New Ordinance Amendments re General Obligation Bond Passthroughs
The Board of Supervisors recently passed amendments to Rent Ordinance Section 37.3(a)(6) regarding general obligation bond passthroughs. While the legislation is effective on December 7, 2019, the most significant changes caused by the amendments won’t take effect until November 1, 2020 and later. A summary of the amendments is provided below.
Determining Net Taxable Value: Ordinance Section 37.3(a)(6)(B) – clarifies that for the purpose of calculating a general obligation bond passthrough, the landlord must use the net taxable value of the property as of November 1 of the applicable tax year.
Length of Passthrough: Ordinance Section 37.3(a)(6)(D)(i) – states that for general obligation bond passthroughs imposed on or after January 1, 2021, the time period for tenants to pay the passthrough is extended to the same number of months covered by the property tax bills used in the passthrough calculation. In other words, if the passthrough is based on property tax bills for the prior three tax years, the passthrough will be paid in 36 monthly installments over a period of three years. For general obligation bond passthroughs imposed prior to January 1, 2021, the total passthrough is paid by the tenant over a period of 12-months, regardless of the number of property tax bills used in the passthrough calculation (i.e. even if the passthrough is based on multiple tax years, the entire passthrough amount would be paid in 12 monthly installments).
Banking: Ordinance Section 37.3(a)(6)(D)(i) – effective January 1, 2021, the landlord can no longer "bank" a general obligation bond passthrough that was not imposed for an unlimited period of time. Instead, general obligation bond passthroughs will be limited to only those tax bills issued within the three year period prior to the year in which the passthrough is imposed. For example, if the landlord imposes a passthrough on June 1, 2021, it may include general obligation bond costs for tax bills issued between January 1, 2018 and June 1, 2021, but cannot include any tax bills issued prior to January 1, 2018.
Hardship: Ordinance Section 37.3(a)(6)(E) – allows tenants to seek relief from payment of some general obligation bond passthrough amounts by filing a Tenant Financial Hardship Application. However, hardship relief is only available for that portion of a general obligation bond passthrough that is attributable to general obligation bonds approved by the voters on or after November 5, 2019. The existing rule that no hardship relief is available for general obligation bond passthroughs continues to apply for all other passthrough amounts. Since bonds approved by the voters on or after November 5, 2019 are not included in bond passthrough amounts prior to the 2020-2021 tax year, hardship relief (if any) is only available for bond passthroughs imposed on or after November 1, 2020, based on tax year 2020-2021 and later. Beginning with the General Obligation Bond Passthrough Worksheet for tax year 2020-2021, the Rent Board will publish the bond measure passthrough factor divided into amounts attributable to bond costs approved by the voters on or after November 5, 2019 (which can be deferred due to financial hardship), and the amount attributable to bond costs that were approved by the voters prior to that date (which cannot be deferred due to financial hardship). The standards for determining whether or not a tenant qualifies for deferral of a general obligation bond passthrough due to financial hardship is set forth in Section 37.7(i) of the Rent Ordinance.