A Rush to Misjudgment: Brandman’s Grandstanding May Cost Anaheim Hundreds of Millions Before STR Lawsuits End

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Preface

Some of my writing about Jordan Brandman — mostly dealing with his reckless support of subsidies that benefit his patron Curt Pringle and major donors to and independent expenditure providing supporters of his campaign, and also his lack of commitment to Democratic Party values, including promoting and protecting the interests of Latinos (as with his stances on Districting) —  depicts him being as some pale shade of petty evil: corruptly placing the interests of his supporters or himself above those of his constituents.  This isn’t one of those stories.  (Unless there’s something I don’t know, such as that Disney wants to move all of the permanent residents out of Anaheim’s flatlands until much of it resembles the City of Industry, in which case the STR (“short term rental”) ordinance Brandman sponsored was a good start.)

This is a story about him being bad at his job as a Councilmember.  In this case, really really bad — bad enough that it is likely to cost Anaheim a whole lot of money to dig itself out of the mess he created.

Much of the problem is attributable to City Staff, which should have seen some of the problems with his proposed regulation of STRs.  But frankly, questions like “does this change create a new legal liability for the city?” and “can we reverse this decision later if we choose?” and considerations like “should I talk to average Anaheim residents about this problem as opposed to only members of its establishment” and “should I take what Staff says at face value?” and “should I send a significant new proposal to a public hearing to get their input rather than just springing it on half the Council the Friday before the meeting?” and “should a major zoning change have to go through the Planning Commission?” and “should a complex and significant new policy be rushed through the Council approval process unnecessarily?” are not real tough ones.  (Yes, maybe not, yes, no, yes, yes, and no — in case you’re wondering.)

In the past five years, since the original GardenWalk Giveaway, City Staff and City-sought reports have been extremely unreliable.  Part of a City Councilmember’s responsibility under such circumstances is to be seriously skeptical — as Mayor Tait and Councilmember Vanderbilt, who would have known to ask the above questions of Staff if given sufficient warning about the policy (and perhaps even a prayer of affecting the result of a vote) have repeatedly demonstrated.

Brandman isn’t skeptical of those with power and influence.  He just isn’t interested in that hard and potentially alienating aspect of governing.  He grandstands; he moves the levers of government to assure himself maximum credit to bring out in future elections; and he can tell a great story while leaving out the important parts and shading the rest in his favor.  This is hardly unknown in politics, and it might be forgivable if the products of his political machinations were good — but, they generally aren’t.

Here’s an example of a major issue in especially Districts 3 (where he’s running) and 4 where a misstep was likely either to cost the city a great deal of money or its residents much of their retirement nest eggs.  Brandman took control — and the result (which he blames on others) was a disaster.  It doesn’t make him evil — but it does mean that he shouldn’t be running a government of the size of Anaheim’s.

The moment that Jordan Brandman gestured at me said “Greg is right,” which shall live on with me forever.  (Note to those who can’t perceive facetiousness: *sigh*.)

(1) How Anaheim Bought the Equivalent of a Radioactive Asbestos Factory So That One Councilman Could Preen

It may seem like madness that a group of largely out-of-county plaintiffs can:

• come into an Orange County City
• set up commercial nuisances — short-term rentals — in residential neighborhoods
• disturbing the quiet enjoyment of neighbors on residential streets and destroying their sense of community
• leading even more homeowners sell to off their major life investments to even more STR operators
• making the situation even worse for those who want to live quietly and safely in their residential-zoned streets, and
• then, when the city tries to stop them, sue it to force it to allow them to stay in business with minimal regulation
• and, if they lose that suit for an injunction, sue again to force the City to pay what could be good chunk of a billion dollars in damages

… but that is what is happening in Anaheim right now.

The lawsuit may or not succeed, but it’s only possible in the first place because of what may the single stupidest and most arrogant legislative act of the decade.  That act was mostly the doing of Councilman Jordan Brandman, working with City Staff to rush through a policy to put the Anaheim on the hook for approving this busting of zoning laws and uprooting of people’s dreams.

