HOGAN & HARTSON CHAPTER II Page Five BACKGROUND: THE FIRST YEAR OF D.C. RENT CONTROL In many of its essential elements, the RAC Bill continues the rent control program which has been in effect in the District of Columbia since August 1, 1974. That program was called a "public farce" by the first Chairperson of the Housing Rent Commission set up to administer it, and he resigned in protest after only five months in office. It is therefore helpful to an analysis of the RAC Bill to understand the history of the existing rent control program. In late 1973, Congress enacted the District of Columbia Rent Control Act of 1973, Pub. L. 93-157 (codified at D.C. Code § 45-1621 et seq. (Supp. II, 1975)) which authorized the D.C. Council to impose residential rent control for a period of no more than one year. The Council was required to hold public hearings to determine if there was a need for rent control, and if it found on the basis of those hearings that "a situation exists in the District of Columbia by reason of the shortage of leased or rental residences which is causing serious overcrowding or increasing rents which are contrary to the public health, safety, and general welfare of the tenants and the District of Columbia" it was authorized to enact rent control, subject to certain express limitations contained in the Act. The Council hearings were held in January, 1974, following which the Council resolved that rent control was needed and appointed an advisory committee of landlords and tenants to assist in drafting legislation. The advisory committee, however, was unable to reach a consensus as to an appropriate "pass-through" mechanism, which was required by the enabling act. The Council then "cut the Gordian knot" by imposing a "freeze" on all HOGAN & HARTSON Page Six residential rents from May 1, 1974 until July 31, 1974. 1/ Although the freeze failed to provide the "pass-through" mechanism required by the Congressional act, the Superior Court upheld the validity of the "freeze" in a suit seeking to enjoin its enforcement, on the ground that it was merely a temporary measure intended to "pav[e] the road to substantive legislation designed to stabilize rents in the District, and at the same time to provide means for landlords to recoup any increased costs"; the Court was convinced by the Council's assurances that there was "a genuine concern on the part of the Council for equitable 'pass-through' provisions" in the substantive legislation that would follow the rent freeze. Apartment & Office Bldg. Ass'n v. District of Columbia, D.C. Super. Ct., C.A. No. 3699-74, Opinion (filed June 14, 1974) at pp. 13, 14. Fourteen months later, that pass-through provision has still not been provided. The "substantive legislation," Regulation No. 74-20, was enacted in late July and signed by the Mayor on August 1, 1974. However, it did not contain a pass-through mechanism either. Instead, it imposed a "rent ceiling" on each rental unit generally computed by adding 4% to the rent charged for the unit on February 1, 1973 (the last rent affected by the federal phase II rent controls, which were rescinded on January 11, 1973), supposedly to cover increased operating costs in 1973, and an additional 8% supposedly to cover increased operating costs in 1974, for a total allowance of 12.32%. Any owner whose costs had increased by more than that allowance was required to petition (on an "approved" form) for a "hardship" rent increase, and a nine-member Housing Rent Commission (four tenant representatives, four landlord representatives, and a public member) was established to hear such petitions. - - 1/ The enactment of the rent freeze followed a peculiar course. First, Regulation No. 74-8 was passed by the Council on first and second reading and sent to the Mayor. Upon review the Mayor's staff discovered that the Regulation provided for imprisonment for violations of the freeze which was contary to the Congressional enabling act (only fines were authorized by Congress). Accordingly, an emergency Council meeting was called on April 26, 1974, and Regulation No. 74-9 was passed as an emergency measure identical to 74-8 except for the penalty clause and signed by the Mayor the same day. In the midst of litigation challenging the rent freeze, counsel for the landlord-plaintiffs discovered that the Council meeting at which No. 74-9 was enacted was improperly called, because fewer than three-fourths of the Members of the Council had executed waivers of 24-hour notice, as required by the Council's rules. This defect was immediately brought to the attention of Judge Ugast of the Superior Court, who expressed grave concern as to the validity of the enactment. As a result, a third Regulation, No. 74-13, was enacted and signed on May 31, 1974. It was identical to 74-9, and froze rents at the May 1st levels. HOGAN & HARTSON Page Seven Evidence presented to the Superior Court in an action challenging that Regulation showed that most apartment buildings had experienced cost increases substantially in excess of the amount allowed by the Regulation, and were therefore entitled to "hardship" rent ceiling adjustments. Yet, three months after the adoption of the Regulation the Commission had still not even issued the forms which the owners of those buildings were required to use to apply for rent increases (and had ruled that requests not made on official forms would be rejected). Accordingly, the Court ruled that there was a "substantial likelihood" that the owners of rental housing were being denied their "pass-through" rights, and issued a partial injunction against the requirement that such owners "roll-back" their rents if they were above the rent ceiling. Both sides appealed to the D.C. Court of Appeals, which (as discussed below) ruled that the injunction against the "roll-backs" was proper, but that the Superior Court "did not go far enough. Apartment & Office Bldg. Ass'n v. Washington, D.C. Super. Ct., No. 7040-74, and D.C. App. Nos. 8985 and 9083. The Superior Court also ordered that the Rent Commission make its forms for rent increase requests available by no later than the week of November 4, 1974. The forms were made available, and rent increase requests began to be filed in mid-November. By November 20th, over 100 petitions for increases had been filed, and by early December, that number had more than doubled. Well over 300 petitions had been received by the end of December. On December 30, 1974, the Rent Commission decided that it would be unable to handle most of the cases it had received