Specious Argument for California's Proposition 98

California has two eminent domain propositions, Prop 98 and Prop 99,  on the June 3 ballot. The people who submit statements to the voter's guide (also [Prop 99 here spend a lot of money for the privilege.  A couple of years ago the candidates for the school board were expected to pay $1200 to submit a 250-word statement.  I really wish the voter's guide were much more careful than they are with their arguments.  The arguments, both for and against, are riddled with misleading statements, appeals to emotion, and outright falsehoods.  

Background

Homeowners, family farms, and small businesses filed Prop 98 ostensibly to prevent the government from seizing private property and turning it over to private developers.  Section 19 of Article 1 of the California Constitution states that "private property may be taken or damaged for public use only."  It would seem that the current language is clear and adequate, except the U.S. Supreme Court has held that the government make take private property and turn it over to private developers.  The court opinion turned on the definition of "public use," deliberately undefined in Section 3.  The court took the commonly understood meaning and distorted it to mean "public benefit."

It may seem like insignificant hair splitting, but the next car in the logic train holds that public benefit includes increases in sales tax revenue:  

 Public Use(such as roads, parks) --> Public Benefit --> Increased Tax Revenue --> Available to be spent on public use such as roads, parks.                                                                                

                                                               
For example, in my community, the government is going to take a community landmark, a business that has been operating for sixty years and give it to a developer who will build a 4-story shopping complex.  The local government expects to receive much greater tax revenues, and of course, the developer expects to get rich.  The community is evenly divided over whether it wants the shopping complex.  Up to now it has consistently voted to preserve the historical downtown area.

If all the Prop 98 did was protect private property owners from what many consider to be abusive applications of eminent domain, the proposition might pass easily.  But buried in Section 6: Effective Date is a provision phasing out rent controls and allowing landlords to reset rent to "fair market" value.  Neither side defines "fair market" rent so I will try to read between the lines.

Is the Rent Situation in my Town Typical?

The proponents of Prop 98 appear to define "fair market" rent as whatever the market will bear, not concerning themselves whether the market is bearing it or not.  The opponents of Prop 98 appear to define "fair market" rent as reasonable rent based on the demographic of the typical tenant according to guidelines such as those published by HUD.

In my community rentals are scarce and houses are so expensive that the demand for rentals is quite high.  It is not uncommon for rent to be 75% of the breadwinner's income.  According to the U.S. Census, the typical tenant makes about $26,000, 75% would be 1625/month, a fairly common rent for a 2-bedroom apartment or house in this community.  If that tenant is a single mom with a couple kids, she may be paying the rent, but it would be at the expense of something else.  Landlords believe if the rent is being paid, the market is bearing it.  But for some people, the choice is either pay the outrageous rent or be homeless.  Some choice.  One reason some landlords do not care to charge reasonable rent is because in their hurry to get on the lucrative real estate bandwagon, they saddled themselves with interest only or negative amortization loans they could not afford believing that tenants should cover the mortgage.

HUD guidelines say that housing (rent and utilities) should be no more than 33%.  Even so, the HUD guideline of 33% is less than the HUD calculated Fair Market Rent (FMR) of  $1075 for a typical 2-bedroom.  To find the HUD  FMR for your community check this link.  Most 2-bedroom apartments or houses cost around $1600, but I have seen some cheap dumps for $1200.

Real estate guru William Nickerson, one the the few who actually made money, said landlords should set the rent to be equal to one week's salary for a typical tenant.  Mortgage lenders set a cap of 35% of income for total housing.   At one point Mortgage lenders would not lend to someone whose total debt exceeds 44% .  Recently Rabobank told me that total housing plus debt (principal, mortgage interest, taxes, home owners insurance, utilities and other debt).  

Unbelievably, a number of local property managers have told me with a straight face that all those guidelines notwithstanding, the standard for this community is rent (just rent) 50% of income.  50% of 1/12 of $26,000 is $1083.  There are no 2-bedrooms in this town for $1083 or $1073.

Rent Control

Only trailer parks are under rent control in my town.  Two years ago the property manager of one large apartment complex raised rents by 30% in one fell swoop.  Unbelievable.  I happen to live in one of the few reasonable apartments.  In this town reasonable and nice do not usually go together, so my apartment (actually a duplex) is quite rare.  Every spring the big property managers call my landlady and lobby her to raise rents.  They tell her as long as she is not on board, she is undermining their claims that their rents are "fair market value."  Do they think that if everyone charges outrageous rent, the rent has somehow become reasonable because everyone is charging it.  It just means every is charging outrageous rent.

Proponents claim that Prop 98 protects the vulnerable elderly, poor, disabled, and others because Section 6 says that as long as a tenant with rent control stays put, the rent cannot be raised, but as soon as they leave, the landlord may raise rent to whatever.  In our mobile society, no matter how much the proponents argue otherwise, clearly the vulnerable are not protected at all.  On the contrary, they are targeted for eventual homelessness as one apartment after another is released from rent control.  Sooner or later, there will be no apartments they can afford.

No worries, say the proponents, there are already government programs to take care of displaced persons.  Maybe they are referring to Section 8 housing.  In my town, Section 8 has a 2-year waiting list and is taking no new applicants.  So much for Section 8.  Maybe they are talking about welfare.  It is perfectly possible for someone to be working and not qualify for welfare and not be able to afford rent.  

The elimination of rent control is a fatal flaw in a measure ostensibly intended to protect against abusive exercise of eminent domain.

In order to protect the vulnerable from Prop 98, Prop 99 was filed.  Prop 99 has no rent control provisions.  It also provides, in the words of its opponents,

"Worse yet! If 99 gets more votes than 98—EVEN IF PROPOSITION 98 GETS A MAJORITY---99 kills ALL the Proposition 98 protections for everyone, INCLUDING HOMEOWNERS! Read it yourself in Proposition 99, SECTION 9, in this Guide (Shrill capital letters in original)."

What Prop 99 actually says is,

"SECTION 9. In the event that this measure appears on the same statewide election ballot as another initiative measure or measures that seek to affect the rights of property owners by directly or indirectly amending Section 19, Article I of the California Constitution, the provisions of the other measure or measures shall be deemed to be in conflict with this measure. In the event that this measure receives a greater number of affirmative votes, the provisions of this measure shall prevail in their entirety, and each and every provision of the other measure or measures shall be null and void.

The Legislative Analyst Office believes,

Under current law and practice, government seldom uses eminent domain to take single-family homes. Even when it does so, the acquisition often is for a purpose that is permitted under the measure (such as construction of a road or school). Accordingly, this measure would not change significantly current government land acquisition practices.

Because "this measure would not change significantly current government land acquisition practices," its adoption allows anyone who wants to go back to the drawing board and file a proposition that does not include the elimination of rent control.  of course it would be very expensive, but the proponents of Prop 98 should have thought of that before attempting to eliminate rent control.  The American economy operates on the premise that market forces and completion will create situations that are overall fair to everyone.  In practice however the "haves" are forever trying to rig the system to their benefit and to the detriment of the "have nots."  Landlords already have a power differential with respect to tenants.  If landlords charged fair rents, there would be no need for rent control laws.  

Vote NO on Prop 98 and YES on Prop 99.