Fix Muni Now
SFAA is supporting Supervisor Sean Elsbernd’s proposed ballot measure to reform the Muni pay structure so that Muni operators must negotiate for pay and benefits and change their “work rules” to be more flexible and less wasteful. The measure is currently in the petitioning stage and supporters must gather 47,000 signatures by July to get it onto the November 2010 ballot. SFAA is helping by getting the word out to members about this important initiative and by having petitions available at SFAA events like its recent trade show. “We’re supporting Sean Elsbernd and this public service,” explains SFAA Executive Director Janan New. For more information, go to fixmuninow.com.
Seismic Task Force Meeting
SFAA recently held a forum on the city’s seismic regulations and was very pleased by the strong owner turnout. About 60 members came and voiced their opinions about how San Francisco should institute mandatory legislation to seismically upgrade soft story buildings, which is likely to be passed this fall. “Everybody weighed in,” reports SFAA Executive Director Janan New.
On the forefront of owners’ minds was the time frame to phase in this likely new requirement, with most owners requesting a ten-year phase in. They were also pushing for better financing options than what was available for unreinforced masonry buildings, which also require seismic strengthening. SFAA will take all of these concerns back to the mayor’s Seismic Task Force and will try to make sure they are incorporated into the final legislation.
Redevelopment Funds Sent Back to State
After losing a court appeal, cities and counties across California turned over $1.7 billion in local redevelopment money to help balance California’s budget. Last month, Sacramento Superior Court Judge Lloyd Connelly said the state raid was legal, and the Third District Court of Appeal denied an emergency stay requested by the California Redevelopment Association, a group made up of cities with redevelopment agencies.
No Smoking Signs
Later this month, SFAA will also have new “No Smoking” signs available from the San Francisco Department of Public Health. All landlords need these signs to be in compliance with the recently passed smoking ordinance from Supervisor Eric Mar. The legislation bans smoking in apartment common areas and requires the posting of “No Smoking” signs in these areas. It does not affect smoking inside tenants’ units.
Vanessa Khaleel on Maternity Leave
SFAA is happy to report that Deputy Director Vanessa Khaleel is expecting a little girl later this month. Khaleel went on maternity leave last month and is expected back to work at SFAA in the fall.
New Commercial Rent Tax?
San Francisco is considering a new tax on commercial rents, a move that could raise $84 million for the city but would quadruple the number of businesses paying city taxes. The San Francisco Controller’s Office is circulating two separate tax overhaul proposals, both of which contain a new commercial rent tax of 1.395% and attempt to make the city’s payroll tax less onerous to smaller businesses. Under one proposal, the city would couple the commercial rent tax with a two-tiered payroll tax that would charge companies a higher rate for workers earning more than $85,000 and a lower rate for those paid less. The payroll tax is now 1.5% of a company’s total payroll, regardless of salary. Under the second proposal, the city would abolish the payroll tax and replace it with a gross receipts tax coupled with a commercial rent tax. The gross receipts rate would vary depending on the industry from .05% to .575% of a company’s revenue. Gross receipts taxes have been proposed before, but never approved by voters.
The commercial rent tax likely would be charged to commercial property owners, who would recoup the cost by passing it to tenants. About 6,000 companies pay the tax on payroll now, but about 24,000 would be subject to the commercial rent tax. Other Bay Area cities like Oakland, Fremont and Concord collect some form of commercial rent tax.
The Controller’s Office, which is asking for reactions from businesses, is expected to make final recommendations to the mayor and Board of Supervisors this month. Any change to the city’s taxes would have to be approved by voters. If supervisors want to put a tax measure on the November ballot, it must be approved by July 27. No new tax could start before the fiscal year beginning July 1, 2011.
Megan’s Law Database May Be Off Limits
A recent California Second District Court of Appeals ruling seems to indicate that an employer cannot use information from the Megan’s Law sex offender registry to deny employment. Since Megan’s Law also prohibits use of information from the registry for any purpose relating to housing, property owners and managers should take note of this decision.
