Legislation Restricts Bond Passthroughs, Impacting San Francisco Landlords

A recent legislative move by the Board of Supervisors, spearheaded by Supervisor Aaron Peskin, has brought significant changes to General Obligation Bond passthroughs for landlords across the city. This new legislation marks a departure from previous practices, drastically limiting the ability of landlords to recover portions of their property tax bills through rent increases.

General Obligation Bonds, which traditionally fund critical public services, civic projects, and city infrastructure, have long been financed through property taxes paid by homeowners and landlords alike. It is calculated as a percentage of the property’s net assessed value.  Historically, landlords were allowed to pass through a portion of these costs to tenants. Typically the tenant’s obligation was less than $20 per month per unit, depending the owner’s net accessed value.  The longer a landlord owned the property, the small the tenant’s share would be because of the lower assessed value.

If Lingsch Realty prepared your annual rent increases for you, you may not have even noticed the small line item attributable to the general bond passthrough, which you tenants have been paying.

Under the old law, landlords could pass through 50% of the bond amount to tenants. However, the recent change restricts this practice significantly. Now, landlords are only permitted to pass through the difference between the bond amount from the year the tenancy began and the current year’s bond amount. This adjustment effectively reduces the allowable passthroughs, leading to a substantial decrease in income for landlords who relied on these passthroughs to offset their property tax liabilities.

I just prepared a rent increase where the bond amount went from $18.65 last year to $0.40 this year.

For landlords currently utilizing bond passthroughs, existing agreements remain valid, and immediate action is unnecessary. However, with future passthroughs significantly curtailed, landlords are advised to reassess their financial strategies and rental income expectations moving forward.

The Board of Supervisors’ decision underscores ongoing debates in San Francisco over the distribution of financial responsibilities between property owners and renters, as the city continues to grapple with housing affordability and economic equity issues.  Unfortunately, increasingly that means landlords are shouldering more of the burden.

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