That’s right — Anaheim wasn’t on the hook legally for STRs until Jordan Brandman went out and put it on the hook!  It’s sort of like Brandman had had the City purchase a radioactive asbestos factor so that he could brag about having brought the purchase price into the General Fund.  “Look, profits!”  No, profits are what you get after you take income and subtract liabilities — like paying damages in lawsuits.

(2) Short-Term Thinking

Short-Term Rental units (“STRs”) are private homes that serve as independent hotel suites in the midst of residential neighborhoods. Sometimes, they bring to those residential neighborhoods quiet vacationers out for a relative bargain.  Other times they bring to your own home street a little of the flavor of a Ryan Lochte and his crew out for a good time overnight in Rio.  Ten days ago, a new Anaheim City ordinance phasing them out became the subject of a massive lawsuit against the City.  (You can read the lawsuit in PDF form here.)

Renting out a home (often with a swimming pool) to vacationers is a gamble — but in Anaheim it has been less of one for STR owners (who get paid in advance, and who don’t have to live next to the nuisance damage done to their neighbors property, their parking privileges, and peace of mind) than it is for the neighboring homeowners (and renters.)  If the temporary visitors don’t show the level of consideration for the need to coexist peacefully that is usually offered by one’s fellow neighbors, the property-owners lose the benefits of neighborhoods — and of mutually supportive communities — that they bought into sometimes decades before.  This includes raucous late-night parties, trespassing, vomit (and worse bodily emissions) on their own home property, and more — including property values for anything but this sort of commercial use falling.  Decades of savings, poof! — unless one betrays one’s neighbors by selling to another STR interest and making the community’s problem even worse.  This is why we zone commercial short-term rental property into commercial zones!

The City of Anaheim finally voted to put an end to this madcap abuse of its zoning laws and the homeowners they are supposed to protect.  In response, STR owners last week filed a lawsuit that would either reverse the city’s decision and/or enjoin its enforcement, so that the party can go on.

That, believe it or not, is not the worst news.  The worse news is that if this lawsuit fails, the City can expect another one — in which STR owners will likely try to recoup every cent of the expected profit from their enterprises from the city.  Not just the value of their investment, but their expected profit from it!

Let’s use some round figures — very rough estimates — to illustrate how much that might be.  Let’s say that there are 500 STRs operating in Anaheim, with an average value of $500,000 apiece,  and that each of them (especially once Star Wars Land opens) might be expected to earn $200 per night for 300 nights per year.  Lets say that, after expenses (including mortgages — for those homes not bought with cash, as many were), $100 of that is profit.  So, per year, that would be $100 x 300 = $30,000 in lost profit per year per house.  For 500 homes, that’s $1.5 million per year.  For 20 years — $30 million.  That’s almost surely a lowball estimate given that, again, many buyers paid cash for these homes — so a higher percentage of their commercial income is profit.

(3) How did Anaheim get into this terrible sort of situation?

How this happened is pretty simple and straightforward:  Councilman Jordan Brandman hustled through the City Council what was almost the worst possible solution to the City’s STR problem where the simplest one — an immediate moratorium on new STRs — would have sufficed.

Brandman was showing off, with an eye towards this very election campaign against his nemesis Dr. Jose Moreno, to demonstrate that he could come up with a quick and easy solution to the community’s problems that would bring money into the General fund.  (Not nearly as much money as the City would lose in a lawsuit, but knowing that would have required foresight.)  He could feel secure that he and his Council colleagues Kris Murray and Lucille Kring could push through a solution no matter what the Council minority of James Vanderbilt and Mayor Tom Tait wanted to do.

Anaheim will be paying for Brandman’s arrogant grandstanding one way or another — out of its cash reserves or out of the suffering of its residents — for decades.  I’ll review here how it happened — with video of Brandman’s own proud explanation of it!

There’s little disagreement about the beginning of the story.  Several years ago, even before Airbnb hit it big, apparently some clerk in Anaheim’s the Community Development department (the big and fancy office across the street from City Hall) was asked about whether one could set up a private short-term rental house in a residential neighborhoods.  That as-yet-unidentified clerk reportedly responded that there didn’t seem to be any city ordinance saying that one couldn’t do so.

