AGENDA REPORT. c i. Meeting Date: October 18, Item Number:

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1 AGENDA REPORT Item Number: To: From: c i Honorable Mayor & Council Susan Healy Keene, AICP, Director Community Development Helen Morales, Deputy Director Rent Stabilization Subject: PRESENTATION OF FINAL HR&A ADVISORS, INC REPORT; FEEDBACK RECEIVED AT FACILITATED DIALOGUE SESSIONS; AND DISCUSSION OF POSSIBLE AMENDMENTS TO THE RENT STABILIZATION ORDINANCE Attachments: 1. HR&A Advors c. Fal Issue Papers and Policy Packages 2. Habitability Fal Issue Paper 3. Public Comments from Facilitated Sessions 4. Revenue Costs Specialts, LLC Fee Study RECOMMENDATION Staff recommends that Council receive and review the fal sue papers and policy packages from consultant HR&A Advors, c. (HR&A), the habitability fal sue paper and public comments from the facilitated sessions. Staff requests direction from Council on possible amendment changes to the Rent Stabilization Ordance (RSO) as well as consideration the fee study for costs associated the implementation and admtration the RSO and the other outstandg RSO sues. INTRODUCTION Th report cludes fal sue papers prepared by consultant HR&A response to questions raed by Council and the public and corporates public feedback from the three facilitated dcussions held on each sue paper. At th meetg, HR&A will present a summary modifications made to the origal report along possible RSO amendments based on policy packages which provide plausible options for consideration. A fal sue paper on habitability prepared by staff also cluded. Page /18/2018

2 Staff has also cluded a program fee study conducted by Revenue and Costs Specialts, LLC (RCS) for the costs associated the implementation and admtration the RSO its current configuration. BACKGROUND The current rent stabilization ordance, which became effective on May 5, 2017, requires regtration all multi-family rental units the and establhes provions for protection Chapter tenants cludg limitg the maximum allowable annual rental crease to either 3% or the Consumer Price dex (CPI), whichever greater. The ordance establhes relocation fees for no cause evictions Chapter tenants and also creases the relocation fees for Chapter 5 tenants, so the amounts the relocation fees are the same. addition, the ordance establhes an application procedure by which the owners Chapter units can apply to the to crease rents by an additional amount above the maximum allowable rent crease. Council expressed the need for more put to determe if the ordance needed further modification. order to solicit stakeholder put, a total seven facilitated dialogue sessions were led summer 2017 by Pressor Sukhsimranjit Sgh. Additional sues beyond the approved amendments were raed by housg providers and tenants, which cluded questions habitability and no cause evictions. At the Council meetg September 5, 2017, Council directed staff to contract an economic consultant to address additional sues and questions. On November 21, 2017, the Council approved an agreement HR&A to provide additional formation on questions posed by Council regardg the amended Rent Stabilization Ordance. On August 7, 2018, HR&A submitted a prelimary draft report and provided a summary to Council. HR&A first provided an overview the 14 rent stabilization ordances California and their requirements for comparon a Data Brief. HR&A also addressed the questions raed by Council sue papers that dcuss the followg seven topic areas: Should the Ordance exempt four or fewer units? Should housg providers be allowed to bank rent creases or defer all or part an allowable rent crease to a subsequent year? Should Chapter no-cause evictions be reconsidered? What the effect the Ell Act on the Rent Stabilization Ordance? Should relocation fees be required or reved? Should the rent adjustment application processes be reved? Should the provions that govern the amount the maximum allowable rent crease be reved? Page /18/2018

