But landlords were also granted a special one-time increase of 2.6 percent. This rent increase was promoted as a way to balance out a lapse caused the rent control law's rent rollback. The logic goes that during the rollback period, rents were effectively frozen, meaning even inflation wasn't taken into account, according to supporters. This bonus increase was approved by the committee in a 4-1 vote, with Chairman Evan Ortiz dissenting.
In concept, most committee members and city staffers agreed that landlords deserved some kind of bonus rent adjustment, but they parted ways on the specifics. City staff and attorneys said landlords should be given a 0.6 percent increase for a short period between October 2015 and February 2016.
The committee majority, led by member Matthew Grunewald, argued that this period should be much longer and encompass about 10 months, leading to the 2.6 percent figure. City staff had warned the committee on multiple occasions that going this route could invite another lawsuit.
On Tuesday night, the rental committee considered plans to make this extra rent increase more "legally defensible" by packaging it into the rent control law's petition process. At Grunewald's request, city staff presented plans for an expedited petition that landlords could fill out quickly to get this increase.
As the process was presented, city Associate Planner Anky Van Deursen warned that city staff was bracing for a potential "avalanche" of new petitions. Landlords seeking this 2.6 percent increase would still need to provide documentation of ownership and rental bookkeeping, and many petitions would need to be reviewed at a formal hearing, as stipulated in the rent control law, she said.
At this point, it dawned on Grunewald that even a simplified process could still mean a deluge of petitions from landlords, which would be both costly and burdensome. He pulled his support for the plan.
"Most of the purpose for this was for legal defensibility, but this seems like too much cost to bear for hedging against that," he said.
Instead, the committee decided to grant the extra rent hike as a "bankable" increase. Under the rent control law, landlords are allowed to bank extra rent increases for future years if they didn't adjust their rate in prior years. Grunewald asked that language be included for tenants to contest this rent increase if they can prove hardship, such as having a disability, children or loss of income. Landlords would have until 2020 to claim the banked increase, the committee decided.
In past meetings, tenant attorneys have warned this plan for a retroactive rent increase, from before the rent control law formally took effect, would violate the law's provisions, which specifically limit landlords to one rent increase per year, starting in 2017.
The risk of hefty legal costs came up at other parts of the meeting. An early draft of the 2018-19 budget was presented, indicating the committee was expecting to take in $2.1 million for the upcoming year, from a $139 fee on apartment units in the city, which landlords cannot pass through to tenants.
The budget was a bit of a disappointment for committee members hoping to show that the city's rent control program could operate efficiently once it got through its initial startup costs. Last year, the fee was $160 per apartment, and landlords have seized on that cost to argue that the city's rent control program was creating a bloated bureaucracy.
It was still a reduction, Ortiz pointed out. He reminded fellow committee members that a significant drain on the budget was their own tendency to stumble into lawsuits.
"I certainly want to cut that fee down more ... but it might be a few years before we can get it down to $100 or less." Ortiz said. "Hopefully by our third year, we won't have as much litigation."
The Rental Housing Committee is already dealing with multiple lawsuits from tenants and landlords, and legal costs comprised a significant portion of its budget. Attorneys' fees for the upcoming year are expected to cost $200,000, more than six times what was budgeted for last year.
City financial staff is urging the committee to create a reserve fund of at least $200,000. This would reportedly provide stability in the event of surprise costs or liabilities. The committee's small, five-person team could also need to relocate to a new office soon. They currently operate out of City Hall, but other city departments could soon need their space, Van Deursen said.
The budget reviewed on Monday was a preliminary draft that is subject to change. The final budget will be presented at the committee's June 18 meeting.
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