Anaheim has an extremely strict ordinance regulating “bed-and-breakfast” enterprises — that’s what “bnb” stands for in “Airbnb” — but somehow this was determined not to apply.  It’s not publicly known even what sort of investigation of the City code took place before the clerk came up with that opinion.  But anyway, it happened, and so people started converting homes to STRs — and even buying them to do so — based on this clerk’s say so.

It didn’t initially seem like a huge problem; not that many people were asking about it.  But as the nature of STRs changed from houses closely monitored by present or nearby homeowners with a stake in the neighborhood to large-scale commercial entities that depended on the police to take care of “nuisance” problems and the overstrapped Code Enforcement crew to take care of “code violation” problems, residents in the affected areas became righteously angry.

Brandman was not initially one of the Councilmembers who seemed to be most sympathetic to the residents who suddenly started showing up en masse to complain at Council meetings — that was notably, as observers of the City Council would expect, Mayor Tait — but eventually he was the one who showed up at one meeting with a fully baked (even if ill-advised) plan.  The City would license STRs for $250 per year, and in return for letting them operate it would collect a TOT tax that it had not to this point been receiving.

In a movie, one would hear a huge clap of thunder at the moment this was presented, because at that moment STRs were changed from a gamble on the part of entrepreneurs that they could get the City to le them have their way, based on the say so of some clerk, to a fully accepted, approved, (poorly) regulated, legitimate business enterprise within City limits.

And that meant that these entrepreneurs actually had rights — property rights.  And they could sue the City for taking those rights away.  Now they wouldn’t necessarily win — the City does likely have viable defenses, if it chooses to exercise them rather than rolling over and settling the lawsuit and casting the interests of property owners to the wind — but the threat of damages as a direct result of this action is one hell of a hammer to hold over the City’s head to get it to act in the ways they want.

(4) This is nuts, author!  I don’t believe you!  This couldn’t be true!  Where’s the evidence?

I’m glad that you asked.  To understand the situation, one can read the lawsuit itself — and also watch a video I took of Brandman answering a question (with follow-ups) than I asked him at the latest meeting of the Anaheim Democratic Club.  (Seriously, don’t miss the video.)

The Lawsuit

First, from the lawsuit, the Plaintiffs’ version of events.  They leave out the critical motivating factor of the freelancing, loose-cannon clerk — see the video of Brandman’s speech for that — but the dates of the legislative acts seem correct and their argument in the two introductory paragraphs seems clear, even if one may disagree with parts of it:

In May 2014, Anaheim amended its zoning code to add STRs as a by-right land use in every residential zone in the City, and simultaneously established a system for permitting and regulating STRs within its limits. Ordinance No. 6299. The City defined “short-term rentals” as rentals for less than 30 days in a zoning district allowing residential uses. Anaheim Municipal Code§ 18.36.050.260. This 2014 legislation responded to the substantial growth in California over the prior several years in the use ofresidential properties as STRs, fueled by the popularity of on-line hosting sites and the public’s appetite for alternatives to more expensive hotels. This demand was especially present in a world class tourist destination like Anaheim, which quickly recognized the value of STRs to its local economy and embarked on a strategy to maximize and exploit that value.

Following its 2014 ordinance, Anaheim actively fostered the issuance of STR permits in the City, which now number approximately 3 77. The regularity and predictability of the City’s comprehensive procedures encouraged investment in STRs, which ultimately arrived in an amount of some $250 million. The City’s regulatory scheme made STRs subject to the City’s 15 percent Transient Occupancy Tax, by which the City has further benefitted to date to the tune of several million dollars. But in late 2015, and for today, driven by a small but vocal minority, the political winds in the City have turned against Anaheim’s STRs. Despite earlier incentivizing STR investment and reaping the benefit of those investments, the City has summarily enacted the Revocation Ordinances, which immediately materially diminish, or possibly eviscerate, and then fully extinguish the vested rights, fundamental vested rights, and rational investments of STR permitees.

