Deposit law would benefit renters

A retired Chico State University journalism professor and frequent contributor to the News & Review

A most important piece of pro-tenant legislation—AB 2330 by Carol Migden, D­San Francisco—passed the state Assembly in May by a comfortable 42-20 vote and then cleared the Senate Judiciary Committee 4-2 on June 25. The bill, which would require that bank interest accrued on rental security deposits be paid to the tenant upon termination of the tenancy, must now pass the full Senate before it goes to the governor’s desk. A spokesperson for Assemblyman Sam Aanestad, R­Grass Valley, said the governor hasn’t yet signaled his stand on the measure.

Addressing two other traditional renter sore points, the measure also defines “ordinary wear and tear” for which deposit money may not be deducted and further would require the landlord upon tenant request to inspect the unit before the renter moves out so the tenant can clean and fix up the premises and thus avoid deductions from the security deposit.

Landlords have fought the proposed law (Aanestad voted against it in the Assembly), which would affect Chico profoundly because a hefty 60 percent of the 23,476 dwelling units in town are rentals, with only a 2.6 percent vacancy rate, reports Dennis McLaughlin in the city Housing Office. He added that 46 percent of the occupants of these 13,990 rental units are paying more than 35 percent of their monthly income for housing, a figure far higher than the maximum 30 percent recommended by personal-budget planners. The 40 percent owner-occupied rate in Chico compares with 57 percent statewide and 67 percent nationwide.

McLaughlin pegged $600 per month as a fair average rental rate for Chico and noted that security deposits usually equal a month’s rent. Multiplying $600 by the number of rentals yields close to $8.5 million in security deposits banked at any given time. An average 2.5 percent interest rate—current rates are at a 40-year low—for $8.5 million would yield $212,000 in interest money per year, still a lot of bucks beyond rent for landlords to enjoy.

The idea of returning interest isn’t new. Many cities have rent control boards with rules for the return of interest on security deposits. However, last December a state appeals court ruled that the Santa Monica rent control board couldn’t force landlords to pay 3 percent interest on security deposits because, first, rent control has nothing to do with security deposits and, second, its rule unfairly forced landlords to take from their own pockets the difference between 3 percent and lower current rates.

Presumably the final draft of Migden’s new law—probably inspired by the Santa Monica precedent case—will provide for landlords to return the proceeds from the prevailing interest rate paid by insured banks, not a fixed rate such as 3 percent, that is reviewed, say, every two years.