CITY HALL ¬ó Santa Monicans will have one more measure to contend with on the Nov. 6 ballot after the City Council voted Tuesday night to give voters a say on how the Rent Control Board increases rents each year.
If approved, the measure would change the way rent hikes are calculated for rent-controlled apartments by a eliminating a 30-year-old formula generally called the ¬ìpie method¬î to a straight 75 percent of the change in the consumer price index (CPI), a measure of the change in price of goods and services.
The Rent Control Board would still have discretion to cap the increase anywhere between 0 and 6 percent of the amount calculated under the new formula.
Supporters of the change hold that it would simplify the process used to determine the annual adjustment, making it easier on staff to calculate and for landlords and tenants to understand.
It would also save the Rent Control Board money.
The board is expected to run a $361,977 deficit this year.
Working out the general adjustment each year costs the board between $15,000 and $25,000.
¬ìIt¬ís the right thing to do,¬î said Todd Flora, a member of the Rent Control Board. ¬ìRather than spend thousands on consultants and using staff time internally, we could be better serving the public and working down the costs of staff.¬î
Those against, mostly landlords, feel that the general adjustment should cover the full cost of the increase in CPI which, in part, determines how much their costs go up to take care of their buildings and tenants.
Less than that, and the landlords will lose money on their investments, they say.
The previous method was kinder to landlords, but not much.
Under the ¬ìpie method,¬î a tenant¬ís monthly rent was broken down into ¬ìslices¬î that represent the costs landlords pay to keep up an apartment.
Some of those costs, like property taxes and business license fees, are fixed, while others are determined to be percentages of the rent.
Over the past three decades, the formula worked out to approximately 77.85 percent of the change in CPI, meaning that despite the uncertainty, landlords received slightly more of an increase than would be promised under the new formula.
It¬ís hard to say if that trend would have continued given a change the Rent Control Board approved for the ¬ìpie method¬î in May 2012.
In what landlords called an act of ¬ìblack magic,¬î the Rent Control Board voted to base the ¬ìpie method¬î on the median cost of a rent-controlled apartment in Santa Monica, $1,395.
That¬ís a significant increase from a base number of $829.45 they would otherwise have used, which was the average rent when rent control first came into effect in 1979 plus the approved annual rent increases across the last 30 years. The average rent back then was $300.
That hurt landlords by lowering the amount of the ¬ìpie¬î taken up by fixed costs, making it look like there is more rent money to pay for other things like electricity, insurance and maintenance.
Those costs are determined by percentage.
In effect, the new formula assumes that landlords are making more money than they did in the past and don¬ít need help from the Rent Control Board to make a fair return on their property.
That, in part, resulted in a 1.54 percent increase this year compared to the 3.2 percent landlords got in 2011.
The City Council voted unanimously to approve the item, although it will have to pass a resolution at a future meeting to officially put the measure on the November ballot.
A simple majority is needed for passage.