Renters, property owners, and other stakeholders will have a chance to argue who should have to pay tax-based surcharges on rent-controlled apartment buildings on Thursday when the board holds a hearing on the subject. The Rent Control Board will deliberate at the hearing and likely move staff to come back with a proposed regulation in April.
The RCB is specifically looking to hear from the public on solutions to an unintended consequence of Proposition 13: large tax increases on renters when Santa Monica’s multi-million dollar real estate changes hands. This city is one of the few rent control jurisdictions that allows building owners to pass through certain taxes approved by voters. Tens of thousands of renters currently pay surcharges on Measures X, S, BB, and AA. Landlords can also pass along a stormwater management user fee, the clean beaches and ocean parcel tax and a 2008 school district special tax.
The median combined surcharge amount for renters is $24.41 but can vary widely from unit to unit depending on the assessed value of the property. The highest monthly surcharge paid by a tenant is $137.03.
In January, the RCB abolished the surcharges for new tenants and new property owners (in 2012, an amendment to the City Charter eliminated surcharges from future ballot measures). Instead of waiting for the program to phase out as tenants and properties gradually turn over, board members want to act to help already rent-burdened tenants who have seen their surcharges skyrocket after the sale or reassessment of their building.
The Board has identified four possible approaches: do nothing, impose a dollar-amount cap on how much tenants can be asked to pay, require landlords to pay a portion of the tax or a combination of ideas.
Several landlords have already told the RCB that the surcharges are fair because tenants should pay the costs of voter-approved tax increases. Critics say limiting or eliminating surcharges could hinder future bond measures.
“You will kill funding in this city for schools if you go back on…the understanding,” local landlord Michael Millman said at a recent meeting. “All I want to do is say ‘this is a trainwreck.’ The optics are wrong.”
“This argument overlooks the fact that Santa Monica still includes many so-called ‘mom and pop’ landlords who also live locally, and also benefit directly from those things that local assessments pay for,” said the staff report on the issue. “It also overlooks the fact that some of those benefits – notably good schools – benefit even absentee landlords by driving up the value of their property.”
For the past five months, a local artist and tenant at 1025 Ocean Avenue has championed surcharge reform at the RCB’s monthly meeting. Nani Grenell says her pass-throughs skyrocketed to $121.23 after her building sold to a new owner in 2016. The widow says without a reduction, she may have to leave Santa Monica.
“I now live alone and support myself,” Grenell said in a recent letter to the RCB. “I never knew about tax surcharge pass-throughs until I was presented with my rent increase by the new owner in August 2017. There is no mention of me having to pay these pass-throughs in my original lease from 2012. It was a complete shock to me.”
An available fully furnished two-bedroom, two bath apartment in Grenell’s rent-controlled building was recently leased for $7,995 a month according to internet search results.
The public hearing on surcharges will take place Thursday, March 22 at 7:00 p.m. inside City Hall Council Chambers, 1685 Main Street.