Received Mameda County Grand Jury Date Sept. 21, 2012*

Recommendations 4

• R1
  Fees are higher in Berkeley than in Los Angeles because Berkeley's program is more effective and this has higher costs. The Civil Grand Jury asserts that the Rent Board "must reduce the high rental registration fees" and follow the example of the larger cities of Los Angeles, San Francisco and Oakland, all of which charge much lower fees. The City of Los Angeles has approximately 450,000 rent stabilized apartments and its rent stabilization program has a staff of 77 people, funded with a fee of $19 per unit. This is one staff person for every 6,500 units. The City of Oakland rent adjustment program has approximately 58,000 rent stabilized apartments and a program staff of seven, which is one staff person for every 8,000 units, funded with a fee of $30 per unit. Applied to Berkeley these comparisons would suggest a staff of three people to administer the ordinance for Berkeley's 19,000 registered units rather than a staff of 19. Santa Monica, the City whose ordinance is most similar to Berkeley's, has 28,000 rent stabilized units and a staff of 27, but according to this comparison it should have a staff of four. There are three major reasons for the dramatic differences between Los Angeles, Oakland and San Francisco on the one hand, and Berkeley and Santa Monica on the other. First, Berkeley and Santa Monica are cities with active enforcement of their rent ordinances, while the larger cities have complaint-based programs. Second, the larger cities provide legal, accounting and other services to their programs using staff from other Departments, so that the staffing levels reported are not fully comparable and other revenue sources fund more of the real cost of their operations. Third, the larger cities have greater economies of scale than smaller cities. There are two main types of rent regulation in California. One group of cities does active enforcement: Berkeley, East Palo Alto, Santa Monica and West Hollywood. The other group of cities does more passive, complaint-based enforcement: Los Angeles, Oakland, San Francisco, and San Jose. Active enforcement costs more and results in a higher level of compliance with the law. Berkeley's voters have consistently supported a strong, fair system of rent regulation and they have supported the measures necessary to fully enforce it. The Civil Grand Jury report makes no effort to evaluate what is actually required in order to effectively implement Berkeley's Rent Stabilization and Good Cause for Eviction Ordinance and it ignores the evaluation studies done by the City of Berkeley, the City of Los Angeles and by academic researchers. Proper enforcement requires rent registration and verification, which Berkeley does. The larger cities don't do that. They do limited outreach, and instead rely on tenant complaints about rent violations to enforce their ordinances. A recent study commissioned by the City of Los Angeles reported that more than one quarter of all rent stabilized tenants in Los Angeles, well over 100,000 tenant households, had been subject to rent increases over the legal limit. The report recommended that Los Angeles consider requiring rent registration as Berkeley does. In contrast, Berkeley's recent study found that at most five percent of all tenants were paying an amount over the registered rent ceiling.2 The Civil Grand Jury chooses as its model a system that allows tens of thousands of tenants to be overcharged and uses this as the basis for arguing that Berkeley's administrative costs are excessive. Ongoing education, rent registration and verification all add to the cost of our program, but it costs tenants far more when they are overcharged. Likewise, lack of adequate information and education is potentially very costly to owners. As it was explained to the Civil Grand Jury, more outreach is provided to owners than to tenants to help them avoid inadvertent violations of the law, resulting in penalties, and potential rent overcharges, or have otherwise allowable evictions blocked due to non-compliance with the law. As the table below shows, Berkeley's fees fall within the normal range for the other California cities that have strong enforcement policies: East Palo Alto, Santa Monica and West Hollywood. Table: Registered Units, Per Unit Fees and Staff in Cities with Strong Enforcement Policies City Registered Units Per Unit Fees Staff East Palo Alto 1,900 $234 2 plus assistance from other City departments. Berkeley 19,000 $194 19 Santa Monica 28,000 $156 27 West Hollywood 15,000 $120 plus in- 9 plus assistance kind General from other City Fund support departments. Economic Roundtable, Economic Study of the Rent Stabilization Ordinance (RSO) and the Los Angeles Housing Market, 2009, pp. 5, 12, 127. Berkeley Rent Stabilization Board, Report on the April – May 2009 Survey of Tenants of Registered Rental Units, March 15, 2010, pp. 21-22. The staffing for both East Palo Alto and West Hollywood is significantly understated, in the same way that it is understated for the larger cities. In the case of East Palo Alto more than half of the budget supports purchase of services from consultants and other City Departments, including the