Memorandum

City of Lawrence

Planning & Development Services

TO:	David L. Corliss, City Manager
FROM:	Brian Jimenez, Code Enforcement Manager
CC:	Scott McCullough, Director Planning & Development Services
Date:	June 13, 2012
RE:	Rental Licensing Ordinance – Potential for Expansion

This memo provides background on discussions related to expanding the rental licensing program and requests that the Commission determines whether expanding the program is prudent at this time. 

On February 28, 2012, Michael Eglinski, City Auditor, presented a performance audit of the rental inspection program to the City Commission.  The audit noted that the “program focuses narrowly on rental housing in certain parts of town” and that “only about 10 percent of rental housing requires licensing.” 

At the conclusion of that discussion, the City Commission directed staff to provide additional information regarding expanding the rental licensing program.  In the past, the commission has discussed expanding the program to all rental units, regardless of zoning and housing type, and expanding the program to rental units that were 50 years old or older.

Purpose of Rental Licensing Program

The rental inspection program for rental units located in single family zoned districts was adopted in May 2001 and became effective on February 1, 2002.  Staff believes the current rental ordinance can be viewed as having three main purposes:

• Public Health and Safety - The licensing and inspection of dwelling units ensures that landlords are providing the minimum property maintenance code standards for the dwelling units for which they rent.  These standards regulate exterior and interior conditions of residential structures which include, but are not limited to, the following:

1.  Light and Ventilation

2.  Minimum Room Widths and Ceiling Heights

3.  Plumbing and Fixture Requirements

4.  Mechanical and Electrical Requirements

5.  Fire Safety Requirements

6.  Unsafe Conditions (Interior and Exterior)

• Reduce Demolition by Neglect - The ordinance regulates rental properties as businesses.  By requiring periodic inspections, staff believes the City significantly reduces the potential for these dwelling units to become dilapidated over the course of time where a situation of demolition by neglect can occur. 

• Sustaining Neighborhoods - Regulating these properties aids in helping neighborhoods maintain their livability and integrity which benefits all properties located within these neighborhoods.

Benefits of Expanding the Rental Licensing Program

• Consumer Protection

Expanding the rental licensing program would extend the assurance that a unit is maintained to minimal safety standards to all or a greater portion of rental units.  An average of 485 inspections per year was completed between 2008 and 2011 that addressed tenant safety.

• International Fire and Building Code Compliance

Identifying the current use of all or a greater portion of rental structures is often challenging for LDCFM.  Inspecting all rental units would provide LDCFM personnel an accurate footprint (number of dwelling units) of the building use which would be beneficial to personnel responding to medical emergencies, structure fires and other calls for service, thus providing greater life-safety measures for tenants.

Expanding the rental inspection program to would provide PDS and LDCFM accurate information regarding the type of dwelling that is present when a building permit application and all related documents are reviewed prior to the issuance of the building permit.   There are uses of a property that require specific fire code regulations to be complied with that may be unknown to the owner. The staff assigned to plan review would be able to access rental inspection records to confirm the use of the property and compare to the use identified on the permit to determine if there are inconsistencies.  This process would greatly assist in reducing errors in the building permit process.

• Land Use Compliance

Past experience has demonstrated that occupancy violations are common in rental units in all areas, RS zoned or not.  The current use of rental properties is often not known by City staff in non-RS districts.   A property that is identified in our records as 3 dwelling units may have been converted back to one dwelling unit or vice versa. Expanding the rental licensing program would identify properties that are being used as “congregate residences” and those properties that have changed their use without going through the permitting procedures.  Periodic inspections would yield information regarding how the property is currently being used, preventing code violations.

Background on Previous Discussions with the City Commission

To address public inquiry and staff proposals, the City Commission has essentially discussed two options over the last several years to expand the rental licensing program – (1) regulate all rental units in the city, regardless of zoning, and (2) regulate rental units that are 50 years old or older, regardless of zoning.

