City Council ballot measure proposes tax on vacant storefronts

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Berkeley’s vacant storefronts are the subject behind a possible ballot measure proposed during the Berkeley City Council meeting Tuesday that would penalize landlords for keeping their properties unoccupied.

Put forward by Mayor Tom Bates and Councilmember Jesse Arreguin, the potential ballot measure, if passed, would enact a tax on vacant storefronts after two years of vacancy, charge the owners 50 cents per square foot and allow for the amount to increase with additional years of vacancy.

Vacant storefronts have been an issue for more than six years, said Arreguin’s Chief of Staff Anthony Sanchez. Gathering inspiration from other cities that impose vacancy penalties, in 2011, Arreguin proposed a vacancy registration fee that asked city staff to investigate a potential fee or tax for commercial spaces. In 2013, Arreguin and Bates requested a report from the city manager about the status of the fee, and the issue has now come back for this year’s ballot. 

Currently, there are 91 vacant storefronts in Berkeley, according to the city’s Office of Economic Development website. Proponents of a vacancy tax say these empty storefronts are negatively affecting the businesses and communities next to them by being unoccupied for so long.

“One of the problems with vacant buildings is that they attract people urinating and defecating, they attract graffiti — they generally affect the ambiance of the whole neighborhood,” said Councilmember Kriss Worthington. “Blighted commercial buildings bring down all the businesses in that neighborhood.”

Supporters of this measure feel that, when pressured with added fees and taxes, landowners will lower their high rental prices, which will allow more business owners to afford renting their properties.

According to Worthington, one of the top reasons businesses go out of business that landlords raise rent prices at the ends of leases, which the business owners are often unable to afford.

“There are impacts with vacant storefronts — you have to spend money in terms of public works and police dealing with vacant properties,” Arreguin said. “It has an impact, not only on the character in terms of our community but also in terms of our local businesses.”

While proponents argue the fault of vacant storefronts is on landlords for not lowering rent to make their properties more affordable, others believe the threat of being taxed will cause landlords to hastily choose tenants who will not necessarily benefit the community.

“My greatest concern is that it might detract from a sound retail attraction strategy where you really try to have the best land of businesses in the district,” said Roland Peterson, executive director of the Telegraph Business Improvement District. “If you have too much of one thing and not enough of the other, then the district does not perform at its optimal best.”

Moving forward, the city will survey a sample of 500 Berkeley residents about this potential ballot measure, among others, and present the findings to the council in April.

Contact Chris Tril at [email protected] and follow him on Twitter @ctril.

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  • Samantha

    How did this end up getting voted? I didn’t see a follow up article?

  • Charles_Siegel

    Is we talking about a tax or a fee? A fee would have to be limited to the cost of the impact on the city. A tax could be higher, but it is harder to pass a tax.

    • John Freeman

      If they are still talking just about a Wilmington-style registration
      fee they’ll still have problems making the fee high enough to change
      property owner behavior but low enough to withstand legal challenge.

      A tax would not merely be difficult to tax, it would be difficult to write into an ordinance that would survive a legal challenge. What precisely would you be taxing?

      Regardless, I suggest delaying your questions about the legal structure until (if ever) staff produces a much
      anticipated report on this which would include whatever specific legal
      theory the city wants to operate under.

      At this stage, they’re just making up non-binding survey questions for the ballot measure poll.

      The Daily Cal article doesn’t mention Kriss’ remarks which seemed interesting. If I heard him correctly he asserted that many of the vacancies are, on paper, leased and paid for. That would convey to the parties of the lease the financial benefits without them having to incur any actual costs associated with actually using the spaces.

    • AnthonySanchez

      A fee is what we originally envisioned, but it turned out that the fee would not be able to legally be high enough to be effective per the requirement you pointed out that fees be limited to costs.

      We recognize the difficulty in a tax, but it’s the only way it can be effective. And from our unscientific gut instinct, many voters would be supportive of taxing empty storefronts that should be rented at whatever rent the market can bear, rather than it held out for higher-paying tenants -we bear the externalized costs in the interim.

