What price progress?

Probably our favorite moment during presidential candidate debates occurs when the moderator asks a politician who’s just proposed a wonderful new program:  “What’s it going to cost?  How are you going to pay for it?”

Ironically (or maybe not), the two candidates who have proven most adept at responding to this inquiry are Donald Trump and Bernie Sanders.  Whether the issue is the southern border “wall” (the Donald) or free college tuition (the Bern), the answer is more or less the same:  “It doesn’t matter what it’s going to cost.  Somebody else is going to pay for it!”

(We’ll know we’ve watched too many debates when we start thinking Trump promised that the Mexican government will pay for college tuition, and Sanders vowed that the billionaire class will build the border wall).

Next Tuesday, we’ll get the chance to see whether our local elected officials respond in a similar manner to a similar issue.

Two weeks ago, Council passed Alameda’s version of a “tenant protection” ordinance designed to prevent “excessive” rent increases and “unjustified” evictions.  The staff report put a price tag on the cost of administering the new ordinance – $1.9 million per year, exclusive of startup costs – and suggested a way of paying for it – an annual fee of $129 per rental unit charged to landlords, who could pass on half to their tenants.  But Council never got to the cost/fee issue at the February 16 meeting, so the discussion is set to resume next Tuesday.

(Unlike the February 2 meeting, which lasted past 4 a.m., the Council members appeared to run out of steam around 2 a.m. on the 16th.  Maybe it was because someone had thought to turn on the heat at the Kofman auditorium this time).

Pending the Council discussion, the staff report and its accompanying exhibits make for interesting reading.

The first item to note is that the tenant protection program established by the Alameda ordinance will cost more to administer than the similarly purposed programs in four of six other Bay Area cities surveyed by staff.  Indeed, the Alameda plan will cost nearly as much to manage as the rent control system in Oakland, which covers 60,000 rental units as compared to 17,000 in Alameda.  Only Berkeley’s regime is significantly more expensive.

Why is the Alameda program so costly compared to other cities?  The short answer – and the one given by Community Development Director Debbie Potter at the February 16 meeting – is that the local ordinance provides more comprehensive benefits for tenants than other cities’ do and therefore it will take more resources to implement.  There is some truth to this contention, although Ms. Potter overstated her case when she said that Hayward’s costs are so low because that city’s ordinance doesn’t restrict evictions.  (It does).

Perhaps a more forthright way of making the same point is to acknowledge that the new ordinance will require a lot of staff time to administer because it is so complex (and even convoluted).  If you don’t believe us, take a look at the budget and flow charts attached as exhibits to the February 16 staff report.

Here’s one of them (although we know that the small type is impossible to read, you can get an idea of the tortuous path the ordinance lays out):

Termination Notice Process chart

For a landlord who wants to raise rents by more than five percent, the first step will be to serve and file a request for review by the Rent Review Advisory Committee.  According to the staff report, “Historically less than twenty hours per month of staff time [i.e., 240 hours per year] have been dedicated to the RRAC.”  By contrast, the budget and flow chart estimate that staff now will spend a total of 4,810 hours per year on the RRAC review process, including 2,550 hours for processing the initial requests submitted by landlords or tenants.

At present, of course, the City does not play any role in reviewing evictions (nor does the RRAC).  Under the ordinance, a landlord is required to serve and file a notice of termination if she wants to evict a tenant for one of five specified reasons – or for no cause.  In these cases, the tenant is entitled to “relocation benefits.”

The budget and flow charts estimate that 6,350 hours of staff time will be spent on managing the eviction protection aspects of the ordinance.   This includes not only reviewing the initial notices of termination (1,200 hours), but also examining the documents submitted to justify the eviction (1,050 hours), and verifying that the landlord has provided relocation benefits (700 hours).

Add the two together, and the staff report envisions that overseeing the new tenant protection programs will take 11,160 hours of staff time.  This translates to 6.75 “full-time equivalents,” which will require the City to hire seven new employees.  The total cost for new administrative personnel will be $736,560.  (Ms. Potter told us these estimates include benefit costs).  A tenth of Ms. Potter’s own salary and benefits ($25,338) also will be charged to the program.

In addition to the new administrative personnel, the budget contemplates hiring a full-time employee in the finance department to bill and collect the program fees.  Add another $107,000.  And then there are the “hearing officers” who will review appeals from RRAC decisions.  The budget proposes contracting these jobs to third parties and pegs the annual cost at $90,000.

If you’ve been keeping score, you’ll see that we’ve now accounted for about $1 million of the total $1.9 million tab.  The budget also includes expenses for “education and outreach” ($50,000), “services and supplies” ($279,400), and “cost allocations” ($184,525 – this is the City’s way of spreading around governmental overhead).  But even after these costs are added in, we’re still missing nearly half a million dollars.

Where’s that money going to be spent?

Would you believe the City Attorney’s office?

The budget proposes shelling out $466,425 to hire two new full-time assistant city attorneys and one new full-time paralegal to provide “legal support” for the new tenant protection programs.  According to the staff report, the City needs the two lawyers and the paralegal “to provide legal advice in support of the program, to represent the City in the event of any legal challenges, and pursue the Ordinance’s penalties and enforcement provisions through both administrative citations and the judicial system.”  In addition, the City Attorney’s office will “oversee the hearing officer process.”

