Rent Control Board Approves Annual Adjustment

By Anita Varghese
Staff Writer

July 9 -- Santa Monica renters have two months to save for this year’s 2.3 percent general rent adjustment, which landlord representatives contend is too low to reflect actual operating costs.

Landlords must notify tenants of the increase at least 30 days before it kicks in on September 1, according to rent board officials.

Units with market rate increases implemented between September 1, 2006 and August 31, 2007 are not eligible for the 2007 general adjustment, since recent market rate rentals will have already absorbed operating cost increases into their newly established rates, rent control officials said.

“It is important to keep in mind that the board’s obligation is to provide a fair return based on the cost increases that are in effect,” Rent Control administrator Mary Ann Yurkonis said at a board meeting last month.

“Staff analysis does not take into account the additional income that comes to the property as a whole as market rate units are turned over from a controlled setting to a market rate setting.”

“Consequently, a property that has had several market rate units has substantially more income available for things like insurance,” Yurkonis said.

The staff-recommended and board-approved rent hike is based on actual increases in various expense “components” using a “ratio to gross rent” formula, which is also known as a “pie methodology,” because each category of expense is assigned a slice of the total rent dollar.

This year’s general adjustment looks at operating expense increases that property owners faced from March 2006 to March 2007.

A majority of the components are adjusted based on increases in the Los Angeles-Anaheim-Riverside area consumer price index (CPI). The remaining components are adjusted based on actual rate changes or set percentages.

Specific rent dollar components measured as owner expenses are property taxes, refuse, fire and life safety, water and sewer, gas, electricity, maintenance, insurance, self labor, cash flow, debt service and management.

Landlord representatives contend the formula is unfair.

“What the Rent Control Board is doing is giving rent increases that are less than any component of an owner’s operating cost except property taxes,” said Jim Jacobson, a member of Action Apartment Association, which represents Santa Monica landlords.

“Property taxes are locked in by Proposition 13, but the Board’s formula assumes that all of the owners in Santa Monica get the benefits of Proposition 13,” said Jacobson, referring to the 1978 voter approved State initiative that capped tax rates for existing property owners.

“I don’t know how any tenant could be upset with a situation where the CPI increases 3.8 percent, wages increase 5 percent and the Rent Control Board only wants to a 2.3 percent adjustment,” Jacobson said.

Rent Control staff and board members agreed to consider at a future meeting an alternative methodology to calculate the annual general adjustment.

Most California jurisdictions with rent control ordinances calculate their annual rent hikes based on percentage increases in the CPI, whereas the Santa Monica Rent Control Board’s analysis relies directly on the CPI instead of CPI percentage increases.

“We have an explicit command to create a formal and factual basis for our rent increases,” said Board member Jeffrey Sklar. “From what I can see, the increase before us is proper.”

At the Board’s June 7 meeting, a property owner testified how one of her wealthier tenants has been able to rent a unit at below market rates.

The contention, which has been aired by landlords since rent control took effect nearly three decades ago, seemed to concern at least one board member.

“Comments about tenacious tenants who can obviously afford to pay more always bother me,” said Board member Jennifer Kennedy.

“The issue needs to be looked at, but I cringe every time I hear it. These people are out there in the workforce and could get fired and then have no income.”