3 DISCUSSION Facilitated Dcussion Sessions Staff conducted three facilitated sessions where HR&A presented seven sue papers, and staff presented an sue paper on habitability. The sessions were live-streamed and made available on the s webpage. Both tenants and housg providers were afforded an opportunity to provide oral public comment or to provide written comments on comment cards coverg each specific sue. The public was formed at the last facilitated session, which also was posted on the website, written comments. Staff collected and tabulated the comments and provided a summary the comments for each sue (Attachment the September 21, 2018 deadle to submit 4). The first facilitated session was held on August Relocation fees; No-Cause Evictions; Ell 15, There were approximately 8 members the public 2018 and covered the followg sues: Act Implications; and Habitability Standards. attendance at th session. The second facilitated session was held on August 2, 2018 and focused on the followg sues: Bankg Annual General Adjustments; Exemption properties 4 units or less; and the Rent crease Application Process. There were approximately 44 members the public attendance at th session. The third facilitated session was held on September 1, 2018 and focused on the Maximum Allowable Annual Rent crease. There were approximately 59 members the public attendance at th session. HR&A Fal Report and Cross-Cuttg Policy Packages addition to presentation the fal versions fered alternative cross-cuttg policy packages to asst their sues papers, Council HR&A the Data Brief and seven topic-specific considerg the range plausible policy options, as outled Memorandum (Attachment 1). detail These policy packages do not represent recommendations by a summary those alternative cross-cuttg policy packages. HR&A or staff, but are tended only to facilitate Council dcussion. The followg Policy Option #1. No Further RSO Amendments at Th Time. Defer makg any changes to the RSO based on the rationale that: only took place 2017, and there a need for more data; 2) 1) November RSO Amendments, 2018 election on the repeal Costa-Hawks needs to be settled; many housg providers and tenants advocated for no change. considerg the range policy options, under th policy option: 2-4 units would rema subject to the ordance; contue to be limited to Chapter fees would rema for both Chapter Application Process ensurg a 5; 2) bankg 1) housg providers rent creases would 3) the current requirements for payment relocation 4) the current Rent crease fair contue to be made by a hearg ficer; only for Chapter creases, which 5 and Chapter ; decions would No-Cause evictions would contue to rema return would contue, and 5) units; ) extg limitations would contue for Chapter the lesser the change all CPI or 8%, and for Chapter 5 unit rent unit rent Page /18/2018

4 creases, which the greater 3% or the Change CPI; and 7) the Ell Act would contue to only be applicable to Chapter 5 units. Policy Option #2. New RSO Amendments that Would Provide More Fancial Flexibility for Housg Providers Housg providers have asserted that the RSO burdensome and needs to be amended to allow them flexibility so that they can earn a fancial return to mata their buildgs at an appropriate level. Based on the foregog rationale, the followg represents the range policy options: 1) exempt buildgs 2-4 units; 2) permit the bankg unused rent creases for both Chapter 5 and Chapter tenants a cap on the total percentage (e.g. a total 7%); 3) align relocation fee amounts to the type unit beg vacated and the types tenants beg evicted; suggestions clude: tenant fancial circumstances; duration tenancy; types evictions; 4) create a uniform process le Chapter ; 5) Chapter tenants would rema subject to No-Cause Evictions relocation fees; ) maximum allowable rent creases would be a straight annual percentage crease (e.g. 5%) for both Chapter 5 and Chapter units pass-throughs as provided for Chapter 5; 7) no Ell Act Changes. Policy Option #3. New RSO Amendments that Would Provide More Protections for Renters To meet the concerns addressed by the tenants, th approach provides more protections for renters. considerg the range policy options, under th policy option: 1) no changes to the property exemptions; 2-4 units would rema subject to the Ordance; 2) no change to bankg unused rent creases; bankg will rema the limited to Chapter 5 only; 3) relocation fee requirements will rema the same; however there would be an additional triennial update CPI adjustments between; 4) establh a uniform rent crease application process for both Chapters 5 and, and add provions for habitability requirements and for a mediation board; 5) Elimate No-Just Cause eviction throughout the Beverly Hills rental market, not just RSO properties, and develop a new Just-Cause eviction process for Chapter tenants; ) Change the 100% formula the CPI to 75% the CPI no floor, ceilg or fixed percentage; and 7) add Ell Act provions for Chapter tenants. Policy Option #4. Providg More Balance sense Th approach attempts to balance both the concerns addressed by tenants and housg providers by providg a degree flexibility to housg providers while extendg additional protections to tenants. consideration the range policy options, under th policy option: 1) exemptions would be provided for duplexes and triplexes only, the requirement that a person owng at least 50% the property reside on-site; 2) allowance for Chapter bankg a cap; however no change to Chapter 5 and add a 5 month notice period; 3) mata the same basic fee requirements and add a triennial update CPI adjustments between and some limits for a mimum length tenant tenure; 4) establh a uniform Page /18/2018

