur- therance of its purpose,: and must not in any particular .attempt to narrow or erlbarrass it: "' Thus, .the critical question is whether particular legislation "furthers" the purposes of the initiative. p7e are of the opinion that the Rental housing Reform Law does further the Charter Amendment because it is designed to make rent control work by eliminating duplicative government services, .by resol- ving vested rights claims and other disputes., by clarifying ambiguities, and by providing a flexible framework. for future. -2- actions. The ability of the Board to carry out the functions mandated by the initiative is unimpaired by the ordinance; indeed, the integrity of the Board is specifically guaranteed. B. Will The Adoption Of The Ordinance Increase The Risk Of Liability Of The City? No. whether the Council adopts this ordinance or not, the Rent Control Board is a part of this City Government, albeit a part whose integrity must be protected. If an employee of "the Board" negligently or intentionally injures someone in the course of his or her employment, there seems little doubt that liability for this act must ul- timately be borne by the City. If '°the Board" enters into a contract or incurs an expense that cannot be charged to landlords because. it is not "reasonable" nor "usual", there is little doubt that the obligation to honor the contract or pay for the expense will ulti- matelg be borne by the City. In short, the City cannot escape responsibility for abuses and excesses perpetrated by people. who are enforcing the City's rent control laws. The legislative choice posed by this ordinance is the relative extent to which the Beard is to be accorded independence on the one hand, -3- and supervision and support on the other.. C. Will The Adoption Of This Ordinance Com- promise The Autonomy Of The Board? No, The authority of the Council and City Manager over the budgetary, purchasing and personnel activities of the Rent Control Board is an unavoidable. concomitant of the City's responsibility and liabilitg for the Board's governmental ;activities, The ordinance provides a brake on expenditures that are manifestly unreasonable and permits the Council to resolve internal disputes between City .staff and the Board. However, the Board's rule-making and adjudicatory functions and basic appointive and fee rais- ing powers are unimpaired and indeed guaran- teed. D. Is It Proper For The Council To Exempt Section 8 Housing From Rent Control? While it is clearly desireable to exempt Section 8 Housing from local rent control, ih our view this decision should be made by: the Board and not by the Council, The Charter Amendment provides that governmentally sub- sidized housing must be specifically exempted -4- from local rent control by Federal or State law or regulation. No federal statute or regulations specifically exempt Section 8 Housing from Rent Controls. Fair Market Rents are es- tablished for Section 8 Housing by federal regulation; HUD implies from the existence. of these regulations a right to preempt local controls if it feels that the investment of the Federal Government is jeopardized. It stretches the bounds of reasonable construction to call this implied right of preemption a "specific exemption". Therefore, if the Council legislativel1~ exempts Section 8 Housing from controls, such action may be seen as impermissibly narrowing the amendment.' For the reasons stated by the Redevelopment Director expressed in Attachment "A", we recommend that the Council direct the staff to request HUD to specifically exempt Section 8 Housing from the rent adjustment provisions of Article. XVIII. If HUD will not do so, the Board should be requested to Cate- gorically exempt Section 8 Housing at the earliest opportunity, -5- E. will The. Adoption Of The Ordinance Affect The Pending Litigation? The adoption of the ordinance will marginally increase. the chances that the Charter Amendment will withstand consti- tutional attack. Adoption by the Council of the finding that a serious housing prob- lem exists will make the exercise o~ the City's police power in adopting rent con- trols unassailable. Resolution of am- biguities and disputes increases the. efficiency of the rent control process; integration of the Board into the City government achieves economy. To the ex- tent that the ordinance. helps to make our system of rent control work, it in- creases the likelihood that a court will uphold it. Also, the Savings Clause. (Section. 4617) commits the Council to take action to promote the underlying purposes of rent control,!,ahd assures a second chance if the court finds that the amendment is partially defective.. -6- II. MODIFICATIONS. Staff suggests tkiree (3) modifications to the text of the ordinance derived from the apparent Council consensus at the April 24, 1979 meeting. A. The word "discretionary" has been deleted from Section 4606 (Nested Rights Basic Test). The particular government approvals necessary to obtain vested rights may either be specified by the Council in Section 4607 or determined by the Interim Board or the courts. In any event, inclusion of the word "discretionary" is not required by case law and does not help to clarify the analysis necessary to solve any parti- cular problem. B. The last sentence of Section 4610 (Vested Rights Mechanism) has been deleted. Appeals from vested rights decisions would be to the courts, nbt to the Gouneil. C. The first sentence of Section 4616 (Suits Against Board Are Suits Against City) has been deleted; the