      Of course, we recognize that each storefront has a unique situation, so we are also including hardship exemptions and will allow the owner to plead their case why they cannot rent out their space.

      • Charles_Siegel

        Thanks for the information, Anthony, and thanks to you and Jesse for your work on this.

        I would certainly support a tax. I agree that we do need hardship exemptions.

        I look forward to seeing what the status of the staff report is.

  • AnthonySanchez

    The article has a glaring factual mistake. Mayor Tome Bates did not put this forward and he is trying to take credit it for our idea and hard work? Please cite why you think the Mayor put this forward? All he did is put forward an item asking for an update on the issue -an item designed precisely to allow him to dupe people into having some involvement in this popular idea. This was our idea and we checked in with staff over the years to track its progress. What did the Mayor do to deserve credit and to insultingly havee his name before the actual author?

    • AnthonySanchez

      Here’s the Mayor’s item that asked for an update:

      It reads as follows: “Request the City Manager to report on the status of the Vacancy Registration Fee which was approved by the Berkeley City Council on September 20, 2011.”

      The reference to September 20th is our item:

      As you can see, the Mayor’s item was nothing more than a status update on a proposal that was already underway by staff per the direction of our item.

      The Mayor’s item add’s nothing new nor directs the issue to come before Council (that was already directed from our approved item). Though the Mayor’s item includes a reference to exploring an escalating fee schedule, this was already done in our item “The proposal recommends a vacancy registration fee for commercial properties which is would go into effect within 6 months after a vacancy occurs and would implement an escalating fee schedule”

      The Mayor’s item briefly mentions a hardship exemption as well. However, our item also covered that in more detail:

      “Suggested exemptions:
      The property would be exempt from the registration fee requirements entirely or
      temporarily if they met the following criteria:
      1. The property is under active construction, rehabilitation, renovation or repair and
      has valid building permit(s) to make it fit for occupancy.
      2. The owner is actively seeking to sell or rent the property and has not found a
      tenant/buyer and payment of the fees would be an economic hardship.

      The City would need to establish criteria to determine if property meets exemptions.
      How do you determine if someone is actively seeking to sell or rent the property? Ads for vacant space? Number of open houses? Number of prospective tenants who have expressed interest in property? Also how is economic hardship defined?”

      As you can see, it cannot be factually claimed that the Mayor brought forward this proposal. His item ONLY requested a status report and the fact is that staff was already working on this at the time of his request. His item added NOTHING new.

      It is unfair to give the Mayor any credit for the idea and hard work we put into this proposal and all our monitoring of the progress of the proposal with staff. At the most, it can could only be fairly and factually reported that the Mayor supports our proposal and, if anything, helped get a status update.

  • Mel Content

    Have any of the MORONS ever considered the fact that maybe these storefronts are empty because their local idiotic regulations and anti-business climate, and the national ongoing recession thanks to Obama’s policies, that these properties are vacant because there aren’t customers to fill them? Just more proof that the uber-liberals in Berkeley are far, far removed from reality.

    • AnthonySanchez

      These storefronts were experiencing vacancies prior to Obama and the reasons are incredibly complex and multi-factored, rather than the simple and reflexive answers you give.

      There often exist perverse incentives in particular cases were it makes more sense for an owner to hold out for a longer term, higher paying tenant like a chain, which means we have to deal with the externalized costs in the interim. Also, financing is a part of it where owners are penalized by their lenders if they rent lower than the projected rents upond which the lending was predicated. What happens are these scenarios where qualified tenants are turned away in speculaton that within the next 2-5 years, a better tenant can come along.

    • Charles_Siegel

      A realtor has told me that developers include storefronts in new developments to get the entitlement to build the apartments above, and they don’t particularly care about renting the storefronts.

      There is a good example on Shattuck Ave north of Delaware. This neighborhood is next to the gourmet ghetto, and it has lots of potential customers. The older building on the west side of Shattuck has always had all the storefronts rented. The new buildings on the east side of Shattuck have always had most of the storefronts vacant.

      The buildings on the both sides of the street have the same regulations, the same business climate, the same number of potential customers. The owners of the new buildings clearly could find tenants for those storefronts – if they had an incentive to do so.