5 tent crease application process for both Chapters habitability requirements and for a mediation board tenants can challenge rents; and add provions for the rent crease process where 5 5) 5 a cumulative cap on annual rent creases Ell Act protections for Chapter ; 8) and establh new Just-Cause eviction protections for Chapter tenants; ) change the maximum allowable rent crease to match Chapter pass-throughs as provided for 7%; 7) add Chapter and allow add a luxury rent exemption that could be set by unit size (i.e. number bedrooms) and updated annually, based on an upperlevel percentile rents, a multiple median rent, or some other formula; and exemption for units not occupied year-round by the tenants. 9) add an Habitability Cross-Cuttg Policy Package an effort to asst Council to consider the range policy options regardg habitability, staff fers the followg Policy Package options: Policy Package #1. No Policy Change Th policy package would allow for the current enforcement habitability through its current complat-based enforcement and mata the level standards constent current local and State housg laws. consideration the range policy options, under th policy option: spections would contue to be complat based; habitability standards would rema the same, which are complats tied to state codes and local ordances; and housg providers and tenants would rema eligible for the Loyola Law School and its s sponsored Mediation services through a contract Loyola Center for Conflict Resolution. Policy Package #2. Creation Board. a Self-Certification spection program and a Mediation Housg providers stated that they would not be adverse to some form spection their properties; however, they preferred a self-certification process whereby they or their staff could conduct the spection. They also voiced their approval a mediation board to hear dputes tenants and to resolve sues that relate to difficult tenants. consideration the range policy options, under th policy option: the would establh an annual self-certification process reported to the on an annual bas and verified by the tenant; and create a mediation board compred both housg providers and tenants to mediate habitability complats. Policy Package #3. Create an annual proactive spection program for habitability standards; establh a reguired time frame for replacement carpets, wdow covergs and pat; create a mediation board, and allow for a reduction violations ext. rent if habitability Tenants voiced their concerns relative to substandard conditions. They expressed an terest establhg a time frame requirement for replacements carpets, wdow covergs an annual spection by and pat and a need for a mediation board. housg spectors. They also voiced their terest Page5ll 10/18/2018

6 consideration the range policy options, under th policy option: the would establh a proactive spection program; establh required time frames for replacement compred floor, wdow covergs, and pat; and establh a mediation board both housg providers and tenants to address habitability standards. Policy Option #4. Establh an Annual Self Certification Process and Create a Mediation Board. Housg providers and tenants expressed a need for some form spection process and the need for a mediation board to address conflicts. consideration the range policy options, under th policy option: the would establh an annual self-certification process; and create a mediation board compred both housg providers and tenants to resolve dputes. Additional Issues for Consideration: The followg additional sues were brought forward as specific sues either through the facilitated sessions, requests made by Council or identified by staff: 1) Annual Rent Regtration 2) Creation a Board/Commsion 3) Creation a Qualified Status 4) Semic Pass-through Act Provions 5) Mills ) Fee Analys Although the focus the facilitated sessions have been on the eight sues identified HR&A s Issue papers and the staff report on habitability, staff requests direction on the followg other sues that were identified as lted above. Annual Rent Regtration Council first establhed the regtration RSO units through No. May open Council Resolution , repealed and amended by Resolution No , which was effective The first annual regtration period began on July 24, 2017 and remaed 5, until all required to regter properties were regtered. Of the 1,098 properties that were identified and the city, only one duplex property remaed non-compliant. An annual tent regtry critical to the enforcement the Rent Stabilization Ordance. Annual regtration provides lot the collection ongog and changg formation on approximate 7,700 rental units. That formation clude rents charged, rent creases, vacancies, evictions and lengths tenancies that provides the enforcement the RSO requirements, cludg illegal rent creases, changes all a tool for the occupancy, no cause evictions and the overall changg rental unit conditions specific to the Beverly Hills. The contual annual tent regtration process provides a tool and data to identify and support policy decions for Council establhg permanent regulations and any Page 11 10/18/2018