In the case, Mendoza v. ADP Screening and Selection Services, Inc., the plaintiff alleged that he was denied employment because the prospective employer had been provided information from the registry by ADP. Although the court ruled that the screening service had done nothing wrong in supplying the information to the employer, it did indicate that, were the employer named in the lawsuit, it might have been found to have used the registry information unlawfully to deny employment.
Therefore, this case seems to indicate that landlords should ask their tenant screening services where they are getting the criminal information that they provide. It’s possible that if any portion of the information came from the Megan’s Law database, denying housing based on the information from the screening service could be a violation of the law. Violations of Megan’s Law can carry civil penalties of up to $25,000 per occurrence.
Is Inflation on the Way?
Those still worrying about the financial market fallout can breathe a sigh of relief, according to economist Ken Rosen. “The financial crisis is over,” Rosen declared at the 15th Annual Fisher Center Real Estate Conference in San Francisco. Rosen, who is the chairman of the Fisher Center at UC-Berkeley, also said the economy is growing at a fast enough clip that the Federal Reserve and other policymakers are already behind in preventing the next asset bubble because they are more concerned with deflation than inflation.
During his hour-long keynote presentation, Rosen said that it was time to raise short-term interest rates, although he acknowledged that the Fed is likely to leave them at or near zero for at least six months. While emergency measures taken by the government to head off a collapse of the financial system were warranted, Rosen relayed, the low cost of borrowing is encouraging the same kind of risk taking that created the previous bubble. He predicted that inflation could quickly rise 3% to 5%, forcing the Fed to play catch-up and raise short-term interest rates to between 3% and 4% within two years.
While it typically takes up to two years for the economy to start adding jobs after a recession, employers have cut so deeply they can’t provide the minimum level of services and will bring 1 million workers back on their payrolls this year, Rosen predicted. However, it will take three to four years to replace the 8.4 million jobs lost during the recession, he predicted.
The outlook for U.S. housing is also promising, according to Rosen, as falling prices and low mortgage rates have produced dramatic improvements in affordability in many markets, and household formation is likely to drive demand for homes. However, the Fed is wrapping up its ongoing purchases of $1.25 trillion in mortgage-backed securities, which will push mortgage rates up. If mortgage rates stay in the 5% to 6% percent range, that will help keep housing affordable, but if it goes higher than that quickly, the market will be dampened.
On the supply side, Rosen expects new housing production will remain below the historical norm of 1.1 million homes a year, and will take two to three years to bounce back. However, he expects foreclosures to set new records in 2010 and for problems to drag into 2011 as homeowners who have been waiting for prices to stabilize before putting their homes on the market finally make that move.
Prop. 13 Measure Passes Key Committee
AB 2492, a bill from State Assemblymember Tom Ammiano (D-San Francisco) that would change the definition of a property transfer such that commercial properties could be reassessed more often under Prop. 13, cleared the Revenue and Taxation Committee recently. AB 2492 won approval on a strict party-line 6-3 vote, with every Democrat in favor and every Republican opposed. It should reach the Assembly floor this month.
Under current law, if a property is owned by a legal entity in which four individuals each own a 25% interest, then if an individual sells their 25% interest in the legal entity to someone else, no reassessment will occur. This is true even if each of the four individuals sell their interests to other persons. Only if one person or entity obtains control (more than 50%) will a change in ownership be triggered. Because commercial property becomes part of a business, the property ownership often transfers with the ownership of the business, but the property itself is not subject to reassessment. If AB 2492 passes, it would change the definition of a “sale” to make the property easier to reassess.
Opponents, like the California Chamber of Commerce, say that higher property taxes on commercial properties will force owners to increase rents for businesses that may already be struggling to pay their landlords. This could lead to job loss, increased vacancies and a further depression of the real-estate market.
Proponents claim there has been a shift in the tax burden from commercial to residential. In San Francisco, for example, residential property owners increased their percentage of property tax revenue from 41% in 1979 to 57% last year, while commercial property saw a decrease from 59% to 43% in 2009, according to the San Francisco Assessor’s Office.