A measure to increase a business tax that would impact nearly all residential landlords who own property in East Palo Alto to 2.5% will come before voters on Nov. 8.
East Palo Alto's Measure L — not to be confused with Palo Alto's Measure L, which would allow gas utility profits to continue supporting that city's general fund — would raise the existing business tax of 1.5% on a residential landlord's gross receipts to 2.5%, and landlords could not pass on the tax to their tenants.
The tax would generate an estimated $1.48 million annually, which would be used to fund general government work such as affordable housing, providing tenant rental support and protecting local residents from displacement and homelessness, according to the measure's text.
The new measure would differ from the current iteration by taxing all residential landlords regardless of how many units they own. The current 1.5% tax, approved by voters under Measure O in 2016, applies to landlords who own five or more rental units.
The tax can't be passed to tenants who are protected by the city's rent control ordinances. Taxes would likely not be passed on to other renters as landlords typically charge rents at the maximum rate the market will bear, the city noted in the ordinance text.
East Palo Alto tenants have been increasingly displaced as the city has become more attractive. Violent crime has sharply decreased in recent years. Speculators, investors and tech and higher-income buyers have flocked to the city to escape the unattainable home prices in surrounding cities. The city is also situated in the center of Silicon Valley where lucrative jobs are nearby.
East Palo Alto has a long history of rent control to try to curb gentrification and the loss of housing among its largely working-class residents, most of whom are people of color or immigrants. The boom in housing prices without a commensurate increase in affordable housing has forced many longtime residents, including many seniors, to leave the city. Many have lived in East Palo Alto for decades.
Some residents have become unhoused as a result of high rent increases. In one glaring example, local residents marched to Palo Alto to demonstrate in 2017 after the landlord, a limited liability corporation that had no nexus in East Palo Alto, suddenly raised a family's rent by more than $1,000 a month.
The city has a long history of rent-control measures. Voters in 1984 approved a rent-control ordinance, which the city said allowed a "fair return" to landlord investment while limiting large rent increases that would displace the most vulnerable. The California Legislature, however, weakened the rent control ordinance in 1999 by imposing "vacancy decontrol" on units under rent stabilization. Landlords were therefore allowed to raise rents to full market value and beyond whenever a new tenant moved in.
As a result, more than 85% of the city's older rental apartments have had vacancy increases. Newer buildings are entirely exempt from rent stabilization, the city noted.
Most of the money from these increased rents is flowing to landlords who don't live in the city and don't spend their money there.
"This transfer creates hardships for low and moderate-income tenants, drains the economic health of the community (less money for families to spend on local shopping and services) and increases the need for public services of all kinds, including affordable housing and homelessness prevention," the city noted in the measure's published text.
Expanding the existing tax to cover all residential landlords would capture part of the rental-income stream for the community's benefit, the city reasoned.
A "no" vote would keep the current 1.5% tax rate and would only apply to rentals of five units or more, according to a partial analysis by interim City Attorney Valerie Armento. The City Council would have the power to reduce or terminate the tax without voter approval.
Measure L would allow for some limited exemptions. Landlords could apply for a one-year hardship exemption to be approved by the rent stabilization administrator.
Other exemptions would include:
• Nonprofit corporations renting their units for affordable housing.
• Units with rent controlled under state or federal law, deed restrictions or agreements with public agencies at rental rates that are affordable to households earning no more than 80% of area median income, (AMI), where tenants must be income-qualified.
• Units occupied by tenants who receive monthly rental assistance, such as Section 8 vouchers or Shelter+Care from the San Mateo County Department of Housing.
• Any dwelling unit during the first three years after the issuance of a certificate of occupancy.
• A single room without kitchen facilities rented in a residential unit.
• An accessory dwelling unit (ADU) or junior dwelling unit.
The ordinance would require landlords who are exempt from the tax to pay an annual license fee under a schedule established by the city. Landlords who fall under the taxation category would not need to pay for the business license.
Measure L has the support of community religious leaders and affordable-housing advocates, including Father Lawrence Goode, rector at St. Francis of Assisi Church; Pastor Paul Bains, president of WeHope; and "Mama Dee" Appollonia Uhila, director of Anamatangi Polynesian Voices, who, with Mayor Ruben Abrica and Vice Mayor Lisa Gauthier, made the voter-ballot guide argument in favor of Measure L.
Rents in the city have skyrocketed 70% in the past nine years, which has created a housing-affordability crisis with increased evictions and homelessness, they said. Landlords, most of whom live outside the city, have received an estimated $25 million annually in increased revenue.
The measure would help the city to prevent evictions "by creating an emergency rental assistance fund; help homeowners avoid foreclosure; support efforts to preserve and develop affordable housing and assist with preventing homelessness," they wrote.
Measure L also requires the city to review expenditures from the funding annually and to seek public input on how the money is used, they noted.
Opponents of the measure did not provide arguments in the ballot guide and have not openly campaigned against it.
The measure requires a simple majority to pass.