7 necessary updates for changg conditions thereby allowg for local control. By way example, the 2017 regtration data provided HR&A critical formation for their analys the RSO allowg them the ability to provide policy options to the Council. The RSO currently requires regtration by housg providers upon receipt written notice from the to do so. Staff requests direction by Council to move forward sug a notice to require the 2018 regtration and an amendment to the RSO to require annual regtration by housg providers. Creation a Mediation Board! or Commsion Both Tenants and Housg providers have dcussed the creation a rent board/commsion to deal habitability sues and rent adjustment application process. Tenants claim that their units have habitability sues and seek a board/commsion to ascerta the extent habitability sues and obta a correspondg rent reduction. Housg providers claim that they experience difficulties bad tenants and nuance sues that are difficult to prove court and state that a board/commsion could asst to deal these sues. Another housg provider s comment suggested the creation a rent board/commsion to work as an additional step due process to review decions made by a hearg ficer. Rental sues are currently addressed on a complat bas whether from tenants, property owners, or management companies. Complats typically clude dputes regardg rent creases; pass-through amounts, vacancy termation notices, general notices, tenant s rights and habitability standards complats. Complats are addressed by the Rent Stabilization staff through a complat take process where allegations violations are reviewed and determations made. Some complats are referred to Code Enforcement for additional vestigations and citation process. 2015, Council directed the Human Relations Commsion (HRC) to address tenant/landlord sues, other complats may also be heard by the HRC as part their Tenant/Landlord Forum Staff requests Council direction on the establhment a rent board/commsion along defed tasks and authority for such a rent board/commsion the admtration the tent stabilization ordance. The Council could consider as an itial step establhg a mediation board to address habitability dputes and other dputes between housg providers and their tenants. Creation a Qualified Status Many tenants came forward at the facilitated dcussions to voice their opion on the affordability their rental units. Many claimed that tent creases cause an undue hardship and they are not otherwe able to make ends meet. HR&A data reflects that on average, studios pay the least amount rent at $1,389 per month while the average tent for four or more bedrooms $4,93, an average rental amount for Chapter tenants at $2,427, which more than double a Chapter 5 average $1,017. Chapter 5 tenants, however claim that fixed comes they are experiencg difficulty makg rental payments. The HR&A data brief reflects that, although household comes Beverly Hills are generally higher than nearby cities and the County, over half the s renter households are tent burdened, payg more that 30% their gross come to housg. Page /18/2018