March 27, 2007: In response to a request from the Lawrence Association of Neighborhoods and in preparation for the 2008 budget process, staff submitted a memorandum to the City Commission regarding the proposed expansion of the program which would have included all rental dwelling units regardless of zoning.  The memorandum addressed costs associated with implementing the program which included additional staff, office equipment and vehicles.  The proposal was intended to be cost-neutral to the city’s budget, with the program paid for with user fees.  The Commission discussed this proposal and tabled the topic indefinitely.

November 7, 2007:  The City Commission convened a study session with members of the Oread Neighborhood Association.  One of the topics discussed was re-examining the possibility of expanding the rental licensing program to areas of their neighborhood zoned RM and possibly city wide.  

April 29, 2008:  As a follow up to the Oread study session, the City Commission received the staff report (Jan 25, 2007), which had been presented to the previous City Commission for discussion.  

After discussing the resources needed to expand the program to all dwelling units within the City, the City Commission directed staff to explore options to implement a reduced program with less first-year costs to the City and determine if the program could be established in a cost-neutral manner.   The commission also asked for a clear purpose statement for the implementation of such expansion.

February 17, 2009:  As a product of the 2009 budget discussions, staff presented the Commission a proposal to expand the rental licensing program to include all structures 50 years old or older, regardless of zoning.  The proposal was not accepted due to the economic conditions at that time.

September 21, 2010:  The City Commission adopts the Oread Neighborhood Plan with that supports expanding the rental licensing program in some fashion.

February 28, 2012:  Michael Eglinski, City Auditor, presented a performance audit of the rental inspection program to the City Commission.  The Commission directed staff to submit this memo analyzing the costs and benefits of expansion.  

Estimated Number of Units to License and Inspect

50-Year Old Expansion

During the 2009 budget discussions and through Douglas County Appraiser’s Office records, it was determined that there was a minimum of 2,500 rental dwelling units in 2008 that fit the criteria of being 50 years old or older that would be licensed the first year of implementation.  The city currently licenses approximately 1,700 units; therefore, during the first year of expanding the program there would be a minimum of 4,200 total dwelling units licensed annually.  It is anticipated that staff would utilize the Douglas County Appraiser’s Office and building permit records to identify dwelling units that will be required to comply each year.

City-Wide Expansion

The 2010 Census identified a total of 18,623 renter occupied units located within the City.  A good number of these are located in apartment complexes.  Any expansion that captures units in multi-dwelling structures is likely to include provisions for inspecting a limited number of units within each inspection interval.  Such “spot checking” would yield the same result, but would lessen the resources, and cost, necessary to inspect all rental units in the city. 

Staffing Resources

To determine staffing levels, it is assumed that an inspector completes 5 inspections per day, as well as attends to other associated enforcement duties.  Approximately 230 work days are anticipated during the average year of work.[1]  Using these assumptions yields the ability to complete 1,155 inspections per year per inspector.

50 years or older, regardless of zoning district, staffing requirements – It is estimated that, based on an inspection cycle of inspecting a unit every 3 years, approximately 1,666 inspections would be necessary in the first year of the program[2].  One new Code Enforcement Officer and one new Administrative Assistant would be required to expand the program to accommodate an expansion of the program to include units fitting the 50 year old or older criteria.

All units, regardless of age or zoning district, staffing requirements – It is estimated that, based on an inspection cycle of inspecting a unit every 3 years, approximately 6,550 inspections would be necessary in the first year of the program[3].  Five new Code Enforcement Officers and two new Administrative Assistants would be required to expand the program to accommodate an expansion of the program to include all units in the city, although the program can be created with reduced inspection cycles for newer structures and/or structures that maintain high “inspection grades”.  Also, large complexes might receive spot checks compared with inspecting every unit.  This could reduce the staffing need to four new inspectors.

Cost of Expansion

The table below reflects the costs associated with expanding the program to cover rental units 50 years and older and expanding the program to cover all rental units in the city. 

The table below identifies the costs associated with the implementation during the first year based on 2012 data. 

