OUTRAGEOUS GOINGS ON ABOUT TOWN

Yes, the election is over. There were two of them: one for Santa Monica City Council, and one for everything else. It is not clear which was the more important. But we do have the results for Santa Monica. Of course, the question is “Do the results of this election mean a better climate for Santa Monica Housing Providers?” Well, let’s look at the numbers. The winners were (in order of votes received) Bobby Shriver, Richard Bloom, Ken Genser, and Herb Katz. Shriver and Katz beat out two SMRR nominees. Katz of course is an incumbent and has not lost an election he has run in since he first started some 15 years ago. Genser is returning for his 5th term in office (each of the four prior terms where 4 year each). Genser has been in office for 20 years. (when asked about his victory Genser stated: “I’m tired, but there’s a lot of work ahead. We’ve got a lot of work to do.”). We guess so. Nearly 70 percent of Santa Monica’s 61,000 registered voters cast ballots in this City election. The only interesting surprise was that the North-of-Montana voters (who in the past have been more pro-SMRR) this time voted for Shriver, Katz, Matt Dinolfo and Kathryn Morea. They did not vote for Bloom and Genser as heavily. (Dinolfo and Morea were backed by the Chamber of Commerce). However, City wide, Dinolfo finished sixth and Morea came in eighth. In contrast to North-of-Montana voters, it appears that Sunset Park (predominately single family homes as well) split their vote between the SMRR ticket (rejecting Morea and Dinolfo) but voted for Katz and Shriver. Dinolfo just did lose to Genser in this area. The final vote tally City wide was Shriver with 20,309 votes, Richard Bloom with14,575 votes, Herb Katz with 12,722 votes, and fellow incumbent Ken Genser with 11,748 votes. SMRR losing candidate Patricia Hoffman finished fifth with 10,988 votes, followed by Chamber of Commerce candidate Matt Dinolfo, who finished a close sixth with 10,304 votes.

Feinstein, an ex-SMRR city council member, who failed to win the SMRR endorsement, but ran anyway, finished ninth with 6,922 votes. He clearly pulled some votes away from Hoffman, and the question is asked had Feinstein not run, would Hoffman have beaten Katz? She would have needed 2,800 votes of Feinstein’s 6,922 to do so. Hoffman did well in WILSHIRE MONTANA area (Wilshire to Montana, Ocean to east City line). However, so did Katz. Hoffman got 2,683 votes there but Katz got 2,513; Mike Feinstein 1,333. This is a SMRR voter strong hold. In Ocean Park and Mid-City (both heavily tenant populated) Hoffman got more votes that Katz, but not enough. Katz did well in these areas. In OCEAN PARK: Hoffman received1,612 votes and Herb Katz got 1,352. Feinstein got 1,160 votes. In MID-CITY Hoffman received 1,209 votes and Herb Katz got 939 Feinstein got 640 votes. And so the pulling of votes away from Hoffman continued. DOWNTOWN: Patricia Hoffman, 142 Herb Katz, 135 and Michael Feinstein 101. PICO NEIGHBORHOOD: Patricia Hoffman, 712; Herb Katz, 530; Michael Feinstein, 415. SUNSET PARK: Herb Katz, 2,072; Patricia Hoffman, 1,442; Michael Feinstein, 1,132. NORTH OF MONTANA: Herb Katz, 2,096; Patricia Hoffman, 799; Michael Feinstein, 510. When one considers that Hoffman and Feinstein were most voters’ fourth choice, it seems clear that but for Feinstein in the race, Hoffman may have edged out Katz.

On the other side the equation, comes a lesson for the Chamber of Commerce. Running Dinolfo and Morea together, probably cost Dinolfo his seat. He only needed 1,444 votes to beat Genser and win the 4th counsel seat. However, his votes were diluted with Moreas’ votes (she got approximately 8,500 votes city wide). Clearly Dinolfo alone (or Morea alone for that matter picking up Dinolfo’s votes) could have won. But this is the Chamber of Commerce’s first real attempt to get into politics, and perhaps they will learn from their mistakes.

Perhaps the sweetest justice came to the “Team for Change,” composed of David Cole and Bill Bauer, who finished a very poor 10th and 11th. The reader might remember that they pulled a somewhat cheap trick by picketing our ACTION meeting and refusing to address us at candidates’ night.

