RENT BOARD UNVEILS BLOCKBUSTER BUDGET

I attended the Rent Board meeting of May 11, 2006, because the Board presented reports on a number of issues including the general rent adjustment, the rent control registration “fee” and its budget. Although Commissar Jeffrey Sklar described the Budget as “conservative,” I found that the Board’s budget had more “pork” in it than an Oscar Mayer meat-packing plant.

On June 8, 2006, there will be a public meeting concerning the following issues. I am presenting you with facts and issues so that you will speak in opposition to this latest outrage. I also hope that you will attend the ACTION meeting of June 5, 2006 so that we can put together a speaker’s team.

Half Million Dollar Increase in the Rent Board’s Budget

According to page 1 of the Budget Report, the Actual Expenses for Fiscal Year 2004-2005 were 3,905,855. The Budget proposed for Fiscal Year 2006-2007 is $4,418,616. Therefore, by subtracting the last year of actual expenses from the proposed budget expenses, the Board is proposing a budget increase of $512,761.

Increase in Rent Control Registration “Fees” from $132 to $156 Per Unit per Year

The Board’s budget is MAINLY financed by registration “fees” paid by landlords in July of each year. The Budget Report says that there are 26,420 rental units. Since the current “fees” are $11 per unit/month or $132 per unit/year, the potential gross income is $3,487,440, which covers most of the Board’s current budget.

The Board made a handsome profit with registration fees at $132 per unit/year, which is explained as an “undesignated fund balance” at page 33 of the report as follows:

At the end of fiscal year 2005/2006, the Agency’s undesignated fund balance, which is the Agency’s “safety net” in case of emergency, is projected to be slightly less than $1.29 million. The proposed budget has a deficit of $175,366 with the expectation that the shortfall would be covered from the undesignated reserve fund.

Therefore, although Rent Control Registration fees have been $11 per unit per month since 1997, and although the Board has been able to squirrel away a “safety net” of slightly less than $1.29 million, it now says that it needs a lot more money.

This raises another issue: how much does the Board have in reserve now? Page 33 of the Budget Report says that the Board received $136,000 of interest at 4.33%. Therefore, then the principle amount must have been approximately $3,140,875.

Rent Board Salaries

The Rent Board’s Administrator explained at the meeting of May 11, 2006, that the increase in registration fees were required in order to cover the increasing cost of employee salaries and benefits. That is a true statement, but the Board decided to pay unreasonable salaries and benefits in the first place. Following are a few facts.

The Board Budget projects that total salaries, wages and benefits for Fiscal Year 2006-2007 will be $3,633,275. However, if you subtract $7,875 paid to Board Commissars (because they are not “employees”) the remainder is $3,625,400. Divide that amount by 27.8 employees and the resulting average cost per employee is $130,410. I say that again: The average cost of a Rent Board employee is $130,410.

The Budget does not reveal how much is paid to the Board’s Administrator, because her salary is shielded by two drones in the category of “Administration.” However, if you review the money paid to “Administration” and the 2 drones who assist Queen Bee Yukonis, the total salaries (without benefits and perks) $350,126, which equals an average salary of $116,709.

Similarly, the Budget does not reveal how much is paid to the Board’s General Counsel because his salary is shielded by 2 staff attorneys, plus one “senior litigation attorney” and a legal secretary. However, since the total amount is $486,909, the average salary without benefits for those 4 employees is $121,727. Such a deal!

By way of comparison, the landlord labor rate in the rent increase regulations is $8.00 per hour and the highest skill level is $13.00 per hour. Therefore, the highest salary a housing provider can hope to achieve is $27,040 ($13 x 40 hours/week x 52 weeks per year).

Therefore, if the Rent Board fired all of its 27.8 employees and replaced them with the most skilled landlords, the cost would be reduced by nearly 3 million dollars. (As explained above, total employee wages & benefits are $3,625,400. The highest landlord salary without any benefits = $27,040 x 27.8 employees = $751,712. The difference between these figures is $2,873,688.) Budget problem solved!

Number of Rent Board Attorneys

The Board’s Budget does not identify the number of attorneys on its payroll because they are spread around in different departments. However, the Legal Department has one General Counsel and 2 staff attorneys (subtotal 3 attorneys). The Hearings Department has 2.5 hearing examiners and a “department manager” who is also an attorney (subtotal 3.5 attorneys). Additionally, the Administrator is a former legal staff attorney and Deputy City Attorney (subtotal 1.). Add up the subtotals and the Rent Board has 7.5 attorneys on the payroll.

Although the Board has 7.5 attorneys currently retained on its gravy train, apparently none of them can litigate cases very well because the Budget now proposes to hire one “Senior Litigation Staff Attorney” to do that job.

And just in case that attorney can’t do the job either, the Budget has another $100,000 as an allocation to cover, ”. . . the direct costs of litigation, outside counsel, title searches, depositions, and a reserve for potential legal liabilities. (See cost item 5511 at Budget page 15.)

Expenses to Further the Board’s Political Agenda

Rent Control Law Section 1803 (f) (15) gives the Board the authority to, “Charge and collect registration fees, including penalties for late payments.” Section (n) also gives it the authority to “. . . finance its reasonable and necessary expenses by charging landlords annual registration fees in amounts deemed reasonable by the Board.” The Board is not required to permit landlords to pass though these “fees” to tenants because the next sentence states; “The Board may direct that all or part of such fees may be passed through from landlords to tenants and may establish applicable conditions and procedures.”