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On May 13, 2014, Anaheim passed Ordinance Number 6299 (the “STR Ordinance”), which made material changes to Title 18 of the Anaheim Municipal Code, Anaheim’s Zoning Code. Specifically, the STR Ordinance revised Anaheim Zoning Code Sections 18.04.030, 18.06.030, and 18.36.050. Those revisions had the effect of defining, for the first time, the short-term rental of dwelling units and expressly allowing this use in all single-family and multi-family residential zones in Anaheim. The STR Ordinance also added chapter 4.05 to Title 4 of the Anaheim Municipal Code. That addition created a system whereby STR owners were required to apply to the City for a permit to operate, and set forth a series of conditions regulating the issuance and renewal of STR permits and the operation of STRs.

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On September 15, 2015, only 15 months after the adoption of the STR Ordinance, Anaheim adopted Ordinance Number 6343, which imposed a 45-day moratorium on the commencement, establishment, and/or operation of new STRs, and on applications for the renewal of existing STR permits or for new STR permits still pending on the date of its adoption.  On October 20, 2015, Anaheim adopted Ordinance Number 6347, which extended all of the terms and provisions of Ordinance Number 6343 for an additional 186 days, i.e., until May 3, 2016.  On April 12, 2016, Anaheim adopted Ordinance Number 6369, which extended all of the terms and provisions of Ordinance Number 6343 for an additional year, i.e., until May 3, 2017. Ordinance Numbers 6343, 6347, and 6369 are referred to collectively as the “Moratorium 9 Ordinances.”

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On July 12, 2016, with an effective date of August 11, 2016, the City adopted the Regulate and Ban Ordinance, Number 6374, the stated purpose of which was: To establish that short-term rentals will no longer be allowable uses on any property within single-family residential zones (as defined in Section 18.04.020 of this code), multiple-family residential zones (as defined in Section 18.06.020 of this code), or any other zoning district in the City, including all underlying or base zones, overlay zones and adopted specific plans, in which residential uses are a permitted or conditionally permitted use.  In addition to revoking the STR land use, the Regulate and Ban Ordinance prohibits the issuance of STR permits, except for the potential renewal of STR permits for: (a) owners who had already received a permit to operate an STR, and (b) owners who had filed permit applications prior to September 16, 2015 and whose applications had not yet been approved. A permit system is also provided for one STR operating within the “C-G Commercial Zone” that was authorized pursuant to a conditional use permit before September 15, 2015.

The video (and a transcript!)

At the latest Anaheim Democratic Club meeting (on August 13), Dr. Jose Moreno and Jordan Brandman both spoke before the membership.  (Vern will be reporting on most of that, with videos, but I claimed the STR topic as mine.)

I don’t have a video here of my asking my own question (beyond my introduction at the end of the previous video saying that the question “would not be a hard one”) in which I asked Brandman to explain his own actions in introducing the ordinance that got the City into its current situation with respect to STRs.  (Note that the lawsuit makes clear that that action — and nothing before then — was responsible for the City’s legal liability.)  But the content my question becomes clear from Brandman’s own recounting of it.

Brandman openly and enthusiastically welcomed and praised the question, which was nice from a human interaction perspective, but suggested to me that he still has no idea of how he had toppled over a hornet’s nest and then tossed the City on top of it.

Here’s a transcript of the first 7 minutes, containing our exchange:

BRANDMAN:  The way I became aware of it is: I got calls from longtime residents of Anaheim who were having issues – noise issues – in their neighborhoods.  And they were residents who didn’t necessarily – it’s interesting how this all evolved – were not against people renting out their homes in this.

But what was happening is the City – and Greg is right, this was the clerks, the clerks at the City, in Planning, said this to a number of people – there were no regulations with regard to how they were to be enforced, what the penalty structure was, there was nothing.

And what had happened is: somewhere between 150 to 200 homes had already had business licenses.  They were operating in the City and they had been for, some of them, up to four or five years already.  There were these rentals.

I’m like … OK.  And we have no structure to … we have no formal structure in the City to enforce and regulate and penalize even for bad behavior.

So … OK.  And … wait a minute!  Wait!  You’re telling me that someone’s operating a business in the neighborhood – and that’s what it is, it’s a business – and all they do is pay for a license?  And there’s no real sales tax or anything else?

