Sunday, April 22, 2018     Volume: 19, Issue: 7

Santa Maria Sun / News

The following article was posted on June 14th, 2017, in the Santa Maria Sun - Volume 18, Issue 15 [ Submit a Story ]
The following articles were printed from Santa Maria Sun [] - Volume 18, Issue 15

North County supervisors lament lost tax revenue sources after recent short-term rental ban


The Santa Barbara County Board of Supervisors voted on June 6 to ban short-term rentals—or vacation rentals—from residential and most agricultural zones in unincorporated areas of the county starting in September 2018, effectively eliminating millions of transient occupancy tax (TOT) dollars per year from the county’s tax base.

The 3-2 vote came just a week before the supervisors began their budget workshops for the 2017-18 fiscal year, for which the county is estimating a $35.4 million deficit, thanks to a projected decrease in the rate of return on employee pensions. According to a Board of Supervisors agenda letter, the county collected more than $1.4 million in TOT from short-term rentals in the 2014-15 fiscal year, having issued 492 TOT certificates to short-term rental properties, and nearly $1.7 million in the 2015-16 fiscal year, with 535 certificates issued.

Santa Barbara County will enter its new fiscal year in July with severe cuts to the budget—and now, there will be one less source of tax revenue.

A ‘bait and switch’

Supervisors Steve Lavagnino and Peter Adam—who represent the 5th and 4th districts, respectively—voted against the motion to prohibit vacation rentals, saying it would be irresponsible to turn down a source of tax revenue in the face of such a deficit.

Lavagnino added that it didn’t make sense to eliminate a TOT base after raising the TOT rate from 10 percent to 12 percent in the last election.

“To take almost that exact same amount in what we were collecting in TOT from short-term rentals and then throw it out the window, I call it a bait and switch,” Lavagnino told the Sun.

But 2nd District Supervisor Janet Wolf disagreed. She said short-term rentals in residential areas were impacting the quality of those neighborhoods and compromising the integrity of county zoning laws. And even without those rentals, the county would still see an increase in TOT revenue thanks to local hotel development, she said.

“In my mind, they’re two separate issues,” Wolf told the Sun. “We needed to raise the TOT to be comparable with our surrounding areas, and the fact is that we are seeing an increase in hotels in South County.”

The budget struggle

In addition to defending the loss of potential revenue, Wolf said she disagrees with some of the cuts being proposed to the county budget, particularly in Social Services. She said cuts to social workers, eligibility workers for foster kids, and juvenile justice probation officers were particularly “outrageous.”

“We have to look at our human infrastructure, and I unfortunately feel that this budget is taking a swipe at that, and we need to become more balanced,” she said. “We have resources that we’re spending on roads and buildings and everything, and yet we’re stripping away money that we need to make sure our families are intact.”

Wolf said she’d recently learned the county would allocate about $10 million to maintenance in the 2017-18 budget, and she didn’t think funds should be prioritized as such. Supervisor Adam, however, said the county was desperately behind on maintenance projects and needed to make it an even bigger priority.

“You know, you’ve got to keep some money around, and when your refrigerator goes out you’ve got to replace it,” Adam told the Sun. “And we don’t even have enough money to replace the refrigerator here at the county.”

He said that instead of allocating large portions of the general fund toward maintenance of county roads and buildings, where it would make a noticeable difference, the supervisors tend to spread funds too thin among other projects.

“We should be taking more general fund money and putting it into parks and our buildings, frankly,” Adam said. “We don’t plan for the stuff that we know about. And it’s disappointing, you know. That’s not the way we run our business. It’s not the way anybody runs their business, and frankly it’s not the way anybody should be running their home.”

North vs. south

The 3-2 vote on short-term rentals, in which Adam and Lavagnino dissented, fits into a longstanding voting pattern among the supervisors. According to records provided by Adam’s office, Adam and Lavagnino cast the dissenting votes on more than 68 passing agenda items since January 2013—illustrating an apparent split between those representing the North County districts and those from the south.

One of the most notable such splits in recent history happened in November 2016, when the supervisors voted to deny a proposal by Pacific Coast Energy Company (PCEC) to increase its oil operations on Orcutt Hill. Adam and Lavagnino both recalled that denial as a huge revenue loss for the county.

“We just don’t let anybody do anything,” Adam said. “If you keep telling everybody no all the time, then nobody else wants to come in. How many ideas have been stillborn in this county because somebody else got told no or otherwise mistreated?”

He pointed to how PCEC spent about $1 million in permitting fees on expanding the Orcutt Hill project before the county denied the expansion.

“One would think you could see some handwriting on the wall before they spend a million dollars,” Adam said. “That tells everybody else, do not bother. If you’re going to take a million bucks, then go, ‘Nah, I don’t think so,’ that’s almost like a bait and switch thing. They led you to believe all the way through that this could be possible, and then at the end they denied it.”

As for the vacation rental decision—another “bait and switch,” by Lavagnino’s standards—Lavagnino said a ban would not only squander potential revenue, but it wouldn’t necessarily ease the impact of those rentals on residential communities.

“You’re not fixing the problem,” he said. “The fact that we banned it doesn’t mean you’re still not going to have that person here. You’re still going to have that person there, because these people are still going to do [short-term rentals], you just have no recourse because now we have no regulations.”

Even in the light of the upcoming budget deficit, however, Wolf said she wouldn’t change any of the board’s past project denials.

“There’s nothing I would vote differently on,” Wolf said.

Hope in cannabis

The supervisors don’t always turn down potentially controversial tax revenue sources. Lavagnino is currently working with 3rd District Supervisor Joan Hartmann and county staff on an ad hoc subcommittee to create local regulations for commercial recreational weed, which Lavagnino said could generate as much as $20 million annually for the county.

He added that while the committee hasn’t made any decisions so far on how to tax growers, he has “no desire to be involved in this industry if it’s not taxed to offset the impact that it definitely has.”

Though nothing’s set in stone, he said he expects taxation will start at a relatively low rate and “could always increase” with time.

“There’s a balance between, yes, I want to tax it and get the money so we offset the impacts, but you also don’t want to tax it at a rate where you drive everything underground and start another black market,” Lavagnino said.

California is scheduled to begin issuing commercial growing licenses in January 2018, putting pressure on municipal governments to decide on local regulations. Lavagnino said the county’s regulations will run a few months behind state licensing—he expects to have proposed regulations on the ballot in June 2018.

Even with the potential of a healthy, lucrative cannabis industry on the horizon, Lavagnino said he can’t help but regret board decisions such as November’s PCEC denial.

“I really don’t know how much longer we can go doing it this way,” he said. “We’re looking at a four-year cycle of increased cuts. It’s just so frustrating. I really feel for the employees, and what I’m really getting frustrated with is some of my board is just so married to the process. ... When you get married to the process, you forget about the people involved.”

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