Unlike the other personnel items in the budget, no estimates are given for the time to be spent by the new assistant city attorneys.  And it’s not exactly clear what specific tasks will fill up their days.  It’s unlikely that they actually will be appearing in court to defend against legal challenges or to pursue penalties and enforcement, since the City routinely retains outside counsel to handle litigation.  (Indeed, Councilwoman Marilyn Ezzy Ashcraft noted at the February 16 meeting that she had emailed staff with her recommendation that this practice continue).

Yet if outside counsel takes care of litigation, it appears that the new in-house attorneys will have plenty of time on their hands – around 3,000 hours, assuming the two lawyers work three-quarters as hard as first-year associates in a big San Francisco law firm – for counseling the new staff members who must enforce the ordinance.  (But not for assisting the landlords or tenants who must comply with it:  as City Attorney Janet Kern has reminded us, her legal staff represents the City, not its citizens).  Maybe the ordinance really is, as Vice Mayor Frank Matarrese put it, so “impossible to follow” that interpreting it for the rest of staff will keep two lawyers busy full-time.

The original version of the ordinance presented to Council on February 16 contained a section imposing a per-unit fee on landlords to cover the $1.9 million cost of the new tenant protection programs.  Staff deleted this provision after deciding that its inclusion had been premature since Council had not previously discussed fees.  But Ms. Potter went ahead anyway on the 16th with staff’s recommendation to hire a consultant – for $50,000 – to prepare a “fee study” to set the exact amount of the charge.

Council wouldn’t seem to have a lot of options when it finally gets to the issue of how to pay for the programs established by the new ordinance.  This Council has shown no inclination to reduce expenses in one area to fund an initiative in another, so we don’t expect that they’ll vote to deprive the fire department of the next trinket on its wish list to pay for running the tenant protection programs.  Likewise, even though some Council members seem convinced that the General Fund has an abundant “surplus” available to be spent however they see fit, we doubt there will be three votes to approve tapping the “reserves” for $1.9 million per year.

So that leaves fees.  There, the only issue is whether to stick landlords with the entire bill for managing the new programs.  One could argue that, since these programs benefit tenants, renters should share some or all of their costs.  Yet even if a majority on Council accepts the idea of fee-sharing, they still must decide what the split will be.  (For example, East Palo Alto requires landlords and tenants each to pay half; Oakland sets a fixed amount a landlord is allowed to pass on).

The flow charts prepared by staff are interesting for another reason, with which we’ll end our discussion.

To compute the hours required to run the new tenant protection programs, staff had to estimate the number of rental units for which it would need to perform a particular task.  Using these estimates one can get a clue about just how often staff expects the ordinance to be invoked.

Start with rent increases.  Staff estimates that landlords will file requests for RRAC review for rent increases exceeding five percent for a total of 750 units annually.  (Tenants will seek review of rent increases lower than five percent for another 100 units).  Cases involving a total of 200 units will get a full hearing before the RRAC, and the parties will accept the RRAC recommendation for 170 of these 200 units.  Only parties to cases involving a total of 30 units will appeal to a hearing officer (or Council).

These estimates suggest that, on an annual basis, less than five percent of tenants (750 out of 16,793 total rental units) will be hit with a proposed rent increase greater than five percent.  Moreover, about 96 percent of the filed cases (100% less 30 out of 850) will be resolved through the RRAC process without the need for additional review.

A similar analysis can be done for evictions.  The flow chart is less than clear, at least to us, but it appears staff estimates that landlords will file “valid” notices of termination for a total of 600 units annually.  After review by the “program administrator,” evictions will be approved for 350 of those units for one of the reasons permitted by the ordinance:  50 units for capital improvements; 200 units for owner move-in, demolition, withdrawal from the rental market, or compliance with governmental order, and 100 units for no-cause.  (What happens to the other 250 units?  We’re not sure).

These estimates suggest that, on an annual basis, about four percent of Alameda renters (600 out of 16,793) will face eviction for one of the permitted reasons.  But less than one percent (100 out of 16,793) of tenants will be evicted for no cause.

Based on staff’s estimates of the frequency with which the ordinance will come into play, it would be fair to argue that the extent of the problem doesn’t justify the expense of the solution.  But that is a ship that already has sailed, and Vice Mayor Matarrese is the only one left standing on the dock.  And, of course, if the problem turns out to be worse than the staff estimates suggest, Council will need to jack up the fees to cover the additional costs of administering the system it created.  But no more staff lawyers, please.

Sources:

Budget: 2016-02-16 Ex. 2 to staff report – Estimated Program Budget

Flow charts: 2016-02-16 Ex. 3 to staff report – Rent Increase ProcessTermination Process Flow Charts

Staff report & presentation: 2016-02-16 staff report2016-02-16 Presentation

Survey of other Bay Area cities: 2016-01-05 – Ex. 4 to staff report – Sample of Bay Area Cities with Rent Control

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, City Council, Housing and tagged , , , , . Bookmark the permalink.