50 Year Expansion

Position	1^st yr. Benefits  Salary, KPERS, SS, Health Care[4]	Computer, office furniture, phone, etc…	Vehicle Cost, Fuel & Maintenance	Total
Code  Enforcement Officer	$41,614	$2,300	$2,500	$46,414
Admin Support III	$37,213	$2,300	Not applicable	$39,513
			Total 1^st year (expansion portion only)	$85,927
			Total 1^st Year (total program[5])	$196,727

City-Wide Expansion

Position	1^st yr. Benefits  Salary, KPERS, SS, Health Care	Computer, office furniture, phone, etc…	Vehicle Cost, Fuel & Maintenance	Total
Code Enforcement Officer	$41,614	$2,300	$16,800	$60,714
Code Enforcement Officer	$41,614	$2,300	$16,800	$60,714
Code Enforcement Officer	$41,614	$2,300	$16,800	$60,714
Code Enforcement Officer	$41,614	$2,300	$16,800	$60,714
Code  Enforcement Officer	$41,614	$2,300	$2,500[6]	$46,414
Admin Support III	$37,213	$2,300	Not applicable	$39,513
Admin Support III	$37,213	$2,300	Not applicable	$39,513
			Total 1^st year (expansion portion only)	$368,296
			Total 1^st Year (total program)	$479,096

City of Lawrence Annual Fees vs. Other Cities Annual Fees

Research indicates that annual license fees implemented by other city municipalities are quite varied regarding the amount of the license fee and the formula for how the annual fees are calculated.  Many cities have implemented an annual license fee while others have implemented an inspection fee.    As Michael Eglinski reported, and the table below demonstrates, the City of Lawrence’s annual license fee of $25 is low compared to other cities that staff contacted and has not been raised since the program began in 2001, though staffing expenditures have increased.  Mr. Eglinski provided an addendum to the performance audit addressing this issue.  The following table provides examples of other cities’ license fees and their respective inspection frequency.

License Fee Comparison Table (Based on Research Performed in 2008)

City	Annual Fee	Inspection Frequency
Iowa City , Iowa	$60 for each structure $16 for each unit $6 for each bedroom Ex. 4 plex with 3 bedrooms each = $196	Every 2 years
Bloomington, Indiana	$50 for each structure $12 for each unit Ex. Single Family = $62       Duplex = $74       Triplex = $ 86	Every 3 to 5 years
Unified Government of Wyandotte County, Kansas	$18.50 for each structure $18.50 for each unit SF = $37, Duplex = $55.50 Triplex = $74	Single Family – 5 years Multi-Family – 3 years
Faribault, Minnesota	$67 for each structure 0-8 units = $24 per unit 9-14 units = $22 per unit 15+ units = $20 per unit	Every 2 years
Davison, Michigan	Initial registration:1-3 Units = $25 Over 4 units = $50 Initial inspection; SF= $75, 2 Units = $100 3-4 Units = $125, 5-8 Units = $175	Every 2 years
Des Moines, Iowa	SF Initial Inspection = $120  renewal Inspection = $85 Duplex initial Inspection = $142, renewal inspection = $108 Other structures = $108 plus $18.50 for each additional unit	SF and Duplex = 3 years Other Structures = 2 years

The table below provides the revenue generated from our current fee of $25 and the revenue potential if the fees were increased to $40 and $50 respectively.

Revenue Generated Comparison Table (Based on Projections of a 50-Year Old or Older program and a city-wide All Units program)

50-Year or Older Model - $196,727 Total First Year Costs

Estimated Number of  dwelling units	$25 per dwelling (current)	$40 per dwelling	$50 per dwelling
1^st yr. – 4,500	$112,500	$180,000	$225,000
2^nd yr. – 4,750	$118,750	$190,000	$237,500
3^rd yr. – 5,000	$125,000	$200,000	$250,000
4^th yr. – 5,250	$131,250	$210,000	$262,500

All Units Model - $479,096 Total First Year Costs

Estimated Number of  dwelling units[7]	$25 per dwelling (current)	$40 per dwelling	$50 per dwelling
1^st yr. – 18,625	$465,625	$745,000	$931,250
2^nd yr. – 18,970	$474,250	$758,800	$948,500
3^rd yr. – 19,315	$482,875	$772,600	$965,750
4^th yr. – 19,660	$491,500	$786,400	$983,000

• Currently, at a $25 annual licensing fee, the program revenues generate less than half of the salary and operational costs necessary to fund the program.  Over the last two years, the registration revenues have averaged around $40,000 and the costs of the program are approximately $110,800.  A license fee of $65 would be necessary to recover all of the program costs of the current program.