In the end, SMRR has 4 seats on City Council, and everyone else has 3 seats.

What these results mean for us, is perhaps a kinder, gentler city in its dealings with it citizens. We should look for the end of the heavy handed bureaucratic intolerance which so predominated the prior city government. Look for a change in the Building and Safety department and a loosening of permit processing nightmares.

CASES OF INTEREST

All eyes are on the U.S. Supreme Court. The case is, of course, Lingle v. Chevron U.S.A. Inc., 125 S.Ct. 314, 73 U.S.LW 3235 (U.S. Oct. 12, 2004) (NO. 04-163). The case is set for oral argument in February 2005, with possible decision published in June 2005. The case below was called Chevron U.S.A, Inc. v. Bronster, Lingle, 363 F.3d 846 (9th Cir. (Hawaii) Apr. 01, 2004) (NO. 02- 15867). Lingle is the governor of Hawaii, and Bronster was the old attorney general. The parties names get reversed when the U.S. Supreme court takes the case for review. This is the second case dealing with Chevron. The first case was Chevron U.S.A, Inc. v. Cayetano, 224 F.3d 1030 (9th Cir. (Hawaii) Sept. 13, 2000) (NO. 99-15108). The U.S. Supreme court did not hear that case. The Cayetano decision reversed the trial court decision and sent it back for retrial. At retrial the trial court declared the law unconstitutional. Chevron U.S.A, Inc. v. Bronster, 363 F.3d 846 was the appeal from that trial court decision.

Now the U.S. Supreme Court must decide. There are many people who believe that the U.S. Supreme court will overrule Chevron U.S.A, Inc. v. Bronster. Lingle v. Chevron however, is the first time that the Court will have an opportunity to review a rent control law to see if it is a regulatory taking (in violation of the 5th Amendment). The test used by the Bronster court was as follows: A law is unconstitutional under the 5th Amendment (and amounts to a taking of one’s property) if the law does not “substantially advance a legitimate state interest” ACTION used this legal doctrine in its win over the Santa Monica Rent Control regulations requiring the payment of interest on security deposits (ACTION v. Santa Monica Rent Control Board (Dec. 2002). Indeed, ACTION cited and relied upon Chevron U.S.A, Inc. v. Cayetano in its briefs. ACTION will be filing a brief with the U.S. Supreme Court in support of Chevron.

There are 9 justices on the U.S. Supreme Court bench. They are Justice Rehnquist, Stevens, O’Connor, Scalia, Kennedy, Souter, Thomas, Ginsburg, Breyer. Justice Rehnquist may be retiring soon, and may not participate in the hearing of this matter. Furthermore, Kennedy (in Eastern Enterprises v. Apfel (1998) 524 U.S. 498) has expressed dislike for the “substantially advance a legitimate state interest” test in regulatory taking cases and may vote with to uphold the law. Clearly there are 4 strong votes to uphold the law. These justices are: Stevens, Souter, Ginsburg, and Breyer. The swing vote will no doubt be Kennedy. It is possible that there will be no decision at all, in that a four to four vote would not over turn the court of appeal decision. Justice Rehnquist (it should be noted) voted in favor of a rent control law in the case of Pennell v. City of San Jose. In that case however, the takings clause was not raised.
To make matters more interesting, a federal judge in Los Angeles, recently struck down a Goleta city mobile home ordinance (in Santa Barbara County) based on the precedent set by Chevron U.S.A, Inc. v. Bronster and Cashman v. City of Cotati, 374 F.3d 887 (2004). Cashman uses the “substantially advances” test to strike down a mobile home rent control law in Cotati. In Cashman, the property owners were represented by R.S. Radford, Meriem L. Hubbard, and Harold E. Johnson of the Pacific Legal Foundation, Sacramento, California. Cashman has not been granted review by the U.S. Supreme Court yet. The court may hold this decision until it decides Lingle. Given the various possibilities of no decision being reached, ACTION is going ahead with its lawsuit this year.

Reidy v. City of San Francisco,
19 Cal.Rptr.3d 894
This case holds that any local ordinances that condition a residential landlord’s right to go out of business on compliance with requirements that are not found in the Ellis Act, is preempted and thus illegal. This case may impact the City’s ability to require relocation fees for tenants evicted from Ellised properties.

