Measure U1 and Measure DD would both raise the business license tax on landlords in Berkeley to generate funds for affordable housing. Measure U1 would raise the tax from its current 1.08% to 2.88%; and Measure DD would raise it from 1.08% to 1.5%.
How did they get on the ballot?
Measure U1 was proposed by affordable housing and homeless services advocates and placed on the ballot by a unanimous vote of the Berkeley City Council.
Measure DD was placed on the ballot by an initiative petition. Paid signature gatherers hired by a sponsored organization of the Berkeley Property Owners Association, collected the required signatures. Over $65,000 was spent in the process.
How much money would they raise for affordable housing
Measure U1 would raise between $3 million a year (landlord economic consultant estimate) and 3.5 million a year (Finance Department estimate) to start, though former Housing Director Stephen Barton, PhD, estimates it will reach $4 million within two years. The amount raised would increase as rents increase, and would also increase each year as rents from buildings that become more than 12 years old become taxable.
Measure DD would raise $1.4 million a year and would increase only as rents increase.
Would landlords be able to afford the increase?
This year landlords are collecting $82 million more this year in rent than they did five years ago. The tax increase from U1 would take about $3.5 to $4 million of this; from DD, $1.4 million. Between 2011 and 2015, the median rent for a new tenancy in a two-bedroom rent controlled apartment rose by 53%.
Are small landlords exempted?
Measure U1 applies the increase in the tax only to landlords with five or more units
Measure DD does not include an exemption for landlords with fewer than five units
What other exemptions are there?
Measure U1 exempts the following other categories from the increase in the tax:
-nonprofit affordable housing rentals and rentals with income qualified tenants paying controlled below market rents
-units occupied by tenants receiving rental assistance (Section 8, etc.)
-rent controlled units occupied by a tenant who resided in the unit prior to 1999. Amounting to fewer than 15% of units, these units have rents well below market since the landlord has never had the opportunity to raise them to market when they become vacant. The idea is to apply the increase to those landlords who have been in a position to take advantage of the huge increase in market rents.
-new rentals for the first 12 years they are rented. The purpose is to avoid discouraging construction of new housing and takes into account that developers of new units pay higher property taxes under Prop 13 than owners of older buildings, and must pay affordable housing fees or provide affordable inclusionary units when they build.
Measure DD mandates no exemptions. The tax increase would thus add to the costs of landlords accepting Section 8 and that of nonprofits providing affordable housing. New housing could be discouraged.
Who would recommend how the new tax money gets spent?
Measure U1 designates the existing Housing Advisory Commission, which already advises the Council on housing matters, housing programs and Housing Trust Fund allocations.
Measure DD would create a new Citizens Advisory and Oversight Panel on Safe Affordable Housing, which the Finance Department estimates would cost $150,000 to start up and staff in the first year.
Does the new revenue from the tax increase have to be spent on affordable housing?
No, because both U1 and DD require only a majority vote to pass. A measure to tie the City Council’s hands absolutely by specifying that the money must be used for affordable housing would require a two thirds vote to pass. Proponents of Measure U1 were aware that the BPOA planned to raise a lot of money, which they have done, to oppose this tax increase. They opted for a tax increase that required only 50% to pass. (Proponents of the soda tax measure in 2014 faced the same dilemma and opted for a 50% tax; the revenues from that tax have, to date, been spent as the measure intended.) The City Council, under both measures, may decide to ignore recommendations and the purpose of the measure, and could make other use of the money. Supporters of affordable housing will certainly keep an eye on the Council and hold them accountable if they fail to use the funds for their intended purpose.
Could the tax increase be passed on to tenants?
Landlords would not be able to pass on the increase to sitting tenants in the city’s 19,000 rent-controlled units. This would be true regardless of which measure passes. Tenants in the small percentage of rentals that are exempt from rent control are generally already paying what the market will bear and, if their rents fall short of market rate, their landlords could raise rents even without an increase in the tax.
How much money have the campaigns spent?
As of September 24, Measure U1 supporters had spent $1,163 and had an ending cash balance of $42,483. Contributions came from non-profit affordable housing developers, former City housing director Stephen Barton, and various individuals.
As of September 24, a committee supporting Measure DD had spent $497,000, most of it on attacks on Measure U1, and had an ending cash balance of $22,712 Contributions came almost exclusively from landlords and people who identified themselves as “real estate investors”. This doesn’t include an additional $290,274 from many of the same contributors spent through June 30 by another BPOA sponsored committee, the “Rental Housing, Coalition, Yes on 10” that paid for polling, consulting and petition circulating.
Who’s supporting which measure?
Measure U1 is endorsed by everyone on the Berkeley City Council along with other elected officials; by the Alameda County Democratic Party and Democratic clubs in the area; by the League Women Voters; by environmental groups like the Sierra Club, and the Green Party; by affordable housing developers, and by providers of services to the homeless like the Berkeley Food and Housing Project; by the Berkeley Tenants Union; and by the ASUC and student groups. For a full list of supporters: http://www.fundaffordablehousing.org/?page_id=1124
Measure DD is supported by some landlords who are part of the Berkeley Property Owners Association. To date, no elected officials, Democratic Clubs or political organizations appear to have endorsed Measure DD. No endorsements have been listed on the several mailers that the group has produced to date.
What happens if these measures fail?
Currently the main source of new affordable housing is the requirement that developers pay affordable housing fees or provide affordable inclusionary units. This source is cyclical and can be expected to dry up whenever the housing market slumps. A recent city report noted that the city’s Housing Trust Fund, whose funds are used to leverage additional federal or state funds to create affordable housing, has only a bit more than $3 million, some of it spoken for. Yet affordable housing developers have said they would need a local contribution totaling as much as $36 million to create the affordable units they would like to create in the next few years.