January 19, 1999

DATE:     January 19, 1999
TIME:     6:00 P.M.
PLACE:  25 VAN NESS AVENUE (AT MARKET ST.)
                SUITE 70 Lower Level
                SAN FRANCISCO, CALIFORNIA

PROPOSED AMENDMENTS TO SECTION 7.14,
THE RULES AND REGULATIONS

The Rent Stabilization and Arbitration Board Commissioners are proposing amendments to the language in Section 7.14 of the Rules and Regulations. This amendment proposes to change the source of rates and the calculation method used to determine imputed interest rates where the owner has used his/her own money. This amendment is being proposed because the indicators that form the basis for determining the imputed interest rates in the current legislation are not always specifically expressed for the designated period (February) each year. Because of the possibility that the use of another month as an indicator might have the same unfavorable results, a new, more reliable source for a Treasury instrument was sought that would offer similar results on a consistent basis.

This amendment proposes to use the rates as posted for Treasury Securities in the Federal Reserve Statistical Release, H.15, as found on the Federal Reserve Internet site. These rates appear to offer similar results to the current methodology being used yet on a more reliable and consistent basis, unlike the current use of Treasury Notes. Averaging the last 12 months of the most recently posted rates for seven and ten-year Securities eliminates the impact of an unusual spike or drop in the index were only one specific monthly rate to be utilized. Using the average of the last 12 months also appears to more accurately reflect the future trend in rates.

If approved at the Commission meeting on January 19, 1999, the department would use this methodology to determine the interest rates for the next 12 months beginning March 1, 1999. Those rates, if adopted, would be 5.3% for seven-year amortized costs and 5.3% for ten-year amortized costs. The current rates in effect through February 28, 1999 are 5.5% and 5.6%, respectively.

Written comments may be submitted prior to the hearing. Persons wishing to respond should do so by noon Friday January 15, 1999 to ensure that Commissioners have time to consider submissions. Oral testimony will also be taken on the 19th.

Section 7.14(b)(2) and 7.14(b)(3) as Proposed:

Section 7.14(b)(2) is being amended while 7.14(b)(3) is new.

Additions are underlined while deleted text has been striked through.

            (2) The first rate shall be the yield to maturity (i.e., the effective rate of return) quoted on the last business day of January in the Wall Street Journal for seven-year Treasury Notes average of the twelve most recent monthly rates (rounded to the nearest tenth) that mature in February of the seventh year as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for seven-year Treasury Securities and shall apply to certified capital improvement costs amortized over a seven-year period in accordance with Section 7.12(c).

The second rate shall be the yield to maturity quoted on the last business day of January in the Wall Street Journal for ten-year Treasury Notes average of the twelve most recent monthly rates (rounded to the nearest tenth) that mature in February of the tenth year as posted by the Federal Reserve on their Federal Reserve Statistical Release Internet site for ten-year Treasury Securities and shall apply to certified capital improvement costs amortized over a ten-year period in accordance with Section 7.12(c).

            (3) These rates shall be calculated by December 15th of each year using the average of the twelve most recent monthly rates posted by the Federal Reserve for seven and ten-year maturity Treasury Securities as of this date.

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