sacramento report
The Future Forecast
by Monica Guillén
California state lawmakers returned to the State Capitol in January to get about the people’s business. The question is: what exactly is the people’s business and what does it mean for the rental housing industry? Below is an overview of several legislative proposals CAA lobbyists anticipate this year.
Section 8
There may be attempts by lawmakers to force rental property owners to participate in the federal Section 8 program.
The federal voucher program began in the 1970s as an alternative to public housing projects. The Section 8 program seeks to aid low-income families in obtaining a decent place to live and promote economically mixed housing. The program encourages voluntary private sector participation. As an inducement to participate, statutory provisions were adopted to protect a property owner’s ability to opt out of Section 8. Nearly four decades later, the voluntary nature of the program is coming under scrutiny.
In California, state law does not mandate that rental property owners participate in Section 8. Under state law, a rental property owner is required to consider all sources of legal, verifiable income from an applicant. However, under the law, Section 8 funds are not considered income because the money is paid by the housing authorities directly to landlords, not as income to the tenants.
The voluntary nature of the Section 8 program has recently come under attack in two court cases, one that has been decided in another state and one that is still pending in California. Earlier this year in Glenmont Hills Assoc. v. Montgomery County, Maryland, a prospective tenant and a fair housing tester were told by a landlord that the landlord did not participate in the Section 8 program. The county and the prospective tenant subsequently filed complaints, alleging that the landlord’s refusal to participate in the Section 8 program violated a local Montgomery County ordinance, which prohibits discrimination in housing sales and rentals on the basis of “source of income.” Because the U.S. Supreme Court later denied a petition for review, the Maryland Court of Appeals ruling stands: the county may mandate that property owners participate in Section 8. (Note: Maryland’s law is different than California’s, for it does not contain the Section 8 income exception.)
Closer to home, Sabi v. Sterling is a Los Angeles case, now before the Appellate Court. The case addresses the interpretation of California’s source of income statute and fair housing laws. The plaintiff alleges that, despite the state law (which expressly provides that money paid directly to the landlord is not income), a Section 8 voucher does constitute income of the tenant and may not be refused by an owner. The tenant also argues that the owner is required to take the vouchers as a reasonable accommodation for the tenant’s disability. The trial court ruled in favor of the property owner, and the tenant has appealed. CAA will file an amicus brief in support of the owner.
For now, California’s Department of Fair Employment and Housing agrees that the Section 8 program’s rent subsidies are not included in California’s definition of source of income.
Foreclosures
Since early 2007, the mortgage industry meltdown has generated an unprecedented number of foreclosures. While the greatest impact has been on owner-occupied, single-family homes, some reports estimate that 20% to 25% of the homes facing foreclosure are tenant occupied. These estimates have raised questions for operators of rental property, including fee-management companies faced with a property foreclosure in their portfolio. On July 8, 2008, Senate Bill 1137 (Perata, D-Oakland) was signed by Governor Schwarzenegger. This bill made several changes to the procedures that must be followed before the holder of a mortgage can issue a notice of default or notice of trustee sale. It also adds new requirements when there is a tenant residing at the foreclosed property.
Although SB 1137 was successfully adopted in 2008, many other foreclosure-related bills failed passage or were vetoed by the governor. Proponents of these measures will likely pursue their bills in the coming year. Moreover, there have been discussions at both the state and federal levels to place a moratorium on foreclosures.
Green Buildings
The State Air Resources Board is busily working to implement AB 32, the far-reaching green building legislation of 2006. If history is any indication, the ongoing regulatory process will not stop the introduction of new state legislation by lawmakers. In 2008, dozens of bills were introduced to reduce consumer reliance on the state’s power grid and to mandate the use of certain types of building materials. Expect to see bills that mandate expanded solar use, reductions of in-unit electrical plug loads and much more.
Split Roll
As California continues to struggle with massive budget deficits, splitting the property tax rolls is once again a topic of discussion. It has been more than 30 years since the passage of Proposition 13 (the landmark tax reform measure that capped all property tax rates at 1% of assessed value and restricted values from growing more than 2% a year.) The split-roll tax concept proposes to maintain Proposition 13 protections for residential owners but would assess commercial property at market value. The issue for the rental housing industry is whether it would be included with commercial properties or whether it would maintain the residential protections under Proposition 13.
For more up-to-date information on each of these issues, check CAA’s website at www.caanet.org.
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Monica Guillén is CAA’s vice president of public affairs. Copyright © 2009 by Black Point Press. All rights reserved.