CITY HALL — Tenants of rent-controlled apartments that moved in before Sept. 1, 2010 could see their rents rise by as much as 3.2 percent thanks to a vote of the Rent Control Board Thursday night that took into account a new category of expenses in the cost of rent.
The 3-1 vote approved the 3.2 percent increase, with board member Todd Flora against. A ruling by the Fair Political Practices Commission forced Commissioner Robert Kronovet, a landlord, to recuse himself under the logic that voting for an increase in rent would be a conflict of interests.
The board unanimously approved a $52 ceiling on the increase in a separate vote. That cap is based on a $1,617 per month rent, which falls into the 85th percentile of rent-controlled rates, according to the staff report.
The rent adjustment represented a major jump from last year’s increase of 2 percent, because the Rent Control Board was forced to change its formula to include additional taxes — like business license fees and certain city and county assessments — that hadn’t been the responsibility of tenants in the past.
That change came as the result of an April settlement agreement with the Santa Monica-based Action Apartment Association, which sued the Rent Control Board claiming that the old formula didn’t accurately reflect the real costs of renting out an apartment, and prevented landlords from getting a fair return on their investment.
At the meeting, the board’s general counsel, Michaelyn Jones, told board members that staff felt it had been “wiser to settle because we didn’t think we could win.”
To incorporate the settlement, staff crafted an additional section for a pie chart, which is used to show where each dollar of rent goes.
Each slice of the pie represents a different cost, be it the landlord’s cash flow — by far the biggest component at 34 percent — or debt service for the building, the second highest cost at 15 percent.
Seifel Consulting, an outside firm, conducted a tax-related study to determine how much the assessments added to the cost of a single unit.
The result was approximately $7, said Administrator Tracy Condon.
Despite the increase, neither landlords nor tenants walked away from Thursday’s meeting satisfied.
The 3.2 percent figure represented middle ground between two other options crafted by staff — a 3.5 percent increase that was presented at the board’s May 12 meeting and a 2.6 percent increase with an additional $7 flat fee to cover the estimated cost of the additional component factored into the rent increase.
Alternative one, the 3.5 percent increase, reflected the change in costs for all components, the majority of which went up over the last year with the exception of property taxes and water consumption.
It also included the new assessment component.
Alternative two, the 3.2 percent increase, adjusted the landlords’ cashflow component of the “pie” by 75 percent of the Consumer Price Index, or CPI.
The third choice adjusted the rent as in the originally proposed 3.5 percent increase, but added in the assessments as a $7 flat fee per unit.
“It’s not dependent on rent,” Condon said. “We felt the $7 would fairly compensate for the assessments.”
Property owners roundly disagreed with alternatives two and three, arguing that the rising costs of being a landlord, including a 31 percent jump in fees charged by fire inspectors alone, were hardly covered by the proposed increases.
“The ink is hardly dry on the lawsuit,” said Wes Wellman, president of the Action Apartment Association. “I hope part of your value system is to honor an agreement just weeks old.”
On top of that, some argued that landlords couldn’t raise the rents on their market rate apartments even if they wanted to, for fear of chasing away valuable tenants.
Instead, the costs would be levied only on people with abnormally low rents, and much of the expenses wouldn’t be recouped.
Landlords do have the flexibility to increase rent on some tenants but not others, confirmed Stephen Lewis, public information manager for the Rent Control Board. Some said that flexibility amounted to discrimination and harassment of long-term tenants paying below market rate rent.
Many tenants spoke out against the increases, including City Councilmember Kevin McKeown, who has lived in a rent-controlled apartment in Santa Monica since 1976.
He urged commissioners to resist increases on low-income tenants during these rough economic times.
“This is a city that acts not just on facts, harangues and opinions, but on compassion and community values,” McKeown said.
Other tenants that spoke at the meeting raised the point that many are on fixed-income, or live solely on Social Security.
“A rent raise of any amount will cut into their food money and money needed for medical supplies,” wrote Ellen Brennan, of Santa Monica, in a letter to the board. “They need help to stay in their apartments. Please keep this in mind as you debate next year’s rent raise.”
When it came time for commissioners to debate the increase, it seemed clear they felt they were put between a rock and a hard place.
“I don’t want to make my decision based on a few hard cases on either side of the divide,” said Commissioner William Winslow.
Several seemed to lean toward the third alternative, but worried that the flat $7 fee for assessments could be a regressive tax that impacted lower-income tenants unfairly.
Eventually, Commissioner Marilyn Korade-Wilson moved the second option of the 3.2 percent increase, with the $52 ceiling in a second vote.
Flora resisted even the middle option, however.
“I don’t like feeling like I have a gun to my head,” Flora said.
The new rent increases can take effect Sept. 1, 2011.