Well this is wrong.  This is wrong.  And so I talked with the residents, a lot of the residents, who had come to me about the noise and I said: “What do you think of this?”  And one of those residents, I will tell you, one of Lun Cahill, who’s the former Chairperson – he was the first person to call me – former Chairperson of the Anaheim Public Utilities Board, currently sits on it, and is the former fire chief of Garden Grove.

And he, along with a number of other residents who I have been in close relationship with said “you know what?  That’s the way to go.  Let’s regulate this thing.  They’re already here.  There already here.  So long as we regulate it and we tax it and we use the revenue from the tax, we can enforce and get a benefit!  An infrastructure benefit from it.”

So we then went through a long process, it took about a year, to create a regulatory structure through resolutions – and we did.  And it was approved unanimously by the Council.

Upon reflection, and I can say this because I voted to end the program, there were things that should have been in there that did not make it.  And I don’t regret that they … I don’t think I was wrong in voting for the resolution at the time, because a lot of other jurisdictions did not have some of these pieces that should have been in there.

But what happened is: we had this existing 150 to 200 rentals that already existed in Anaheim – and then at the same time that we were dealing with this issue the Airbnb revolution came on top of it.

If Airbnb had never existed and the [BRPO structure started in the past decade had just been in place?], we might have been able to manage this.  We might.  I’m not saying we were, because we didn’t, but we might have.  But Airbnb created a whole new axis added to this that … the gravitational pull of the program was not sustainable.

So here we are.  We tried it.  We did our very very best.  I also believe that with the money we did garner within the first year and a half of the program, three million dollars, we were able to put that to good use.

When the protests on the program first started, I as the person who composed the structure said “we immediately need to get $200,000 into the Code Enforcement to take care of these neighborhoods and make sure that they’re secure” – and I did that.

That was done at the very beginning of the moratorium.  And I think it was very helpful.  It made sure that the neighborhoods knew “we’re going to get right on this, we’re going to make sure that, whatever issues you’re having, we take care of it immediately.”

But then things just kept on evolving.  And by the time we got to the vote – and this was a tough vote for me, a tough vote, as the one who had invested all the time and effort into regulating this program.  I have an STR right across from my alley.

I have an STR right across from my alley.  And I have to tell you, and I said this publicly, I have never once had an issue with it.  Ever.  And I’ve had upwards of fifty different interactions with different families and renters.  But there were a lot of people in the neighborhood who were having issues.

And so that is where we are.  We ended the program.  We have an 18-month amortization.  Airbnb has already swung their racquet at us, and they’re going to sue us – and the majority of us who voted in the program know that it was coming, and we will do our very very best to stay the course with 18 months.  But now it’s a matter of litigation.  And we have a majority of the Council that spends – it’s actually four members of the Council, there’s really only one member of the Council who’s not in favor of ending the program, because it was just not sustainable anymore.

So that is – I hope that that answered most of your question.

DIAMOND:  There’s just one thing I wanted to get to.  Again, this is not, this is not going to be a nasty one, I think.

Um, when I said “due diligence,” I’m basically talking about the research that you do into, among other things, the current state of the law.  Anaheim –

BRANDMAN:  I did all of that too.

DIAMOND:  OK.  Anaheim –

BRANDMAN:  [Unintelligible]

DIAMOND:  Anaheim has had and still has a law dealing with bed-and-breakfasts –

BRANDMAN:  Mm-hmm.  Yes they do.

DIAMOND:  – as I believe you know –

BRANDMAN:  Yes they do!

DIAMOND:  – that is extremely restrictive.  You said that basically it sounds like you took this clerk’s word – whatever, I’m not sure – that Anaheim had no regulation of these new kinds of agencies.  Why did you think that the bed and breakfast law would not apply to –

BRANDMAN:  Staff informed us, through [unintelligible], staff informed us that the bed-and-breakfast law did not apply.

ED LOPEZ (moderating):  I’m sorry, you’ll have to –

BRANDMAN:  That’s OK.  Art?  One more question.

ART MONTEZ (leading up to question):  That’s why they say “never give the floor to a lawyer.”

DIAMOND:  Thanks, Art.