City Attorney's Office and the Finance Department. In the case of West Hollywood, similar services are provided by other departments and by the administration of the larger Department in which the Rent Stabilization Program is located, but these services are provided using General Funds, which thus subsidize operation of their Program resulting in a lower user fee. Berkeley and Santa Monica are the only two cities in which the rent stabilization program has its own attorneys. This is because for Berkeley, as the City Attorney ruled in 1992, the interests of the elected Rent Board may not always coincide with the interests of the elected City Council, so that separate attorney's offices are necessary to avoid potential conflicts of interest. Finally, larger cities also have greater economies of scale. For example, it takes the same amount of work to produce or update an informational brochure explaining the process to apply for a rent increase or decrease under the provisions of a municipal ordinance and to post the information to a web site regardless of the number of units the ordinance applies to. When the report points out that "other cities with significantly more units manage rent control with lower fees", the fact that they have "significantly more units" is an important part of the explanation for their lower fees. In addition, both Santa Monica and West Hollywood have larger buildings and this reduces the regulatory cost per unit. More than other cities, Berkeley has many units in smaller buildings (1 -5 units), which increases administrative costs. The Berkeley Rent Stabilization Board has made a policy decision to charge fees sufficient to enable it to fully and fairly enforce the Rent Stabilization and Eviction for Good Cause Ordinance. The Grand Jury report says that "the board needs to reprioritize services and to reduce costs not only in its administration but in services to the citizens of Berkeley" (p.73). Since the costs of Rent Board administration are the costs of the services provided by the Rent Board, it appears that the Grand Jury wants the Rent Board to reduce the fees by adopting different policies that would reduce the quality of outreach and enforcement of the ordinance, giving owners and tenants less assistance in understanding the requirements of the ordinance and making it more likely that some will violate the law. This is not a simple concern with administrative efficiency, but a call for substantive policy change and one that we find unacceptable.
• R2
  The Board has reduced staff since vacancy decontrol The Civil Grand Jury report uses Berkeley's initial 1980 registration fee of $12 per unit to assert that Rent Board fees, currently $194 per unit, have increased exorbitantly. As the Executive Director explained to Grand Jury, the initial fee was set far too low to meet the requirements of the agency. Santa Monica, which provided significantly better administration of its ordinance in the early years, raised its fee from $12.50 in 1979 to $72 per unit in 1981. The voters frustration with the inability of the Board appointed by the City Council to adequately enforce the law with a fee set far too low led to creation of the elected Board in November 1984. The elected Board raised the fee to a more realistic $60 per unit in 1985. At its peak staffing in 1986/87, the Rent Stabilization Program had 36 full-time equivalent staff (FTE). In 1995, the year vacancy decontrol was passed by the legislature; the Rent Board had 27 FTE. In recent years we have had between 19 and 21 FTE, despite the Civil Grand Jury report's claim that we have not reduced our activities (p. 65). The Grand Jury report claims, without substantiation, that vacancy decontrol has so greatly reduced the staffing needs of the Rent Stabilization Program that further reductions should be made. In the real world, to take only one example, vacancy decontrol changed the nature of the problems faced by tenants in Berkeley by providing a major incentive for landlords to push out long-term, rent stabilized tenants and replace them with new tenants who would then pay current market rents, instead of the former tenants much lower stabilized rent. In addition, the foreclosure crisis has increased the number of threats to terminate tenancies in distressed properties, even though foreclosure is not a good cause for eviction in Berkeley. This has greatly increased the need for Rent Board action to ensure tenants are aware of and capable of exercising their rights to eviction for good cause. While vacancy decontrol may have reduced the need for extensive hearings on issues such as rent increases for capital improvements, it has increased the need for effective outreach, counseling and education regarding good cause for eviction. The Civil Grand Jury report summarily dismisses our responsiveness to changing conditions by saying that the Rent Board "re-invented itself, adjusting to the changes to sustain its operations" as if the Board made up the problem of improper evictions by landlords eager for vacancy rent increases so that we would have an excuse to hire more staff. We do not agree. Such evictions are devastating to those tenants who suffer them, especially since many of these