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Fiscal Impact Report on Measure M

The Santa Cruz City Council commissioned an independent and impartial analysis of the Santa Cruz Rent Control and Tenant Protection Act (The Act) or Measure M. This analysis is limited in scope and only focuses on the financial and administrative impact that the “Rent Board” will have on the City of Santa Cruz should Measure M pass.


If Measure M is voted into law, a City Rent Board comprised of City residents will be created. The initial Board shall consist of seven appointed members and the ongoing Board shall consist of five elected members. You can read more about the creation and the rights of this Rent Board in Section 10 of The Act.


You can read the entire analysis here and read a short summary of some of the more important points of the analysis below.



Relationship Between the Rent Board and the City Council


According to the report, the Rent Board is autonomous, but the City Council may supplement its work.


The City Council also retains authority over issues the Act does not address, such as land use policy, building codes, code enforcement, etc. The precise boundary between the City Council’s legislative authority and that of the Rent Board will not always be clear.


The Analysis found that it is not entirely clear where the City Council’s and City Manager’s powers end and the Rent Board’s power begins. This may result in conflict down the line.


How the City Attorney Relates to the Rent Board


While section 21 of the Act obliges the City Attorney to defend The Act, he does not have the duty to advise and defend the Rent Board, though can aid the Rent Board if requested.


Establishing the Rent Board and How It’s Financed


City Council will forward the Rent Board funds to get established, but may seek reimbursement from the Rent Board after this initial period.


The analysis found that, even with a contract with the Rent Board, the City’s General Fund will bear some risk. It may take some time before Rental Housing Fees are sufficient to repay the advance and there is a risk that litigation will prevent those Fees from being established and collected. This may be more likely if the Act is challenged in the courts immediately following the election, and is protracted, successful or both.

The report found that litigation of and under the Act is likely. Both the Berkeley and Santa Monica ordinances were challenged. Implementation of the Act will produce litigation, too, as landlords commonly sue to overturn Rent Board decisions rejecting or limiting rent increase requests. Given the high value of housing in Santa Cruz, litigation is likely — it has been common in cities like Berkeley, Santa Monica and West Hollywood.


The Rent Board will have to set an annual budget each year, and shall finance its expenses by charging Landlords an annual Rental Housing Fee.


As stated in Section 10 of The Act, all Landlords will be required to pay a Rental Housing Fee for each Rental Unit on an annual basis. The Board may, from time to time, set the amount of the Rental Housing Fee at its discretion.


The Rent Board’s Ability to Take Legal Action


The agency that performed the analysis was of the opinion that the Rent Board’s enforcement powers are limited to its intervention in landlord-tenant disputes to defend the Act, Rent Board policies, and Rent Board decisions, but criminal and civil enforcement of City and other housing laws would remain the responsibility of the City Attorney and code enforcement staff.


The Fiscal Impact of the Rent Board


The analysis used assumptions informed by the experiences of other rent-control cities in California to draw conclusions about the fiscal impact of the Rent Board. As such, this part of the analysis may or may not be accurate, depending on the actions of the Rent Board.


According to the report, Berkeley and Santa Monica, which also have elected rent boards with fee authority, have approximate annual budgets of $5.17 million and $5.7 million, respectively.


City staff report Santa Cruz has between 5,100 and 5,800 rental units subject to rent control under the Act. Berkeley has approximately 20,000 rental units subject to its ordinance with a budget of approximately $258 per unit, and Santa Monica has approximately 26,360 rental units subject to its ordinance with a budget of approximately $216 per unit. These numbers are reflected in Berkeley’s and Santa Monica’s annual rental housing fees of $250 and $198, respectively.


If this hypothetical Rent Board were to operate in a similar manner as these counties, Landlords can expect to may anywhere from $200 – $300 in annual fees. 


However, these costs may prove to be much higher. Section 10 of The Act states that the Rent Board is authorized to intervene as an interested party in any litigation brought before a court of appropriate jurisdiction certain Rental Units. This is important because landlords have to file an unlawful detainer (eviction) suits in Superior Court to evict a tenant. Thus, the Rent Board may intervene in cases seeking eviction from a unit subject to just-cause eviction. If the Rent Board chooses to intervene in these court cases “more than occasionally” the Rental Housing Fee will likely be higher than the projections above.


While the Rental Housing fee should cover the cost of the Rent Board, other counties have shown that a General Fund subsidy of the Rent Board could occur. Some jurisdictions with rent-control cities have provided substantial, ongoing support for their rent-control programs and it may be politically difficult to resist. For example, West Hollywood staff report that city provides 30% of the rent control program budget from general funds. With this said, City Council will not be obligated to grant the Rent Board’s request for additional funds, rather would likely do so as a political matter. This would result in less funds for the police, firefighters, transportation, etc.


The City Council will review this report in a public meeting at 7:00 PM on October 9th.

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