Berkeley property owner coalition sues city over misleading ballot language

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Update 8/21/16: This story has been updated to reflect new information from BRHC executive director Krista Gulbransen.

The Berkeley Rental Housing Coalition — the political action committee of the Berkeley Property Owners Association — filed a lawsuit against the city Wednesday over a city-sponsored measure’s deceptive ballot language that allegedly overstates the projected city revenue for the tax increase.

The currently approved ballot language for Measure U1 states that the city would generate $3.9 million annually by increasing the business license taxes for property owners operating five or more units from 1.081 percent to 2.88 percent. The projected revenue stated in the ballot language, however, did not take into account the exemptions for many low-income units or new and recent developments where tenants have not lived for at least 12 years, according to an Aug. 11 city memo from the city manager.

“The city has already admitted to the fact that what they’ve forgotten to do … is include the financial value of the exemptions,” said BRHC executive director Krista Gulbransen. “You have to calculate what that lost revenue will be and you have to back it out of your total, and they didn’t do that.”

Measure U1 was unanimously approved by Berkeley City Council in May, however city staff later discovered the erroneous language. With these tax exemptions, Measure U1 would actually generate $2.3 million, the city memo stated. The city manager recommended City Council correct the ballot language during a scheduled special meeting for Aug. 11, but an insufficient number of council members agreed to attend for it to take place.

The current ballot language overstates the revenue by about 41 percent, or $1.6 million, the memo stated.

The BRHC is sponsoring a measure that will also appear on the ballot alongside Measure U1. Measure DD, which was placed on the ballot through a petition, would raise the business license taxes for all owners currently paying them from 1.081 percent to 1.5 percent.

“What we’re proposing is — spread it out for everybody that’s benefiting from this crazy market and make everybody who’s currently paying put in a little more than they have been paying,” Gulbransen said, adding that Measure U1 targets smaller long-time landlords rather than new developers.

But Steve Barton, former Berkeley housing director and co-chair of the Measure U1 campaign, said the 12-year exemption for owners after they first gain tenants is a way to offset financial strains on developers who already have to either include affordable housing units or pay a mitigation fee.

“Rents in Berkeley are increasing way over what is needed to profitably operate and maintain (properties) and generating windfall profits,” Barton said. “The idea is this is supposed to be a windfall profits tax.”

Measure DD would generate about $1.4 million for the city, according to Gulbransen, versus the $2.3 million Measure U1 is estimated to bring in, according to the city memo.

Barton said, however, that both the new $2.3 million figure and the original $3.9 million figure associated with Measure U1 significantly underestimate the actual projected revenue by almost half. This is because the city financial department inaccurately excluded units categorized as mixed-use commercial units — such as large apartments with retail space on ground floors — from the total number of rental property tax payments made to the city in an effort to differentiate strictly commercial spaces from residential ones, among other errors.

In addition, Barton stated in a letter to Mayor Tom Bates and City Council prior to the planned Aug. 11 meeting that based on his calculations, Measure DD would actually generate $1.7 million. After talking with the city financial director, Barton said the city intends to increase its projected estimate from $2.3 million.

City spokesperson Matthai Chakko could not comment on pending litigations or the method by which the projected estimates for the measures were calculated.

While both Measure U1 and Measure DD could potentially receive more than 50 percent of the vote come November, Gulbransen said they each have stipulations stating that only the measure with more individual votes will pass. The money raised would be directed to the general city fund, but the funds are largely intended to be used for developing affordable housing in the city.

According to Gulbransen, the coalition’s legal team and the city attorney will attend a hearing that will likely occur Aug. 30, though originally scheduled for Tuesday, at the Hayward location of the Alameda County Superior Court to discuss the misleading ballot language. 

The official November voting ballots are expected to be printed Sept. 1, Gulbransen said.

Alexandra Yoon-Hendricks is the city news editor. Contact her at [email protected] and follow her on Twitter at @ayoonhendricks.