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HomeMy WebLinkAbout3E OCR CITY COUNCIL STAFF REPORT DATE: JUNE 5, 2023 BUSINESS & LEGISLATIVE SUBJECT: CONSIDERATION OF THE ESTABLISHMENT OF A CITY COUNCIL POLICY PROVIDING A CERTAIN PERCENTAGE OF TRANSIENT OCCUPANCY TAX (TOT) BE SET ASIDE AND USED FOR FUTURE AFFORDABLE HOUSING NEEDS FROM: Scott C. Stiles, City Manager BY: Department of Finance and Treasury SUMMARY: The City Council directed staff to bring back for Council consideration a policy providing for the set-aside of a portion of the Transient Occupancy Tax (TOT) each year for future Affordable Housing commitments. RECOMMENDATION: Adopt Resolution No. _____, “A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, ESTABLISHING A CITY COUNCIL POLICY REGARDING THE USE OF A CERTAIN PERCENTAGE OF TRANSIENT OCCUPANCY TAX (TOT) FOR AFFORDABLE HOUSING PROGRAMS.” STAFF ANALYSIS: The Palm Springs Municipal Code addresses the Transient Occupant Tax (TOT) in Section 3.24. Specifically, Section 3.24.030 states that any non-Group Meeting Hotel1 shall pay a tax of 11.5% on the rent owed by the Transient. This includes properties such as single-family residences that are used for Vacation Rental occupancy. Additionally, pursuant to Section 3.24.030, subsections (c) 1 and 2, the 11.5% is to be split in the following manner: 1. 7% of the total is to be paid into the Community Promotions Fund. 2. 4.5% of the total is to be paid into the General Fund. 1 A higher rate of 13.5% is imposed on “Group Meeting Hotels”. A “Group Meeting Hotel” is defined by the City’s Code as a hotel that has a minimum of 125 rooms, meeting space for 125 people, and personnel (other than the general manager or director) specifically employed whose primary job responsibility is group sales. Item 3E - Page 1 City Council Staff Report June 5, 2023 -- Page 2 Consideration of TOT Set-Aside for Affordable Housing The Municipal Code states, in Section 3.24.310, that the funds placed in the Community Promotions Fund "may be used for advertising, publicity, promotion, capital projects, debt retirement, and operating expenses normally payable out of the library fund and parks and recreation fund, of the city." City Council has directed staff to bring back for Council’s consideration, a proposed City Council Policy that would provide for the set-aside of a certain amount of the Vacation Rental-generated TOT each year for the City’s use in future Affordable Housing programs. Vacation Rental TOT revenue was suggested due to the potential effects that short term rentals have on the availability of affordable housing (i.e., based on the removal of those Vacation Rental properties from the available housing stock). Since the Municipal Code has specific uses for the Community Promotions Fund, 7% of the 11.5% tax cannot be used for Affordable Housing. Staff is recommending a policy that would set aside 25% of the 4.5% that is paid into the General Fund (from the total 11.5% TOT on Vacation Rentals). The amount could be made retroactive back to July 1, 2022. The City is forecasting Vacation Rental TOT revenue (including Homeshares) to be approximately $16.2 million for Fiscal Year 2022-23. By comparison, the City’s estimated FY 22-23 TOT collections from all non-Group Meeting Hotels is approximately $14 million and the City’s estimated FY 22-23 TOT collections from all Group Meeting Hotels is approximately $20 million. Using the estimated numbers for Vacation Rental TOT revenues, the calculation would be as follows: • Total Vacation Rental TOT Revenue (FY 22-23) = $16,200,000 • 4.5% of the 11.5% tax, or 39.1% (4.5 divided by 11.5) of the Vacation Rental TOT = $6,334,200 • 25% of the $6,334,200 to be set aside for Affordable Housing = $1,583,550 The accompanying resolution, if adopted, would establish a City Council policy that this percentage of TOT revenue generated from Vacation Rentals would be set aside each year for use by the City for the development, maintenance and operation of affordable housing programs. The proposed Resolution specifies that the policy is not intended to transform the Vacation Rental TOT into a “special tax,” and that the City Council could modify this policy in the future, should the Council wish to do so. ALIGNMENT WITH STRATEGIC PLANNING: This item aligns with the City Council identified major theme/principle of Forward-Thinking Governance, as well as Priority 1, Quality of Life. Item 3E - Page 2 City Council Staff Report June 5, 2023 -- Page 3 Consideration of TOT Set-Aside for Affordable Housing FISCAL IMPACT: Approximately $1.58 million to be set aside as committed fund balance in FY23 for future use toward Affordable Housing commitments. This will be an annual calculation to determine the amount of fund balance to be committed at the