Below is an open letter to Robert Cage, Assistant Commissioner of the U.S. Department of Labor regarding the Consumer Price Index AND … Mr. Cage’s response.
Los Angeles is the second largest city in the country and they’re using the CPI to adjust the annual rental increase. Remember, in California, unless it’s a new, luxury apartment building, the water service is provided on a single master water meter – billed only to the owner. In California, water is very expensive!
In Los Angeles, under rent control, the tenants do not pay for water, sewage charge and/or trash. Again, of the 211 items listed to consider the CPI, I would imagine 95% do not deal with the operating expenses of apartment owners. The owners provide the appliances. The owners provide the screens, windows, doors, locks, roofs, toilets, bathroom fixates and appliances, kitchen appliances, counters, cabinets, lighting fixtures and flooring. None of these items are tracked or addressed with the CPI.
Also, there is no sales tax in Los Angeles that is paid by either the tenant or the owner for the transaction. None. No sales tax.
The apartment owners’ major expenses involve property taxes, insurance, business licenses, registration with the municipal authority and the routine expenses connected with electrical, framing, repair, restoration and plumbing.
The CPI doesn’t track pest control, sprinkler repair, landscape or new roofs. CPI looks at wristwatches, flat-screen TVs and maybe special digital telephones. They are consumer items. If you and I went to the local mall, we would see those items and they are not reflecting in the operating expenses. We need a new product price index! We need something that is appropriate and fair!
Rents are high. New York City uses its own formula. We think there should be a formula developed for apartment owners if you’re going to use some type of index. Again, there are 211 items in the CPI basket and I believe the overwhelming, vast majority of those items have nothing to do with apartment expenses and/or management. Nothing!
What’s very expensive in California are property taxes. And then – from time to time – they had special taxes known as school bonds and parcel taxes. Very expensive.
Insurance is incredibly expensive. The highest litigation is centered in California – and now … we’ve had wildfires. There are more special laws dealing with tenant discrimination and code violations and those are always difficult to litigate and very expensive. Insurance and attorney fees are not being considered or factored in.
So, as I appreciate and thank you for your excellent letter, it doesn’t change the reality that the CPI is arcane and illegitimate. Yes, it’s convenient and simple for the bureaucrats in the Rent Control/Housing Department to get a number, but it doesn’t make that number fair, equitable or appropriate. It is simply wrong.
Thank you again for your well-reasoned note. You and I could sit down over a cup of coffee and we could go through all 211 items in the basket and probably agree that 95% of those items are not related to the prosecution of the apartments or their expenses. Not even the big items such as property taxes, business licenses, insurance and plumbing repair and restoration. Sincerely, Michael Millman
Response from Robert Cage Bureau of Labor Statistics, U.S. Dept. of Labor
Dear Mr. Millman:
I am responding to your letter of October 3, 2019 discussing the Consumer Price Index and its use in rent control.
First, let me emphasize that the Bureau of Labor Statistics (BLS) takes no position on the use of its statistics in state or federal law or regulations. More specifically, the CPI takes no position on the use of the CPI in rent control law and regulations.
Conceptually, the CPI seeks to measure the change in the cost of living by measuring the change in price of a market basket of goods and services purchased by consumers. The “overall” CPI, the CPI for all items, is often used as a measure of overall price change in the economy, and it is common for the all items CPI to be used as a basis for the adjustment of rents, wages and other payments in the private sector, and official payments and thresholds in the public section. As mentioned above, the Bureau of Labor Statistics has no authority over the use of the CPI and does not take any position on its use for any specific circumstance … including rent control.
In your letter you include a list of goods and services which you believe the CPI does not include. You are correct about most of items. However, the CPI does include sales tax, tenants and household insurance, legal services, water, sewage, trash collection, stoves, refrigerators and some home maintenance and repair services. In all cases, the types of specific items sampled and the weight of these categories would reflect the purchase by consumers rather than business owners or landlords. A list of the categories and services included in the CPI and their weights is available online at https://www.bls.gov/cpi/tables/relative-importance/2018.txt.
Michael Millman is an Attorney and a Mar Vista activist and can be reached at (310) 477-1201.