tenants are elderly or disabled. For this reason, in 2000 the voters passed amendments to the ordinance that limit the ability of rental property owners to evict elderly, disabled and long-term tenants for purposes of owner-occupancy. This added to the enforcement work of the agency. The Grand Jury fails to acknowledge the actual changes in staffing levels that resulted from decontrol. For example, the Board has had as many as 6.85 FTE Hearing Examiners on staff. In 1995 (the earliest year we were able to get an accurate count of the number of hearings held), the Board had 4.6 FTE Hearing Examiners and conducted 485 hearings. In 2011, the number of Hearing Examiners was reduced to 1.85 FTE and 215 hearings and/or mediations were conducted. Similarly, in 2002 the Board had three attorneys - a Chief Counsel and two individuals at the Staff Attorney III level. The combined cost for these three positions would be roughly $475,000 at current salaries. In 2011 and 2012, the Board has had three attorneys, but one is a Staff Attorney III and two are at the entry-level Staff Attorney I. The combined 2011 salary cost for the new staff serving in adjusted classifications is roughly $325,000, a savings of $150,000 per year. It is true that the costs of operation of the Rent Board have increased since 1995 despite the decreases in overall staffing, the decreases in the number of hearing officers (a highly paid position that requires California Bar membership) and the use of lower-paid staff attorney positions. This is because four-fifths of the Rent Board budget goes to staff salaries and benefits and these have increased substantially over the years for reasons that are largely beyond the control of the Board. Rent Board staff, with the exception of the Executive Director, are employees of the City of Berkeley and are covered by the various union contracts and personnel agreements for unrepresented employees negotiated by the City Manager and approved by the City Council. The cost increases are due in part to the contracts negotiated by the City, in part to the increased funding requirements for contractually required pensions due to the effects of the recession on pension fund investment returns, and in part due to the increased cost of health insurance. The Rent Board also signs the union contracts, but does this after they are agreed on between the unions and the City Council. The negotiations are controlled by the City Manager, under the policy direction of the City Council. (In 2008, the Board recommended a 0-1% salary increase in union negotiations; the Council agreed to 5 % and the Board deferred to the Council.)
• R3
  The Board hires staff with the necessary qualifications. According to the report, the Rent Board has too many attorneys and their number should be reduced. The report provides no basis for this view and ignores the fact that good quality legal advice helps prevent lawsuits and improves the ability of other staff to assist the public. Instead, the report picks out an isolated comment from the testimony - that among their other duties legal staff "advises other staff to not give legal advice" - and uses this to ridicule the role of attorneys at the Rent Board. This is part of a pattern in the Grand Jury report in which isolated statements and/or facts are taken out of context and misused to place the Board in an unfavorable light, while other more favorable facts are largely omitted. The Grand Jury also may have been unaware that in 1991 the City Attorney determined that the Board must maintain their own legal staff. The Rent Board public information and counseling staff handle over 10,000 inquiries from the public annually. The most common complaints about the Program in late 2002 were that the counseling was "biased", "inconsistent" and "unreliable." In response, since 2004, one entry- level attorney has been assigned to the Public Information Unit to serve as an "attorney of the day." This is to provide initial and ongoing training to counselors, respond to difficult and more complex cases and provide immediate quality control. In light of the complexity of landlord- tenant laws and regulations these essential functions are best provided by people with legal training. Training for a newly hired counselor lasts between 4 and 6 months before the counselor is no longer shadowed by the staff attorney or unit supervisor. Complaints about the quality of counseling are now rare and customer satisfaction surveys of owners and tenants indicate that citizens are now pleased with the service they receive from the Board's Public Information Unit. It is worth noting that the salary differential is only $500 - $900 per month between a Community Service Specialist II (the classification used for Housing Counselors) and a Staff Attorney I. We have an appropriate number of attorneys on staff in the appropriate classifications to meet our needs at a reasonable cost. III. Accountability and Oversight The voters altered the City Charter to create an elected Rent Board to increase transparency and accountability to the voters because they believed the appointed Board was not sufficiently carrying out the intent of the Ordinance. (The Grand Jury report states that the