Future Bonds in Jeopardy if Rent Board Nixes Pass-Throughs, Santa Monica Property Owners Warn

By Jorge Casuso

March 21, 2018 -- Santa Monica property owners are warning the City's Rent Control Board that eliminating pass-throughs to tenants in the form of surcharges could jeopardize the future passage of funding measures.

The city's landlords and their organizations have traditionally stayed on the sidelines when local voters have approved bonds and parcel taxes to fund capital projects, primarily for the School District and College.

So far that has been the case -- with the approval of six bonds totaling more than $1.5 billion since 2012 -- because the Rent Board has allowed property owners to pass the surcharges on to tenants, usually in the form of small rent increases.

But with those surcharges rising in buildings that are reassessed when they sell, the Board is considering eliminating the pass-throughs, a hotly debated issue it will take up at its meeting Thursday ("Santa Monica Rent Board to Discuss Eliminating Surcharges for Existing Tenants," March 20, 2018).

Eliminating the pass-throughs, realtors and landlords caution, could jeopardize upcoming bond measures, including a $500 million to $600 million bond the Santa Monica-Malibu Unified School District is contemplating placing on the November ballot.

"Eliminating or decreasing the pass through may have a significant effect on support and passage for this and any future bond measures,” said Bill Dawson, vice president of the local real estate firm Sullivan-Dituri Company.

Dawson, whose firm manages more than 1,000 units in the City, believes tenants should pay for the benefits of the funding measures.

“Renters particularly benefit from having good Santa Monica schools," said Dawson, a past President of the Apartment Association of Greater Los Angeles (AAGLA).

"Many families with children who cannot afford to buy in Santa Monica or pay for private school tuition make a choice to live in Santa Monica because of its schools."

Former Rent Control board member Robert Kronovet, a realtor who was the lone conservative voice in the five--member board's 39-year history, was more pointed in his prediction.

"Every bond measure will be fought tooth and nail ," said Kronovet, who in 2004 became the first candidate ever to win a seat without the support of Santa Monicans for Renters' Rights (SMRR). "There will be no bonds passed again."

Wes Wellman, a local realtor and longtime landlord activist, thinks a sudden shift in policy could mobilize a well-funded opposition to future bonds, noting that SMRR has been a staunch supporter of funding measures.

"If they go back on their promise, the realtors have the money to take on SMMR," said Wellman, a longtime leader of Action Apartment Association, which represents many of the City's small landlords.

Since 2002, four Santa Monica College bonds totalling $935 million, have won easy approval.

But the record is more mixed for the School District.

During the same period, local voters have approved two bonds measures totaling $643 million, as well as a $346 per year parcel tax with no sunset provision.

But two measures have failed -- a $300-per-parcel tax in 2002 and a $198-per-parcel tax in 2010.

So far, the lack of a well-funded opposition to tax measures has helped. But in a telling exception to the norm, a real estate tax on high-priced homes to fund the City's affordable housing program failed badly in 2014 after realtors spent $172,000 to defeat the measure.

If the Board, which has four relatively new members, eliminates the pass-throughs, it would do so without the blessing of SMRR, which has long had an understanding that landlords would remain neutral as long as they are not made to bear the burden of the cost.

The groups leaders are confident a compromise can be reached -- perhaps in the form of a cap -- to protect the most vulnerable tenants from the pass-throughs.

"We believe in the pass-throughs based on the fact that tenants benefit with good schools and good parks, as do property owners," said SMRR co-chair Patricia Hoffman.

"There should be a reasonable pass-through," she said, "but maybe there needs to be a cap."

For landlords and realtors to oppose bond measures that increase property values "does no one any good," Hoffman said.

"That would be cutting off your nose to spite your face."

Former mayor Denny Zane, a longtime proponent of capping the pass-throughs, also expects a compromise will be reached to protect tenants who see a dramatic rent increase when a building sells.

"I think (the property owners' position) is and always has been an important concern when you talk about ballot measures," said Zane, SMRR's other co-chair. "I expect everything is going to work out fine."