8 Nearly 30% the s renter households are severely rent burdened, payg more than half their come to housg costs. Tenants and housg providers have voiced their opion for the to asst meetg the needs those households experiencg fancial difficulties. Currently, the only provion the RSO for a qualified status for the payment relocation fees. The RSO provides an additional $2,000 relocation fees for tenants that are Senior Citizens (Age 2 or over), dabled or a mor. The Council may consider surveyg the s renter population to identify any other qualified status that it may create and corporate to the RSO. Staff requests Council direction relative to establhg criteria to identify those need and to identify a qualified class and any implications that the qualified status may have relative to the RSO provions. If th an area that Council whes to implement, then there will be a need to develop parameters on how the asstance provided, whether the asstance cludes the and if so what the budget for such a program and how that should be funded. Semic Surcharge Pass-through Council currently reviewg the adoption a Semic Ordance requirg owners to retrit properties identified by the, which cludes multi-family properties that are subject to the RSO. As a result possible pass-troughs that may be determed through the mandatory semic retrit ordance, staff requests direction on pass-through considerations to both Chapter 5 and Chapter Tenants and for the associated semic retrit requirements cludg timeles as to how and when the costs can be passed through any dollar amount limitations or caps. The followg represents how other cities RSO ordances have provided for passthrough for semic retrit: TABLE 5 Pass-Through Comparon Jurdiction Los Angeles. Santa The Monica West Hollywood.. Allowed Beverly Hills Retrit Cost Sharg by Tenants Pass through 50% retrit costs to tenants maximum $38/month for a period not to exceed 10 years Rent Board currently considerg allowg a pass through for a portion costs The Rent Commsion recommended to Council to allow pass through 50%. retrit costs a maximum $38/month for 10 years for Chapter 5 Tenants Not allowed for Chapter Tenants Page $ 11 10/18/2018

9 Mills Act Overview: At the August 7, 2018 meetg, Vice Mayor Mirch suggested that perhaps use the Mills Act could fset costs for multifamily housg providers. The Mills Act Contract an agreement between the and the owner a locally designated htoric resource based on California Government Code, Article 12, and Sections (Mills Act). Th state law, establhed 197, provides for a property tax reduction for owners qualifyg htoric properties who agree to comply certa preservation restrictions and use the property tax savgs to help fset the costs to restore, rehabilitate, and mata their htoric resource accordg to the Secretary the terior s Standards and the California Htorical Buildg Code. Beverly Hills, the Cultural Heritage Commsion previews, and the Council approve, all Mills Act contracts. Once executed, the contract recorded on the property and leads to the review and reassessment the property by the County Tax Assessor the followg year. Currently a property value limit 7.5 million dollars or below placed on all applications for Mills Act Contracts granted the. The Cultural Heritage Commsion and the Council may override th set valuation limit, and applications would be reviewed on a case-by-case bas. The pilot Mills Act program also limits the number contracts executed each year to three (3) and limits the amount revenue losses to the each year and over the life the pilot program. The Mills Act pilot program Beverly Hills scheduled to expire at the end next year (2019) and consideration a permanent program will be brought forward for consideration by the Cultural Heritage Commsion and the Council. As the review process for applications competitive, a new requirement for an adopted program could give preference or priority status to multi-family buildgs. The Mills Act has the ability to be tailor-fit for communities and th may be an option for a newly establhed permanent program. Such options for consideration could clude: Property Value limits can be two-tiered a cap valuation for sgle-family and a higher cap for multi-family and commercial properties. Locally designated htoric multi-family buildgs (**which are also granted a Mills Act Contract) could be exempt from rent stabilization maximum rent creases. An exemption might be subject to approval the Cultural Heritage Commsion and Council and may only exempt a property owner from regulatg rental creases, but not necessarily other aspects the rent control ordance, e.g. eviction procedures and associated relocation fees, etc. The could also encourage the establhment multi-family htoric dtricts by ferg Mills Act contracts to all contributors to the dtrict and not necessarily only buildgs that have been dividually designated. The cities Long Beach and Anaheim have such provions their Mills Act eligibility requirements. Page /18/2018