voters created an elected Board to provide "stricter enforcement of the registration fee", but increased enforcement measures were part of initiative Measure G, passed in June 1982, while the elected Board was the purpose of Measure N, passed in November 1982.) The Rent Board takes its mission seriously and has an active committee structure that provides regular and ongoing oversight of staff efforts. Board committees include Budget & Personnel; Eviction, Foreclosure & Section 8; Individual Rent Adjustment/Annual General Adjustment/Habitability; Outreach; Waivers; Safe & Sustainable Housing; and an Ad Hoc Committee on Smoke-Free Housing. Each Rent Board member typically attends 25 - 40 publicly noticed meetings a year. The Board places an emphasis on transparency and accessibility to the public. Regular meetings of the full Board are televised with closed captioning, broadcast on radio and live webcast (webcasts are also archived for convenient home viewing). The Board could reduce costs by being less transparent but feels public accessibility in viewing their government in action is a civic priority. The Budget and Personnel Committee reviews and discusses all changes to the staffing model before forwarding them onto the full Board for final approval. When appropriate under the law, the Board meets in closed session to discuss personnel matters. The Chair and other Board members provide informal feedback and direction to the Executive Director on a regular basis and the Board conducts a detailed formal evaluation of the Director every two to three years. The Grand Jury report did not mention that, similar to other departments in the City, the Rent Board's financial practices are reviewed annually by an independent outside auditor, selected by the City Manager. The report and findings of the outside auditor are forwarded to the Board as part of their oversight function and was provided to the Grand Jury. In addition, the Board has periodically commissioned studies of the effectiveness of the program, who it is serving and how well it is meeting its objectives. Although they were ignored by the Grand Jury report, these studies have resulted in new initiatives to improve program implementation. A recent survey of tenants analyzed the nature of the tenant population assisted by rent regulation and how well they are served by the program. This study found that new residents of Berkeley were often unaware of their rights and led the Board to work with staff through the Board's Outreach Committee to develop better ways of informing new residents. A recent economic study determined that the rental property owners who own buildings where there has been no turnover since vacancy decontrol (only 400 units out of 19,000) might not be receiving a fair return on their investment. In response, the Board's Individual Rent Adjustment Committee worked with staff to develop a new regulation that will allow these owners an additional rent increase. These are examples of real program evaluation and real accountability. The Civil Grand Jury report's evidence for a lack of accountability is no more than a disagreement with the policies that this Board has established to give priority to effective enforcement of the ordinance and to charge the fees necessary to do so. The Civil Grand Jury characterizes the current situation as "an era where most governmental entities must control costs". We would characterize this as an era when reduced revenues due to tax limitations and economic recession are crippling local government services. We are fortunate that the Berkeley Rent Board is able to charge adequate fees and ensure that the Rent Stabilization and Good Cause for Eviction Ordinance is properly enforced rather than joining the long list of crumbling public institutions. When the foreclosure crisis reached Berkeley, the Board directed staff to do outreach to tenants being threatened with illegal eviction by banks and other lenders who routinely tried to empty out buildings after foreclosure and to the lenders who were engaged in this illegal activity. This helps tenants remain in their homes. Keeping people in their homes helps to keep neighborhoods stable by preventing vacant buildings and blight. It has also helped some owners negotiate agreements with their lenders, once the lenders understood that they could not take the easy path and would have to undertake the responsibilities of being a landlord if they carried out the foreclosure. The Board now receives regular reports from staff on outreach to troubled rental properties. Similarly, in the case of two recent apartment building fires, the Board directed staff to do outreach to the displaced tenants. Board staff were then asked by other City departments to coordinate all tenant outreach, since we had experienced counseling staff and were better equipped to do this. The Board received regular reports from staff and responded with additional policy guidance as issues arose. These are examples of the Board exercising its policy-making role, providing direction to staff, ensuring that staff carries out its directions and using the resources necessary to meet the needs of citizens of Berkeley. IV. Balancing the Interests of Tenants and Landlords
