California’s solution to a housing crisis caused by the coronavirus pandemic is to let tenants live rent-free and force taxpayers to pay five months of back rent payments to help provide landlord relief from the state’s rent payment moratorium. 

This moratorium was signed by Governor Gavin Newsom (D) on June 1, 2020, and then he extended the moratorium until July 28, 2020.  California is one of 25 states that imposed rent moratoriums on landlords in response to the coronavirus pandemic.  However, on May 1, 2020, California State Senator Lena Gonzalez (D – Long Beach) introduced SB 1410 into the State Legislature. If passed, the bill will wreak havoc on the state’s budget for at least the next 15 years.

SB 1410 offers tenants the opportunity to defer rent payments until California’s state of emergency is rescinded.  In the interim, these tenants will be allowed to continue to occupy their lessors’ units completely rent free.  Under this legislation, every single landlord in California is legally obliged to offer the rent deferment to tenants.  If the tenant accepts, all of the tenant’s back rent payments are immediately transferred to the government of California.  In exchange, landlords will receive a transferable tax credit equal to the amount of the tenant’s unpaid rent.  Landlords may redeem or sell the tax credits anytime between January 1, 2024 - January 1, 2034.  Over the same 10-year span, the tenant will supposedly slowly repay the debt owed to the state. 

After California assumes the debt obligation, it will be serviced with taxpayer funds.  Once landlords begin reclaiming their tax credits in early 2024, California’s tax revenue will plummet.  To correct the imbalance, the state plans to shift the tax burden onto all taxpayers, whether or not they are renters, through higher income, real estate development, sales, and excise taxes.  The estimated cost of SB 1410 is at least $10 billion.

Senator Gonzales asserts that the bill will “provide much-needed immediate assistance to both tenants and property owners.”  However, SB 1410 only focuses on alleviating the tenants’ back rent payments.   Forcing landlords to house tenants without immediate compensation puts lessors into a financially strenuous position.  The tax credits offered four years post hoc does not address this month’s lost operating cash flow.  Landlords who experience a fall in operating income will be forced to service existing debts and neglect building maintenance.  Service contracts will be cut and maintenance staff fired.  The result will be more unemployment, and vicious cycle that will increase the number of people unable to pay rent due to the coronavirus pandemic.

SB 1410 should not be allowed to reach Gov. Newsom’s desk.  Forcing landlords to surrender their property rights and subjecting taxpayers to 10 years of higher taxes is not the way to address the immediate rent crisis.  When designing an economically sound policy to deal with the impact of the pandemic on tenants’ ability to pay rent, state legislatures across the country should look at SB 1410 as an example of what not to do. 

--Trevor Lewis