If a proposed city ordinance is passed, renters may never see a significant chunk of their security deposits again.

Madison tenants are now entitled to 5 percent interest from their landlords on their security deposit, but the new ordinance would change this law to make security-deposit interest rates match the changing market rate, which is currently lower than 5 percent.

The City Council?s Landlord-Tenant subcommittee met Wednesday to discuss the proposed ordinance. A survey of all Wisconsin credit unions and banks determined the average interest rate applied to savings accounts is currently 1.39 percent. If the ordinance is adopted, that percent would be applied to leases signed this year in which the security deposit is at least one month?s rent.

Madison landlords argue this method would be fair to both tenants and landlords.

Eileen Bruskewitz, a downtown landlord, said it is uncommon for landlords to pay tenants their 5 percent interest every 12 months on multi-year leases, but by publishing the yearly interest rate, landlords may feel more compelled to comply with the city ordinance.

?That landlords don?t comply (with the city ordinance) has nothing to do with the interest rate,? Bruskewitz said.

Bruskewitz also said cities around the country are adopting similar methods. Fitchburg, for example, passed an ordinance two weeks ago that set the interest rates for security deposits at 1.5 percent.

Committee member Rose LeTourneau said interest rates on savings accounts have not been at 5 percent since 1998.

?Security deposits aren?t a means of investment, they are a means of balancing the risk that landlords take,? LeTourneau said.

Ald. Mike Verveer, District 4, said he opposes the ordinance because it is not easy for the average tenant in Madison to figure out the interest rate and most don?t know the law exists.

?We have a difficult time educating landlords on the law of the land, and it?s especially difficult to educate tenants,? Verveer said.

Verveer said Fitchburg?s ordinance clearly does not set a standard that should be applied to Madison and that it is a mistake to overturn the compromise that resulted in the 5 percent interest rate.

?If this 5 percent is such a burden on landlords, they should be able to make it up on their rent,? Verveer said.

Other opponents of the ordinance argue that the interest accrued on security deposits protects tenants? ability to get security deposits back, so landlords can?t keep their money without tenants being able to do anything about it.

Opponents also argue that because the current ordinance favors tenants, landlords want to change it.

?I see this by itself, without doing anything else, as an erosion for the tenants? side,? a representative from the Tenant Resource Center said.

The committee will revisit the ordinance next month before passing it to the Housing Committee. If passed there, the proposed ordinance would be voted on by the City Council.