• R4
  Board compensation was approved by the voters and has not increased since 1987. The 1980 initiative measure provided that the Board would be a working Board and would receive appropriate compensation for their time and work up to a maximum of $3,000 annually. Adjusted for inflation this is equivalent to about $9,000 in 2012. The current stipend amount of $500 monthly was set in 1985 and has not increased since. It has lost more than half its value due to inflation over the years. Health benefits were added in 1987 when other elected officials in Berkeley received them. In 1992 the Board majority, which had been elected with the support of the Berkeley Property Owners Association, reaffirmed this policy and allowed Board members to collect their full stipend as long as they attended at least two meetings every month. The current Board has established rules that tie the stipends to meetings attended and deducts additional amounts from a Rent Board members' stipend when they miss an excessive number of meetings. The Rent Board is not like other City commissions, which are appointed by the City Council, are entirely advisory and are generally unpaid. Board decisions can only be appealed to the courts and not to the City Council as with other bodies such as the Planning Commission or Zoning Adjustments Board. In addition, the Board has an active committee structure, including Budget & Personnel; Eviction; Foreclosure & Section 8; IRA/AGA/Habitability; Outreach; Waivers; Safe & Sustainable Housing and an Ad Hoc Committee on Smoke-Free Housing. Rent Board members typically attend 25 - 40 meetings a year. We believe the Board's stipend level of $500 monthly is appropriate when compared with other elected bodies like the School Board ($1,500) and City Council ($2,400). Responses to Specific Grand Jury Recommendations Recommendation 12-10: The Berkeley Rent Stabilization Board must reduce the high rental unit registration fees. We disagree. The primary obligation of the Board is to effectively and efficiently implement the Rent Stabilization and Good Cause for Eviction Ordinance. The Board rejects the Grand Jury's view that lower fees take priority over more effective implementation of the ordinance. We have provided substantial evidence that the Board's approach to implementation is far superior to the approach taken by other cities that charge much lower fees and consequently are able to provide significantly less service. Nonetheless, the Board is always exploring ways to increase the efficiency of our operations and we believe that the new software systems currently being installed at the Rent Board will make it possible to reduce staffing in certain areas. Given the increasing cost of salaries and benefits, much of it due to rapid increases in health insurance costs, it seems unlikely that such increased efficiency will allow reductions in fees, but it will likely help avoid the need for further increases for some period of time. As follow-up to staff's discussions with the Berkeley Property Owners Association, the Board will develop and forward to the City Council options for expanding the number of units required to register and pay for services, which could lower the per-unit fee. The Board further believes that if the State of California were to institute a statewide "single- payer" health insurance system, this would lead to significant reductions in health insurance costs and reduce the Board's cost of operations. The Board will so instruct its' legislative advocate. Recommendation 12-11: The Berkeley Rent Stabilization Board must allow landlords to pass through a larger proportion of the registration fee to tenants. We disagree. All registration fee increases from 1981 to 2005 were passed through to tenants through the Annual General Adjustment. This process passed 73% of the current fee through to tenants. In addition, owners are allowed to pass through all registration fee increases since 2005 to long-term tenants in units that have not received a vacancy increase to market rent, resulting in a total pass-through of 94% of the registration fee to these long-term tenants. Apartments that have received a vacancy increase have had large rent increases that completely cover the increased registration fee, paying an average rent of $1,400 monthly compared with an average of $778 monthly for the units in which 94% of the registration fee has been carefully passed through year by year. An additional pass-through is neither required by nor supported by the language of the rent ordinance we are elected to implement. If any owner has a legal rent ceiling that is lower than the amount necessary to pass through the registration fee along with all other operating costs and still receive a fair rate of return on their investment, they are entitled to petition the Rent Board for a rent increase and can even pass Recommendation 12-13: The Berkeley Rent Stabilization Board must ask the city Human Resources Department to provide more comprehensive salary comparisons regularly and use them in setting salaries and benefits, including those of the executive director and the board members. This recommendation has three components requiring separate responses: