All Commentary
Tuesday, September 1, 1998

Plenty of Room at the Inn

San Francisco's Hotel Conversion Ordinance Is a Subterfuge for Generating Revenue

Sigfredo Cabrera is the director of communications for Pacific Legal Foundation in Sacramento, California.

French immigrants Claude and Micheline Lambert are asking some tough questions these days, and they need to be answered—real soon. To paraphrase:

What can be said of individual and economic liberty in a country where government has the power to impose extreme burdens on a single group of people in the name of the “public good”? How free is American “free enterprise” when government officials determine the “customers” to whom businesses shall offer goods and services? How does free enterprise flourish in the “land of the free” when success is held hostage by government edicts that punish people for their hard work? On what authority does government stand when it tums our “American dream” into a nightmare?

The Lamberts’ questions are not without context. The city of San Francisco is holding 31 of the rooms of their hotel “hostage” in the name of the homeless until the small-business owners pay it over a half-million dollars in ransom to free up the units for tourist use.

An “American Dream” Story Gone Sour

The Lamberts came to the United States 30 years ago and are now owners of a small tourist hotel in San Francisco. Mr. Lambert began working at the Cornell Hotel in 1966 as a janitor in exchange for room and board. After 12 years of working long hours and moonlighting as a French teacher, he was able to buy the 58-room Cornell, located at 715 Bush Street. Over the next few years, Mr. and Mrs. Lambert reinvested over $1 million to renovate and transform the deteriorated, six-story Victorian building into a charmingly decorated inn. The local Club Lafayette described the Cornell as “epitomizing the finest of those little gems a traveler discovers in France.” Business and political writer Elizabeth Larson wrote that “Their efforts have won accolades from fellow immigrants and French visitors alike . . . . French businessmen and exchange students have flocked to the Cornell as their home away from home during long business trips to the Bay Area or semesters at Berkeley attending the University of California.” The Cornell’s accommodations include a quaint French restaurant in the basement, called jeanne D ‘Arc.The Lamberts and their daughter Sabine, who helps run the hotel, are proud of their accomplishments. For helping to improve the neighborhood, “we should have a medal;’ said Mr. Lambert.

The Lamberts’ bureaucratic nightmare began on September 23, 1979. Under San Francisco’s Hotel Conversion Ordinance, any hotel room which, on that day, had been occupied by the same guests for at least 32 days was designated “residential” while all others were designated “tourist units.” Since 31 of the Cornell’s 58 rooms were being rented to long-term business elients and exchange students on that fateful day, the Cornell was officially classified by the city as a “mixed use” hotel subject to the hotel ordinance.

Unlike many small San Francisco hotels, the Cornell was never in the business of providing low-income housing for the city’s indigent residents. But that didn’t matter to the local housing bureaucrats. For the Lamberts, the law dictated that only 27 of their rooms were available for tourist use. Even worse, the residential units had to be rented out at regulated, below-market rents. In response, the Lamberts closed up many of those rooms, since it was cheaper to keep them vacant than to clean and maintain them without being able to charge the market price.

The Lamberts applied for a conditional-use permit to convert the 31 residential units to tourist use, giving them the freedom to rent to whomever they wish. However, that would entail the “destruction” of low-income housing under the city ordinance. “The city’s housing stock must be preserved,” cried the city Planning Commission, which rejected the Lamberts’ application to reclassify all the Cornell’s rooms for tourist use. To free up their rooms, the Lamberts would have to pay a ransom of about $600,000, the city’s estimate for building replacement housing. To get the bureaucrats off their backs and get on with their lives, the Lamberts offered the city $100,000, but that was rejected.

Victims of Subterfuge

What makes this case most outrageous is that the hotel-conversion ordinance is nothing more than a subterfuge for generating revenue. Despite the city’s mantra about the need to save the housing stock, local officials have done nothing to fill over 5,000 rooms that remain vacant in the many small hotels subject to this confiscatory ordinance. “In essence, the city is telling these property owners ‘keep your rooms empty, or pay us money,’” said Pacific Legal Foundation attorney R. S. Radford, who is representing the Lamberts. So far, a trial court and a court of appeal have rejected their challenge, but the California Supreme Court has offered a glim mer of hope by deciding to hear their appeal. Of course, the city denies that the hotel-conversion ordinance is being used as a ruse for generating income. “One of the most paramount public policies in this city is preservation of the housing stock,” insists Deputy City Attorney Andrew Schwartz, who also says it is “inconceivable” the city would deny the Lamberts a permit because they wouldn’t pay the ransom.

But assume, for the sake of argument only, that the city was genuinely sincere and truly wanted to Use the private property of others as a convenient depository for the city’s homeless—does that make it right? Is it fair that a law should place the financial burden of housing the indigent on the backs of an industrious family, and others similarly situated, whose property can be easily seized and converted to public use? Such a law is a clear violation of the U.S. Constitution’s Fifth Amendment, which says government shall not take private property for public use without paying “just compensation” to the property owner. The underlying purpose of this takings clause is to deter government from enacting laws that especially burden private-property owners.

Commenting on the Pacific Legal Foundation’s defense of the Lamberts, Schwartz told a legal reporter that PLF “believes that property rights should be elevated to a fundamental right, and there is no basis for that in our jurisprudence” (emphasis added). That statement is directly contrary to the U.S. Supreme Court’s determination, in Dolan v. City of Tigard, that property rights are as important a part of the Bill of Rights as freedom of speech and religion or the protection against unreasonable searches and seizures: “We see no reason why the Takings Clause of the Fifth Amendment, as much a part of the Bill of Rights as the First Amendment or Fourth Amendment, should be relegated to the status of a poor relation,” Chief Justice William Rehnquist wrote.

By saying “our jurisprudence,” Deputy City Attorney Schwartz has made it clear there is no vacancy for private-property rights in San Francisco and that other business and property owners in the city are fair game for this type of abuse. Let’s hope the Lamberts prove him wrong.