4 Responses to What price progress?

  1. Eric Strimling says:

    I thought you would be interested in this- Press Release

    ForImmediate Release                                 Media Contact: CatherinePauling  510.220.2030

    AlamedaRenters Coalition filing ballot initiative 2/29/16 at 4 p.m. at Alameda CityHall

      ALAMEDA,CA -The Alameda Renters Coalition (ARC) will file the “Alameda Renter Protectionand Community Stabilization Charter Amendment” initiative at Alameda City HallMonday for inclusion on the November ballot in response to a crisis of massevictions and average rent increases of more than fifty percent over a span ofonly four years.

    ARC spokesperson Catherine Pauling says, “We arefiling this initiative so the people of Alameda can do what its City Councilhas been unable to do: enact a firm set of laws to stabilize our community andprotect renters from greedy investors.”

    City officials have deliberated over the rental crisisfor three years, recently crafting an ordinance the coalition says falls farshort of what’s needed to protect tenants.

    “ARC recognizes the City Council’s efforts but theirordinance has too many concessions to real estate interests and will not keepAlameda renters in their homes” says Pauling.

    Specifically, the coalition objects to there being nocap on rent increases, merely a review process triggered by a rent increase ofmore than 5 percent.  Additionally, theCity ordinance subjects renters, once again, to the threat of no causeevictions when the current moratorium expires. ARC further objects to what itcalls a “poison pill” in the ordinance allowing landlords to escape alleviction controls by simply issuing a “Fixed Term Lease”. 

    “This filing begins the process of allowingvoters of Alameda, over half of whom are renters, the opportunity to chooseclear protections that renters and owners deserve instead of the cumbersome andun-tested process outlined in the City ordinance,” says Pauling.  

    The Alameda Renters Coalition, formed in 2014, advocatesfor clear, rational rent stabilization tied to the Consumer Price Index, as isused by many other cities in the Bay Area in determining rental rate increases.

      Prior to the 4 p.m. filing in theCity Clerk’s office, representatives of the Alameda Renters Coalition will beavailable on the steps of Alameda City Hall at 2263 Santa Clara Avenue toanswer questions of the media and provide copies of the initiative.

    From: Alameda Merry-Go-Round To: estrimling@yahoo.com Sent: Sunday, February 28, 2016 4:05 PM Subject: [New post] What price progress? #yiv6242727426 a:hover {color:red;}#yiv6242727426 a {text-decoration:none;color:#0088cc;}#yiv6242727426 a.yiv6242727426primaryactionlink:link, #yiv6242727426 a.yiv6242727426primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv6242727426 a.yiv6242727426primaryactionlink:hover, #yiv6242727426 a.yiv6242727426primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv6242727426 WordPress.com | Robert Sullwold posted: “Probably our favorite moment during presidential candidate debates occurs when the moderator asks a politician who’s just proposed a wonderful new program:  “What’s it going to cost?  How are you going to pay for it?”Ironically (or maybe not), the two c” | |

  2. MP says:

    Don’t be alarmed at the price tag. I have no doubt, because it is in the very nature of things, that, once hired, the projected new staffers, including new city attorney staff, either out of a general sense of duty towards the City, or perhaps a fiduciary duty, will promptly report through the proper channels when and if they believe the City has over-hired. I am equally confident that once the crisis identified in the press release republished above passes, the Ordinance will be amended, repealed in part, or allowed to sunset as appropriate.

  3. BMac says:

    Anti-development I can handle. People who demand cars be catered to at all costs, safety be damned, I can live with. I’m not sure if I will get over our blogger referring to the day two days away as “next Tuesday.” I’ll try and soldier on.

    My first reaction to the budget was that it looked pretty cushy and hopefully the real costs come in under that and staff was just looking to make their lives a little easier w/ an easy funding source. If RRAC and subsequently the hearing officer turn out to be relatively receptive to landlord arguments in favor of increases above 5%, then there will be lots of activity and lots of overhead costs. If the RRAC and the hearing officer stick to 5% in all but the very special cases, then landlords will adapt and the system should operate smoothly with lower amounts of staff time needed.

    “Based on staff’s estimates of the frequency with which the ordinance will come into play, it would be fair to argue that the extent of the problem doesn’t justify the expense of the solution.”
    — this seems to be missing the point. The frequency that the new ordinance comes into play is not an accurate reflection of the number of increases over 5% and no fault evictions were taking place before the moratorium went into effect. The number of these instances should drop dramatically after the ordinance is in place compared to what was happening before November 2015. That is a good thing! If there are a large number of cases still going to RRAC and the hearing officer after the change, that is a sign of a wishy washy ordinance (“don’t call it a cap!”). If the number of cases going to the RRAC is very small, that means the ordinance is working and the program fee can be minimized.

  4. nyborn2013 says:

    Robert. One of your best blogs to date. Very enlightening and informative. I would agree with you when you say that “…the extent of the problem doesn’t justify the expense of the solution.” Though renters need some level of protection, the expense for the RRAC seems terribly high. Citizens who own apartments and homes may rise up and vote in high numbers against any new ordinance.

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