MONTEZ:  Greg, we’ve been on the same side many times –

BRANDMAN:  But Art, he was so nice to me this time!  (Laughter.)

[If you want to see Montez’s question and the answer, check out the next four minutes.  In fairness, other videos that will be posted will show his NOCCCD opponent Ed Lopez moderating the event.]

(5) What went so very very wrong here?

Here are some things that anyone sitting on a City Council should know:

• Those seeking information from government cannot simply rely on the casual statements of office clerks to determine what is and isn’t permissible

Seriously: if you are investing hundreds of thousands of dollars on an enterprise that on its face violates municipal zoning laws, you are — I won’t say “an idiot,” but I will say “not doing your due diligence.”  A statement by a low-level government employee — and in some cases even a high-level government employee — just isn’t good enough.  It doesn’t give you a “vested right” to compensation or injunction if the advice is wrong.  That’s why some things have to be done in writing, forcing the City to send it up to the City Attorney and/or City Manager for attention.  That’s why the lawsuit doesn’t argue that STR owners had any vested right to continue to do business until after Brandman’s new ordinance passed.  And no, simply getting a business license doesn’t give you the right to violate the law.

• Once you license and regulate a particular activity, those engaging in that activity may indeed have some right to recourse if you decide to reverse course, because you have officially said that “what this person is doing is legally OK.”

This is really critical to understand when it comes to zoning.  If you change the city’s zoning ordinances to allow an activity, and they then spend money to engage in that activity, you are going to have a hard time getting rid of them if they have been following the rules.  In other words, Brandman treated this ordinance as some sort of pilot program rather than what it was — a lasting change in the law.  It could have been constrained from the beginning had it been written that way — but neither Brandman nor City Staff saw an apparent need to do so.  The City certainly had a viable alternative to legalizing the practice: it could have said “We have learned that you are operating an unapproved hotel in an area zoned for residential use.  Without conceding your right to do so, we believe that this means that you owe us back taxes for TOT.  Please contact us to work this out.”  The City caved in with so little reason that it raises questions about why.  Did then City Councilmember (and Brandman ally) Gail Eastman — a plaintiff in this lawsuit! — exert undue influence on City Staff to make this happen?

• This is why zoning changes go through the Planning Commission — so that everyone knows what’s coming and the problems with a proposal can be hashed out.

Notice that there’s nothing in Brandman’s story about having involved the Planning Commission.  In fact, as he recounts how the ordinance came into effect, he and staff maintained very tight control of the process — perhaps even secrecy? — rather than opening it up (over the course of a year, he says!) to others.  I presume that Brandman understood that this was a zoning decision far more so than a revenue-gaining decision — but maybe he didn’t.  He seemed to think that the City could do nothing once the lowly clerk had allowed the first 150-200 STRs into existence.  YES THERE WAS!  THE CITY COULD HAVE ENFORCED ITS ZONING ORDINANCES!  It could have been nice about it, as it is being here — allowing time for a gradual phaseout for people who made an innocent error and letting them get back their investments, with provision for hardship cases — but a desk clerk cannot suspend a zoning law!

• A City Councilmember should understand that City Staff may have its own parochial interests — and may even be in touch with people who want things to which they are not entitled from the City.  This should give rise to caution when someone weird comes from Staff.  A City Council member should be competent enough to either know when something is weird or to ask the City Attorney for guidance — and if need be, written guidance.

I’m not saying that City Staff was corrupt here.  I’m saying that there was apparently nothing from preventing them from doing so.  Brandman seemed to make this policy an “end run” around principles of good governance — with predictable results.

• A City Councilmember should talk to people outside of his or her normal stratum — including bouncing ideas off of them rather than solely to members of a prominent City Commission — and should not try to rush a new proposal past the Council.  If the concern was that the problem would worsen in the interim, that’s what a moratorium is for!

I probably don’t need to add much to this one.  Proposal after proposal after proposal has been prepared in secret by the City Council majority, aided by Staff, and rushed past the City Council minority with manufactured urgency before they could respond.  It has to stop.

It HAS to stop!  And Jordan Brandman lacks either or both the willingness or the capability to stop it.