second sentence has been integrated into Section 4615 (City Attorney Legal Officer To Board). The City cannot control whether a potential plaintiff chooses to sue the Board or not; what is required is that it be clear that the City Attorney must defend such suits as if they were brought against the City. Sections 4617 (Inspectors) and 4618 (.Savings Clause) have been renumbered as Sections 4616 and 4617 respectively. D. Additionally, we suggest that Section 4607 -7- (Vested Rights Standards) be phrased so that objective criteria specified in the section create presumptions of vested rights rather than fixed standards. We prefer this formula, because it balances objectivity, administrative ease, and the need to account for unique circumstances of particular cases. III. GUIDE TO ALTERNATIVES. A. BASIC CHOICES T. ADOPT THE ORDSNANCE IN ITS ENTIRETY This alternative sets the intention of the City to make rent control work as smoothly and inexpensively as possible. It a- vowedly accepts responsibility for the consequences of acts per- formed in the course of implementing rent control. It attempts to resolve vested rights problems and other disputes arising from the interpretation of the amendment through legislation and ad- ministrative action rather than through litigation. 2. INTEGRATE THE BOARD INTO CITY GOVERNMENT; AVOID RESOLUTION OF VESTED RIGHTS PROBLEMS. This alternative, while recognizing the ultimate responsibility of the City to integrate the Board and its employees into the fabric of City government, leaves the resolution of vested rights and .interpretive-disputes to the°Per- manent Board or to the courts. In order to accomplish. this limited purpose., the Council should introduce the ordinance except for the following sections; "Whereas Clauses" 10, 11, and 12; 4603(E); 4604-4610 inclusive. -8- 3. ACT TO RESOLVE VESTED RIGHTS AND DEFINITIONS; AVOID INTEGRATION This alternative attempts to resolve transitional disputes of immediate concern; it attempts to avoid City responsibility for th.e Board's operations. To accomplish. this limited purpose, the Council should adopt the ordinance except for the following sections: "LVhereas Clauses" 5, 13, and 14; 4611-4614; 4616 (d renumbered). 4. NO ACTION. This alternative avoids any expression of support or responsibility for the activities of the Board. 5. EPdERGENCY OR REGULAR FORPR. If the Council desires to confer powers on the Interim Board, it should adopt the ordinance in emergency form in order for vested rights decisions to be made soon enough to have prac- tical effect. If the ordinance is adopted in regular form, it will not take effect until June 21, 1979. B. SPECIFIC CHOICES. The ordinance has parts and subparts which the Council may discuss and vote upon, section by section, according to the following index. A check mark indicates a staff preference. The notes. provide explanation of certain sections. -9- RF N ~A ~ Ho~~~~c~ Rr=:FOB,-~ ...Law SIDE ~..FR~MEWORKAND ~INDINCsS yes No ModsFy [~ ~ ~ L{~oO t . $tctes ~uPpose, C.7 CI II ~ tob2: Coa~~+es. Cl CID '-I(c03. Findings. 0.. ~olicicS oF~i~io}iYG Q b. Serigus lnousAnq,, ~t'u Werv\. l.1 ~. need -~tie':_ eeQ~+~y'; Q. d, nod for hacmoay ~. QVOi~ I~ticj4~eovt' .. VESTED RIGHTS ~L. D~FIN1TIp~SC4~o~t) yam. f?lo rv+odify ~( Q Cl 4. rtl~bile lnonaes Q Q D c. Owhe~~ ®ecvp~ Pd Q Q Q dll~eank Bui ld;ngs- lest use Cl Cl r1 ~d` l~aca~,t ~ui,ld~ngs- as;p;e~+ p D D ~-. 'Ph.~sical Re~,aYas. _ -.~iTEGR~AT SON Q CI ~1lot 1.. Boaiccl''~act• oE' Govetww,e++E L1 'Q Q ~it~(2. Pecsonc~~1 C7' L3. ~1CG0~. EFFec~;ve Da{-e T~~Rpr;l ~(7~Ra Apc+l 18. a Q n Ci ~}60'~. Crctcs;0. j~~~cesumQkiew oR n ~~~e~ ~aafa ~eGNz' vESrs NF: Cf ate.. DernoG{;an II b C ssian• Ll L`l ~ ~lC+zt3. Bc~dgQt: G1 Ca C~ 4tv1~ C i~ ~4tFocney onvc i~~°/®eFuc~itssoitl. II ~1 L1, ~CGiGlnspee~ocs. Co d perm,t [] F ~nat ao; ^}er'~we nnap ~LU$ nFu11 ~„v~u3hCC WjcetlC~it,Crl3. SAV~Nt~s C,~US~Cy6t~) Qed;d8nC2 o~~C1~wtGiCClictvtc@ ~' ii.~ j~ Sr~dicesof cetivnce: eviCktov~, 9REf:linq, 5u6dw•ato~ Rceot~,cc~cva}~o~, A2BaeProaG Gl Cl ~ ~'ry'~ No'Perrnt}s~Ffcc EfF.~.. /ZIT: t,11~'000SS moQSicn'ndiiioa o+^ cenwvul ppt+.tii. AIO Ci~yCon+eCSxM f1Q+t rr~'rl3, >~ R 61 ~CotO. t~'l~cinanlSnA. _i n_ ranm~ c The preamble, in 15 "Whereas Clauses",.states: the facts and policy considerations leading to the ordinance. Of these clauses, four (4) are controversial. Clause 3 states that Article XVIII is based on a finding on a serious housing problem. This is indisputable, but the Council may not want to embrace the findings. Clause 5 states the policy of the Council to integrate the policies of rent control and incorporate the letter of the Charter Amendment into City Government; Clause 13 recognizes the responsibility of the Council to uphold the will of the people in enacting governmental reform and to implement that reform harmoniously; Clause 15 states the Council's intent to accept rent control and provide a framework for its development. Section 4603 contains. five (5) specific legislative findings. They are not indispensable to the validity of the ordinance, but lend it and the Charter Amendment some support. Finding "A" describes the essential goals of the Charter Amendment. We believe that the des- cription is accurate and not reasonably disputable. Finding "B" re- peats the statement of purpose contained in the Charter Initiative, and in "Whereas Clause" 3. Its inclusion marginally strengthens the amendment against legal attack; its deletion will. not alter the pragmatic effect of the ordinance. A vote in favor of this