All of the states in the US are broke! While some may look better than others, when pension obligations are included, there are none in the black. Two states that are in awful financial condition are California and Nevada. Beneath the states are counties and cities and nearly all are suffering from expenses that exceed the money they currently collect. Unlike the federal government that can issue sovereign debt and print money, the states, counties and cities are not allowed to run a deficit.
How do struggling state, county and city budgets affect you as an apartment owner? Simple, you are a target for fees and taxes which will come directly off of your bottom line.
The worst example was recently exposed in Bell, California. The city raised fees on property tax bills to fund egregious salaries to municipal employees. In this case, the state has stepped in and is authorizing refunds to about 4,000 property owners.
Currently in Long Beach, California, the Firefighters Association is negotiating with the city trying to fend off cuts to the Fire Department budget. In response, the Firefighters Association has proposed a new annual assessment of $20 per unit on rental properties. The Fire Department stated that the State of California mandates apartments and hotels be inspected annually and that they may recoup their expenses via a fee. According to research done by the Apartment Association of Southern Cities (of which I am a board member), the Fire Department has been doing inspections for 20 years without a charge. These inspections have and will be only of the common areas and not the interior of the units.
This is not an attack on the fine services provided, day in and day out, by firefighters in Long Beach and around the country. It is an example of shrinking public revenues and the battle to find new sources of funding.
I anticipate that more cities will follow the example of Sacramento, Los Angeles, Berkeley and Santa Monica which charge annual fees on a per unit basis. Likewise some fire departments already charge similar fees to the ones that Long Beach is proposing.
New regulations can also add to your expenses. The Environmental Protection Agency has issued new requirements for lead-based paint in the Renovation, Repair and Painting Rule (RRP) that directly affects all rental properties. As of April 22nd of this year, all workers (including the landlord) who work on properties built before 1978 must be aware, give notification and be certified or risk a fine as high as $37,500 PER VIOLATION, PER DAY. Following this law will add costs in training, certification and oversight, but not following it can be excruciatingly painful. For more information on the RRP Rule, please refer to: www.epa.gov/lead/pubs/sbcomplianceguide.pdf.
Given that most rental property owners are feeling the pain of the recession, can these new fees, taxes and regulations be avoided? In many cases it will be extremely difficult. Being aware is vitally important. For instance, the late fees for not registering for a business license (nearly all cities require rental property owners have one) can double the original fee in some cities. In the City of Los Angeles, a tenant being evicted can have the case against them thrown out if the landlord has not registered with the Rent Stabilization Board and paid the annual fee for the unit.
Pay attention to what is happening at your city hall and state capitol. Consider joining an apartment association (there are many) as most will keep you informed and lobby on your behalf. Also, connect with fellow owners of rental properties in your area and create your own mini-association. You’ll often find that many fellow property owners hold elective public office and are sympathetic to your concerns.
Watching the various governmental budget solutions and regulations will assist you in maintaining your bottom line.