Homes on the horizon

Liu’s bill ‘gets Caltrans out of the landlord business’ after a half-century

By Justin Chapman, Pasadena Weekly, 9/19/2013

Tenants renting homes once earmarked for destruction by Caltrans are one step closer to owning those properties following the unanimous passage of a bill now awaiting Gov. Jerry Brown’s signature.
Introduced by state Sen. Carol Liu (D-La Canada Flintridge) and co-authored by Democratic Assembly members Chris Holden of Pasadena and Mike Gatto of Burbank, Senate Bill 416 expedites the sale of more than 500 state-owned houses which were acquired by Caltrans through eminent domain and hardship sales more than 50 years ago. The state seized the properties in order to construct a road through the Los Angeles neighborhood of El Sereno, South Pasadena and western Pasadena to connect the 710 (Long Beach) and 210 (Foothill) freeways. The so-called “footprint” of the road, which includes the homes, is known as the 710 Corridor.
The bill, which passed the Assembly by a vote of 77-0 and the Senate by 38-0 margin, gives current tenants in good standing the first right of refusal to purchase their homes at fair market value. Brown has until Oct. 10 to sign or veto the bill.
The houses are no longer needed for a surface route connector freeway, making them surplus properties. Caltrans is currently studying other ways to connect the two freeways, including plans for a 4.5-mile tunnel from where the 710 ends in Alhambra through Pasadena.
Caltrans is the landlord to tenants residing in about 400 of those houses, the rest of which have been vacant for years and have fallen into disrepair. According to Robert Oakes, Liu’s legislative director, Caltrans wants to relinquish its role as landlord.
“The agency has told us that they want to get out of the real estate business,” said Oakes. “They’ve been quite clear. This bill helps them do that.”
One of the ways it helps them in that regard is by removing the requirement that Caltrans make any needed repairs before selling the homes. If the bill is signed into law, Caltrans would be able to sell the houses at “fair market value,” redefined to reflect the “as is” condition of the properties. Current law, known as the Roberti Bill, named for former Democratic state Sen. David Roberti, makes Caltrans responsible for repairs.
“If you own a house and it needs repairs, as a private seller you can opt to sell as is,” said Oakes. “Right now, Caltrans can’t do that. They face a hurdle that a private seller doesn’t. There’s an artificial barrier. Some houses need a lot of work. (SB416) levels the playing field.”
In August 2012, the California State Auditor found that between July 2007 and December 2011 Caltrans, which did not verify the eligibility of tenants to be charged below-market rate rents, collected $12.8 million in rent but lost $22 million due to underpayment by ineligible tenants. During most of that period, Caltrans reportedly paid out another $22.5 million for questionable repairs.
The audit also found that Caltrans:
* Spent an average of $6.4 million per year on property repairs but could not demonstrate that repairs for 18 of the 30 projects reviewed by auditors were reasonable or even necessary. 
* Authorized repairs that far exceeded the potential rental income of the property. For 20 of the 30 properties reviewed, Caltrans authorized repairs for which it will take more than three years worth of rental income to recover the costs, according to the report.
* Transferred an average of $4.7 million annually since fiscal year 2005-06 to the state Department of General Services for property maintenance, despite the fact that the two departments had been operating without an interagency agreement. In some instances, Caltrans was unable to provide records to substantiate its approval of General Services’ work either before or after the work was performed.
* Possibly inappropriately charged 330 hours of labor to projects related to the properties.
* Estimated that the market value of all the parcels was $279 million, when the actual sale price for many or potentially all of the residential parcels could be roughly 80 percent less than the estimated market value, in part because of restrictions contained in the Roberti Bill.
Six months after the audit’s release, Caltrans began increasing rents by 10 percent every six months, until people are paying market-value rents on the homes. The first increase went into effect on March 1. However, questions remain regarding whether all the tenants in the 710 Corridor would benefit from the bill and when Caltrans would start offering the homes for sale.
Joe Cano, a resident of El Sereno and an organizer with the group No on 710, isn’t sure that relieving Caltrans of the requirement to make costly repairs is such a good idea. Under the Roberti Bill and SB416, all single-family residences must first be offered to present occupants who fall into either low- or moderate-income categories at an affordable price.
“This is a quandary,” Cano said. “Do these people really have the money to fix the houses? Would these houses qualify for a mortgage or are they in such ill repair that the banks won’t even touch them? It still puts the tenants between a rock and a hard place. Either way, they’re being mistreated. It’s a real complex situation.”
Roberto Flores, a Caltrans tenant and a member of the United Caltrans Tenants group, is also unclear on whether there are disparities between the Roberti Bill and SB416.
“The biggest question we have is whether we’re going to have to, as individual tenants, give up our rights under the Roberti Bill,” he said. “It’s going to be kind of strange for them to offer these houses without waiving these rights. If we’re not covered by the Roberti Bill, are we covered by Liu’s bill? Many people have stayed in these houses for nearly 40 years for the dream of one day owning these houses under the Roberti Bill.”
Oakes said that all existing law would stay in place, including the requirement that Caltrans offer replacement dwellings to those who are unable to afford the price offered for the residential property.
“The point is Sen. Liu does not want Caltrans to continue being a landlord for six decades,” said Oakes. “It has now been five. The properties need to be sold. The housing market is finally getting better, prices are increasing; it’s a good time to sell.”
However, there is no timeline in SB416. It does not require Caltrans to begin selling the properties by a certain date, though the law would go into effect Jan. 1 should the governor sign it. Kelly Markham, a spokesperson for Caltrans, did not have a comment on Liu’s bill or what it would mean to the agency if approved. “We’re not going to speculate at this time,” said Markham. “Call us back when the governor signs the bill.”
Oakes said that while there is not a specific timeline, “The direction of the bill is to start selling. It clarifies and accelerates the process.”
In an email to constituents outlining his legislative victories during his first term, Holden wrote that SB416 “ensures the timely sale of surplus homes currently owned by Caltrans in the now-obsolete 710 Corridor. This bill is a critical first step to restoring peace and security to neighborhoods long threatened by Caltrans’ poor property management and an ill-advised surface extension of the 710.”
Flores said the United Caltrans Tenants group is currently reviewing the bill to see how it affects tenants and will be asking Liu’s office to break down the bill’s language at an upcoming workshop. 
Cano said members of his group are looking at their legal options, but in the meantime, “everything’s pretty much in stasis.” 
“The governor looks on it positively, so Sen. Liu hopes he will sign it,” said Oakes. “We’ve had good conversations with Caltrans’ director and the agency’s secretary.”
“This bill gets Caltrans out of the real estate management business, generates revenues for local transportation projects and returns these properties to our local tax rolls,” said Liu in a press release announcing the Senate’s passage of the bill on Sept. 10.