finding indicates agreement with its description of the social problem leading to the. adoption. of the initiative, but does. not necessarily indicate agreement with the -11- initiative's solution. Finding "C"states that financial and energy conservation are necessary municipal goals. The truth of this assertion cannot be reasonably be disputed. Finding "D" states the value judgment that rent control should be implemented harmoniously with the laws and plans of the City. Finding "E" recognizes that problems have arisen during the transition from a free.. rental housing market to rent control, including a substan- tial number of vested rights claims, and states a legislative preference for resolving these disputes through legislative standards and mediation rather than through litigation. Section 4604 contains definitions of ambiguous terms. Section "D" deals with two ambiguities: Who is an "owner"? How is the "three unit" rule calculated? While the Council has a wide range of possible definitions to deal with problems of dwellings owned by '°per- sons" other than individuals, it may not include relatives of indi- vidual owners caithin the exemption. Section "D" deals with the problem. of whether vacant units are subject to control. As caas indicated in the prior staff report, we believe that the definition that includes vacant units within controls if they were last used for dwelling purposes is most consis- tent with the language and intent of the amendment. The Council may. choose either April 10 or April 18 as a reference point. Section 4605. The Council may choose April 10, the date of adoption, or April 18, the effective date of the amendment, as the reference point for vesting of rights. Early or late vesting is a -12- policy choice; staff prefers April 10 because it believes that expen- ditures in reliance on permits obtained after the election should not be regarded as being in good faith reliance on existing law. Section 4607. If the Council decides to establish a vested rights mechanism, it may choose criteria that are "firm" or "fluid". Establishment of fixed vested rights standards are easy to administer but do not permit the flexibility to deal with exceptional cases: Providing no standards for the Board allows: equity, but encourages contested cases and presents administrative difficulties. Staff prefers a middle ground: a right is presumed to vest upon objective criteria; the Board may find no. vested right notwithstanding the presumption by applying an equity and the basic test. Section 4609. The Council may choose to allow the processing of subdivision maps, but require them to be conditioned upon removal permits, rather than refusing to process them. On the other hand,. leaving the section as originally drafted will save a considerable amount of staff time. It is anticipated that the Superior Court caill resolve the issue of whether the Subdivision Map Act preempts. the City's ability to restrict condominium conversions. IV. RECOI4NIETdDATIONS. Staff recommends. that the Council adopt the proposed ordinance, as modified, and as an emergency measure. FJe believe. it will prodide a flexible framework through which. the transition. to a fair and workable system of rent control may be accomplished. Prepared By: Richard L. Knickerbocker, City Attorney Stephen Shane Stark, Assistant City Attorney Charles J. Post, Special Counsel _~ ~_ APPENDIX "A" EFFECT OF RENT CONTROL ON SECTION 8 HOUSING There are presently 445 allocations to the City of Santa Monica for the HUD Section 8 "Existing Housing Rent Subsidy Program." The rental rates on these units are currently controlled under HUD Fair Market Rents, 24 C.F.R. X888. These rates are, and have always beef, substantially less than the median for Santa Monica. To further control these units under the Charter Amendment would place burdensome limitations on the relationship between HUD and landlords who are participating in the program, or would be willing to do so in the future. The freeze and rollback provisions in the amendment would prevent the County Housing Author- ity from negotiating increases in the rental rates when adjustments are periodically made by HUD. If the units are not exempted, future increases in the rents, as permitted by the Amendment, would require an unduly complex process involving the Rent Control Board, the County Housing Authority and HUD. We presently have unfilled allocations for family housing which are difficult to fill due to HUD's low rental ceilings. A freeze or rollback would make it virtually impossible to market these allocations, and would probably create a loss of many landlords now participating in the program. Although the total number of units participating in the program represent an almost insignificant portion (less than lo) of the City's housing stock, the program is very significant for the affected housefiolds. If participating landlords are unable to renew their Section 8 contracts at higher rates and drop the program, the tenants will find themselves in a situation where the "frozen rent" is well beyond their means. The position of the .legal department of HUD is that they will proceed as if the .units are exempt, unless the local juris- diction declares that the units are controlled under local law. Because there have been so many inquiries to date, there is now great confusion between HUD, the County Housing Authority and the City staff as to what the official City position on this issue is to be. Prepared by: John Heiner Redevelopment Director