10 Fee Analys On August, 8, estimated additional staffg 2017, Management Partners presented a report dated July and admter the new provions estimated costs for FY 8.5 full alternate staffg proposals to reduce overall costs. time equivalent positions 18, 2017, that order to implement the amended RSO. Management Partners provided $1,49,200. Council requested staff to study At the September 5, 2017 Council Meetg, staff formed Council that they would return a fee analys at a subsequent meetg at which time they would provide formation on resources needed as part the ongog annual operations. On May 21, 2018, staff publhed a Request for Proposal (No ) to conduct a comprehensive fee study so as to determe appropriate program fees order to recover all program costs associated services provided by the Rent Stabilization program. Revenue Costs Specialts, (RCS) was selected sce All to LLC complete the fee study. RCS has provided fee and costg services RCS Prcipals have prior city experience and work exclusively local government agencies. Combed, RCS prcipals have over 5 years knowledge cost allocation plans and fee studies and served over 250 municipalities. The previously contracted RCS about June 27, 2018, the 2007 to conduct its entered to a contract citywide User Fee Update. On or RCS to prepare a comprehensive fee study for the Rent Stabilization Program. RCS was tasked among other thgs, to develop a fully, burdened hourly rate for each program employee, cludg salaries and benefits, mcellaneous operatg service and supply costs, overhead costs form the terval service charges, debt services, and other direct costs. Additionally, RCS s scope work cluded the preparation a rent stabilization fee survey to compare proposed fees those charged by other comparable agencies. RCS worked implementation full-time positions cludg: Analyst; 2 staff to conduct a fee study for the program costs related to the the Rent Stabilization Ordance. RCS has recommended a total Customer Service Representatives; 1 Deputy Director Rent Stabilization; 1 Secretary; and 1 1 Management Code Enforcement Officer. RCS estimated the total costs to be $1,370,00 for an average fee $178 annually per your review unit. A copy the RSC fal report on the fee study has been provided for The staffg recommendation made by RCS Attachment extg provions the RSO and time required the Program.. to based on perform the admtrative functions Currently, the assesses two annual charges on rental units. The first an annual Rent Control Admtration fee $54 per unit. Th fee tended to recover costs admtration and enforcement the provions associated stabilization ordances (also known as Chapter 5 and complats, record research, preparation cases, and attorney fees. ), the origal rent cludg vestigation The second charge an annual busess tax that requires any person conductg busess the city unrelated to rent control. The to obta a regtration certificate and pay an annual busess tax. Persons rentg or leasg residential property are required to pay an annual gross receipts tax for each one thousand dollars gross receipts. The tax revenues collected are for the benefit the entire and may be used for any purpose. These two, previously extg, charges do not cover the work to implement the current RSO program and, therefore, the additional fees for the RSO program, as identified the Page loli 10/18/2018

11 RCS fee study, are necessary to cover the program costs necessary to implement the current RSO. Adjustg for these additional work items, would crease the Rent Control Admtration fee from $54 per unit to $ per Staff whes to pot out that additional policy options that are dcussed mediation board, a proactive spection program, or the ability for tenants to apply to require additional if unit. the Council chooses to implement some the to have their rents decreased, due to habitability sues, th staff and a correspondg requirement for additional fees, which by RCS. the th report, such as the addition a will will need to be evaluated Staff requests that Council provides direction on the fee study provided by RCS for the costs program implementation and ongog annual operations and whether additional costs for proposed programs should be evaluated. N OTI FICATI ON Staff conducted three facilitated session on August HR&A 15, 2, and September 1, 2018 where presented reports on the seven policy sues identified. Notice lot the August 2018 meetg and the facilitated dialogue sessions was sent to tenants on July 27, 2018, and publhed on August 1st and August 2nd; as well as on the all 7th, housg providers and both newspapers; on July 2, 2018 and aga s website. Notice regardg the two Special Council meetgs was provided by 1, 2018 and by on September 27, 2018 and posted on the same date. Notice was also publhed FISCAL IMPACT both newspapers. mail s on October website on that As th item for troduction formation, there no fcal impact at th time. RECOMMENDATION Staff recommends that Council receive and review the fal sue papers and policy packages from consultant HR&A Advors, c. (HR&A), and public comments from the facilitated sessions. Staff requests direction from Stabilization Ordance (RSO) as well cludg the fee study for costs associated the RSO. the habitability fal sue paper Council on possible amendment changes to the Rent as consideration other outstandg RSO sues the implementation and admtration Susan Healy Keene, AICP Approved Page /18/2018