• If the program is expanded using the 50-year old model, an annual license fee of $40 per dwelling unit would be necessary for the proposed expansion to be close, but not entirely, cost-neutral during the 1^st year of implementation.  A $45 annual license fee would provide enough funds to entirely pay for the program in its first year.

• Due to economies of scale, an annual license fee of $25 per dwelling unit could be sustained for the proposed expansion to be close, but not entirely, cost-neutral during the 1^st year of implementation of requiring all rental units to participate in the program.

• The table below demonstrates what percentage of overall rental income associated with license fees of $25, $40 and $50 per dwelling unit would be paid for every dwelling unit that generates $500, $750 and $1,000 monthly rental income.   All scenarios result in the license fee representing less than 1% of the total revenue generated.

License Fee per dwelling unit	Rent per Month for each dwelling	License Fee as % of yearly revenue
$25	$500	0.0041%
	$750	0.0027%
	$1,000	0.0020%
$40	$500	0.0066%
	$750	0.0044%
	$1,000	0.0033%
$50	$500	0.0083%
	$750	0.0055%
	$1,000	0.0041%

Conclusion

The performance audit of the rental inspection program noted that cities regulate rental housing to address the following:

• Improving compliance with codes related to health, safety and neighborhood conditions;
• Sustaining single family neighborhoods; and
• Helping ensure property owners are current on tax and utility payments.

The city’s ordinance focuses on tenant safety and peaceful neighborhoods.  Staff believes the ordinance is a benefit to tenants and neighborhoods and also believes that expanding the program to all rental units would have a positive affect for the city.  While staffing additions would be necessary, user fees could establish the program as cost-neutral to the city’s general fund.

City Commission Options

1. Do not expand the rental licensing program, thus maintaining it only in RS zoned areas.  Consider increasing the license fee to recover a greater amount of the program costs.
2. Expand the rental licensing program to all rental units in the city, regardless of structure type or zoning.  Staff recommends maintaining an annual licensing fee of $25 under this scenario and adding resources as identified in this memo.
3. Expand the rental licensing program to structures in all zoning districts that are 50 years old or older. Staff recommends an annual licensing fee of $40 under this scenario and adding resources as identified in this memo.

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[1] 2,080 hours minus 12 vacation days, 2 personal days, 3 sick days, 3 training days, and 9 holidays.

[2] 4,500 total units plus an assumed 500 re-inspection = 5,000 divided by 3 = 1,666

[3] 18,623 total units plus an assumed 1,000 re-inspection = 19,623 divided by 3 = 6,541

[4] Health care benefits are calculated at the family plan rate resulting in the maximum amount for first year benefits.  Salary is calculated at step 1 for all positions.

[5] Total program costs include staff allocated to the current rental licensing program as identified in the City Auditor’s performance audit of the rental housing licensing program ($106,000) plus costs for vehicle maintenance ($2,500) and office equipment ($2,300) for the current inspector for a total of $110,800 existing program costs.

[6] Vehicle costs for one inspector include only maintenance based on currently having one vehicle in the PDS fleet that could be used by this inspector.

[7] 2^nd through 4^th year are calculated by adding the 5-year average of years 2007-2011 of multi-dwelling units permitted and 25% of single-dwelling units permitted per year to the 2010 census number of units of 18,625.  Single-dwelling avg. was 145 units.  Multi-dwelling avg. was 307 units.  145 * 25% = 36.25 + 307 = 343.25 (345 used to simplify the calculation).