Tom v. City and County of San Francisco,
16Cal.Rptr.3d 13 Cal.App. 1 Dist.,2004.(Jun 22, 2004)
This is a very important case. Like in Reidy, the property owner was represented by Andrew Zacks. A local San Francisco ordinance, seeking to discourage persons from acquiring private residential property using tenants in common (TIC) agreements, violated the constitutional rights of privacy and equal protection guaranteed by the California Constitution, and was preempted by the state Ellis Act. This case holds that it is lawful for people to purchase a building, Ellis it, and then move in with agreements controlling how they will live there. In effect, it is a alternative to condominium conversions for Ellis properties. The case would apply with equal force to any property, whether Ellised or not. The city law struck down stated in part: An owner of an undivided interest in common in real property containing three or more units shall not have the right of exclusive occupancy of any unit on the property except pursuant to an approved condominium, community apartment or stock cooperative subdivision. Santa Monica has similar restrictive laws, which need to be struck down as well.

OUR ECONOMY IS ON HOLD

If you ask 9 out of 10 people they will tell you our economy is in suspended animation, because of the Mid East terrorist threats. It seems that we as a nation, have been living in a state of fear ever since the British marched to Concord and Lexington. Each time we encounter overseas danger it seems to be worse than before. From our very beginnings to now, there seems no let up. Remember the days of the Soviet premier Nikita Khrushchev: “We will bury you!” (“my vas pokhoronim”— a threat he stated while addressing Western ambassadors at reception in Moscow in November, 1956). Well, he brought with him nuclear fears of total annihilation. Osama Bin Laden has stepped into his shoes with no less threats. But somehow through all the years and tears the economy still moves forward. Where are we now? The pundits state that the coming year (2005) will be good for all of us. Wages are going to stay stable, and rise keeping our real estate market strong. The rate of growth should be 3%. The key here is that while wages are not going up, neither is the cost of most products. Thus comparing wages to CPI shows that workers pay has been consistently increasing since the early 1990’s, and is an all time high since then. This is of course only part of the problem.

The American Dollar is the big problem now. The dollar has been floating steadily downwards since early 2002. According to the Federal Government, the dollar is down 29% from its value in late 2001 through November 19, 2004. The Euro is at a record high of $1.30 to the dollar. It was at a low of .70 cents to the U.S. Dollar (it started our at parity with the U.S. Dollar). It seems that the U.S. Government wants to drive the value of the dollar down, or it can’t keep it up because of the government’s spending. But for huge foreign central bank purchases of U.S Treasuries, our country might be in trouble. Over the past 12 months through September, 2004, the U.S. federal budget deficit was $412.3 billion, and the U.S. merchandise trade deficits was $606 billion. Foreign governments bought an additional $259 billion in U.S. Treasury notes over this period to finance these hugh budget and trade gaps.Treasury notes purchased by foreigners, financed nearly all the U.S. budget deficit over the past 12 months. Foreigners own 45% of the U.S. federal debt held by the public. The U.S. needs to attract $600 Billion in foreign investment each year.

Lately however, foreigners are reluctant to buy U.S. Treasuries. The interest rate is too low, and the value of the U.S. dollar continues to fall. Foreigners want to buy something other than U.S. dollars. The U.S. will have to raise interest rates on U.S. Treasury notes to entice the foreigners to buy them, and to continue to obtain money to pay the deficit. Most real estate mortgages are indexed to the U.S. Treasury note. Thus, as interest rates increase, so too will the mortgage interest on loans. With this increase in interest usually comes a decrease in real estate sales and a lowering of the value of the property. However, with the fall in the value of the U.S. dollar, it may be that the increase in interest will be off set by the devaluation of the dollar. When the dollar goes down in value, commodities (real estate too) goes up. It’s just another name for inflation. As the dollar falls, more an more people will be looking for an investment which will be protected from the falling dollar. This appears to be real estate. So given the almost absolute fact that the dollar will fall dramatically against the Euro, gold, and other currencies, it seems safe to state that if you are in real estate don’t get out of it. We will see a large increase in real estate investment prices in the coming year.

Another factor in driving up real estate prices will be the possible tax reform measures, which supposedly will replace income tax with national sales tax. This should mean that rental income would be tax free, while sales tax on property might increase.