up to that time within 60 days as required by law. Accordingly, it directed its staff to notify the petitioning landlords whose cases could not be heard that unless they obtained written consent of all tenants to an extension of time, they must either re-file their petitions, thereby starting a new 60-day period running, or seek judicial review. By mid-March, 501 petitions had been received by the Commission, of which only 54 had been decided; 279 had been returned to the petitioning landlords without processing. The Commission reported to the City Council that "very few if any new petitions can be considered in the months ahead." The Council was required by the Congressional enabling act to hold public hearings "on the expiration of six-month period following the effective date of [rent control], ..." D.C. Code § 45-1627 (b) (Supp. II, 1975). Those hearings, if held six months after the May 1st rent freeze, should have been held about November 1, 1974. However, they were not held until HOGAN & HARTSON Page Eight January 22, 1975. At that hearing, the Chairperson of the Rent Commission testified as to the complete chaos in the administration of rent controls, and publicly resigned. Nevertheless, no decision was made following those hearings as to modification or termination of Regulation No. 74-20. But on March 11, 1975, a new rent control bill, No. 1-40 was introduced to go into effect following the expiration of No. 74-20. Despite the fact that extensive public hearings had been held in January, 1975, the Council determined to hold new hearings on Bill No. 1-40. This decision made it impossible to complete legislative action prior to the termination of Regulation No. 74-20 on April 26, 1975. Therefore, the Council passed an "emergency" measure, Act No. 1-12, which extended the provisions of the existing rent control program for 90 days while the new Bill was under consideration. Because this was an "emergency" measure, it was not subject to Congressional review. Hearings on the new Bill were then had, and it was passed (in amended form) on first reading on May 20, 1975, and on second reading, with substantial additional changes, on June 10, 1975. Mayor Washington, however, vetoed Bill No. 1-40. He stated that, although he agreed that there was a need for rent control, "Bill No. 1-40 in my view fails to provide an equitable rent stabilization program which protects tenants against excessive rents while at the same time providing landlords with a reasonable return." The Bill, the Mayor said, would be counter-productive, and "by creating unending adverse impacts on the City's housing supply will harm rather than help the situation." He predicted that the Bill would cause a decrease in property values, "resulting in a significant reduction in revenue from real property taxes, and from income and franchise taxes that otherwise would have been paid." Moreover, under the Bill, "few rental units (would be] constructed or rehabilitated and there will be a significant loss and deterioration of the less than adequate existing rental stock." The Mayor detailed fourteen specific practical, administrative, legal, and Constitutional defects in the Bill which led him to veto it. The Mayor's veto message, and the Council's response to it, are discussed in more detail in Chapter IV. Following the Mayor's veto, a series of "closed door" meetings were held between representatives of the Mayor and Members of the Council. The result of those meetings was Bill No. 1-157, which was introduced into the Council on July 11, 1975. Although the new Bill met virtually none of the Mayor's objections to Bill No. 1-40, and was in substantial ways actually worse than the vetoed measure, the Mayor publicly stated that he would approve it. HOGAN & HARTSON Page Nine The Bill was passed by the Council on first reading on July 15, 1975. The very next day, the District of Columbia Court of Appeals handed down its decision in Apartment & Office Bldg. Ass'n v. Washington. In that decision, the Court of Appeals found that Regulation No. 74-20 was invalid because it "did not possess a workable pass-through mechanism." The Court pointed out that the Congressional enabling act required such a pass-through mechanism; indeed, the Court said, "a workable pass-through mechanism is a necessary concomitant of a rent control program." Regulation No. 74-20, the Court concluded, had been "promulgated without even a meaningful expectation of implementing the required pass-through right. . . . Rather than strike the Regulation down, however, the Court remanded the case to the Superior Court to determine whether to enter a permanent injunction. The Superior Court was directed to allow the Government 90 days "to adopt and implement means of affording reasonably prompt vindication of the so-called pass-through right and the right to a reasonable return." Thereafter, the Superior Court was "in the first instance to determine the reasonableness and workability of these means." The Court of Appeals decision had very important implications for Bill No. 1-157. The Bill contained no pass-through mechanism at all, not even the inadequate partial utilities passthrough of Bill No. 1-40; yet the Court of Appeals had called such a mechanism "a necessary concomitant of a rent control program." Moreover, the Bill continued to use the same rent ceiling as had been used in Regulation No. 74-20 (112.32% of the February 1, 1973 rent); yet the Court of Appeals decision had established that this ceiling was inadequate, because to it should have been added a pass-through of increased operating costs. Nevertheless, the Council ignored the Court of Appeals decision, and passed Bill No. 1-157, without amendment, on July 29, 1975. The Mayor signed the Bill on August 8, 1975. The significance of the Court of Appeals decision, as it bears on the RAC Bill, is discussed in Chapter VII. Meanwhile, a second "emergency" measure was passed in late July (Act No. 1-35), which continued the provisions of Regulation No. 74-20 in effect until September 23, 1975. However, no new rent increase petitions could be received after July 25, 1975, so that the Commission could devote its limited resources to clearing up as much of its backlog as possible. On September 24, 1975, the provisions of Bill No. 1-157 will go into effect on an "emergency" basis (i.e., without being subject to Congressional review) for a period of 30 days, or until Bill No. 1-157 becomes effective if not disapproved by Congress. To summarize the "accomplishments" of Regulation No. |