Some of the items this direct tax on landlords is supposed to finance are as follows:

First, Budget expense category 5506 at page 17 states:

$46,250 is for the lobbyist to represent the Board’s interests in Sacramento and for statewide and national legislative advocacy. The allocation includes funds for travel-related expenses. $1,700 is allocated to provide translation services for the newsletter, information sheets and other mailings.” Therefore, the Board is charging landlords to support political causes that are contrary to their interests.

Second, Budget expense category 2282 titled “Conferences, Meetings, Travel at page 7 allocates $6,000 for the following reason:

The Board and staff incur travel expenses for trips to Sacramento to advocate and testify regarding proposed state legislation that would affect Santa Monica Rent Control and to coordinate with other rent control agencies. This account also includes expenses related to conducting Board meetings.

The statement about “expenses related to conducting Board meetings” is highly questionable because the $550 per meeting to provide cable TV is already included as part of category 4439 titled “Other costs” and the Compensation for Rent Board members is already covered by category 1104 titled “Board Allowance” in has $7,875 of expenses.

Therefore, I cannot determine how the $6,000 is related to “conducting Board meetings” since the amount of food served at those meetings has decreased drastically since Commissar Dolores Press retired and the Board only appears to be feeding Commissar Alan Toy on a regular basis at the present time.

Other Unnecessary and Outrageous Expenses

Budget expense category 2271, titled “Auto Reimbursement” at page 7 allocates $8,220 with the explanation “This line item represents monthly car allowances for Staff.” This is in addition to expense category 2272 titled “Mileage,” which allocates $650 with the explanation “This allocation provides mileage reimbursements at 44.5 cents per mile.” (Why don’t they drive hybrids?)

Budget expense category 2290 titled “Membership and Dues” states, “It is the policy of the Board to pay the California State Bar dues of attorneys employed by the Board. Additionally, this allocation includes funds for staff to participate in professional management organizations and associations.” (However, it must be difficult for the Board’s attorneys to pay their own Bar fees given their meager salaries of only $130,000 per year.)

Budget expense category 5506 includes “$2,703 for contract hearing officer to hold hearings.” This is in addition to the 6.5 employees at the Hearings Department including 3.5 attorneys on the payroll. (Apparently, the Hearing’s Department needs outside assistance as does the Legal Department.)

What to do about this?

Legal challenges to rent control “fees” have not gone well in the past. In Pennell v. City of San Jose (1986) 42 Cal.3d 365, 375, the California Supreme Court overruled a Court of Appeal decision and held that $3.75 charge on each residential rental unit, imposed by a rent control ordinance to fund its hearing process, was a fee, not a tax in violation of Proposition 13. However it also found those “fees” to be regulatory in nature because they were “charged in connection with regulatory activities[,] which fees do not exceed the reasonable cost of providing services necessary to the activity for which the fee is charged and which are not levied for unrelated revenue purposes.”

The Pennell decision was cited in Apartment Assn. of Los Angeles County, Inc. v. City of Los Angeles (2001) 24 Cal.4th 830, 835 to uphold fees to fund periodic inspections of rental properties to prevent deterioration of the housing stock. In that decision, the Supreme Court held that the fee was not subject to article XIII D. (known as Proposition 218) because the court determined the fee was “more in the nature of a fee for a business license than a charge against property.” (Ibid.)

However, the new Registration “fees” proposed by the Rent Control Board go far beyond the “reasonable cost of providing services necessary to the activity for which the fee is charged”, especially when “landlords” are required to fund the Rent Board’s lobbyist and its trips to Sacramento.

For example, the U.S. Supreme Court determined in Abood v. Detroit Board of Education (1977) 431 U.S. 209 at 235 that union members could not be compelled to fund union activity devoted to “an ideological cause” not directly related to the union’s primary, collective bargaining function.

The Supreme Court then extended Abood’s rationale to mandatory fees charged by the State Bar in Keller v. State Bar of California (1990) 496 U.S. 1 by finding that although the State Bar may constitutionally fund activities germane to those goals of all members, it may not, however, in such manner fund activities of an ideological nature which fall outside of those areas of activity.”

I ask the following rhetorical question: If union members cannot be compelled to pay union dues that are used for political purposes and if California lawyers cannot be compelled to fund political causes with their fees, then how can Santa Monica “landlords” be compelled to pay “$46,250 . . .for the lobbyist to represent the Board’s interests in Sacramento and for statewide and national legislative advocacy” and $6,000 so that the Board and staff may “travel to Sacramento to advocate and testify regarding proposed state legislation that would affect Santa Monica Rent Control and to coordinate with other rent control agencies”?

Such expenses did not appear so onerous in the past because the Rent Control permitted owners to pass-through all rent control fees to tenants. However, at the Rent Control Board meeting of May 11, 2006, the Board also proposed Rent Control Fee Regulation 11200 (e)(3) and (5), which does NOT permit pass-through of the Rent Control Fees for tenancies that begin after September 1, 2006. Therefore, you will not be compensated for these political expenses.

I say that we should show up at the Rent Control Board meetings and put them on notice of these issues. If the Rent Board does not rollback the fees, we should go after the “fees” and the political expenditures proposed by the Board’s Budget. If we don’t get the “fees” reduced, we might get its lobbyist fired and stop the Sacramento vacations.