end of every fiscal year. REVIEWED BY: Acting Director of Finance: Kristopher J. Mooney City Attorney: Jeffrey S. Ballinger City Manager: Scott Stiles ATTACHMENTS: 1. Resolution Item 3E - Page 3 ATTACHMENT 1 Item 3E - Page 4 55575.18140\41241770.1 RESOLUTION NO. _____ A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, ESTABLISHING A CITY COUNCIL POLICY REGARDING THE USE OF A CERTAIN PERCENTAGE OF TRANSIENT OCCUPANCY TAX (TOT) FOR AFFORDABLE HOUSING PROGRAMS WHEREAS, the City of Palm Springs (the “City”) is a charter city organized pursuant to Article XI, Section 5 of the California Constitution and pursuant to the authority so granted, the City has the power to make and enforce within its limits all ordinances and regulations with respect to municipal affairs not in conflict with its own charter; and such police powers include without limitation the ability to adopt regulations pertaining generally to the protection and promotion of the public health, safety, and welfare; and WHEREAS, pursuant to the Palm Springs Municipal Code (“PSMC”) Chapter 3.24, entitled Transient Occupancy Tax (“TOT”), the City currently collects TOT revenue within the boundaries of the City; and WHEREAS, pursuant to PSMC Section 3.24.030(a) any “hotel” (as that term is defined) operating within the City shall collect and remit to the City a tax in the amount of eleven and one-half percent (11.5%) of the rent charged to the occupant; and WHEREAS, pursuant to PSMC Section 5.25.070(q) Owners of Vacation Rentals (including Homeshares), as these terms are defined in PSMC Section 5.25.030, are required to comply with all provisions of PSMC 3.24.030 concerning the payment of TOT and as such “Vacation Rental TOT” represents a subset of the TOT collected by the City under PSMC Section 3.24.030; and WHEREAS, pursuant to PSMC Section 3.24.030(c)(2) the City shall deposit four and one-half percent (4.5%) of the foregoing TOT into the City’s general fund; and WHEREAS, the City’s general fund may be used for any lawful purpose of the City, including, without limitation, the funding of affordable housing programs to accommodate the development, maintenance and operation of affordable housing; and WHEREAS, California is experiencing a housing supply crisis, with housing demand far outstripping supply, California ranking 49th out of the 50 states in housing units per capita, in 2018; and WHEREAS, the housing crisis harms families and individuals across California and has resulted in all of the following: • Increased poverty and homelessness, especially first-time homelessness. • Forced lower income residents into crowded and unsafe housing in urban areas. • Forced families and individuals into lower cost new housing in greenfields Item 3E - Page 5 55575.18140\41241770.1 at the urban-rural interface with longer commute times and a higher exposure to fire hazard. • Forced public employees, health care providers, teachers, and others, including critical safety personnel, into more affordable housing farther from the communities they serve, which will exacerbate future disaster response challenges in high-cost, high-congestion areas and increase risk to life. • Driven families and individuals out of the state or into communities away from good schools and services, making the ZIP Code where one grew up the largest determinate of later access to opportunities and social mobility, disrupting family life, and increasing health problems due to long commutes that may exceed three hours per day. WHEREAS, in 2018, the City Council adopted Resolution No. 24493, declaring a shelter crisis based on the finding that the health and safety of unsheltered persons is threatened by a lack of shelter; and WHEREAS, in 2019, the California Legislature declared a statewide housing emergency, to be in effect until January 1, 2025; and WHEREAS, the City finds that the use residential property for Vacation Rental, as defined above, has the potential to contribute to the affordable housing crisis by making such property unavailable for longer term tenancies or permanent housing needs; and WHEREAS, the purpose of this Resolution is to enhance the City’s ability to fund affordable housing programs in the public interest and to protect the public health and welfare by helping address the state and local affordable housing crisis; and WHEREAS, the City Council finds that the adoption and implementation of this Resolution set forth below is within the power and authority of the City to protect the public health, safety, and welfare of the City’s residents, businesses and visitors; and WHEREAS, all other legal prerequisites to the adoption of this Resolution have occurred. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PALM SPRINGS DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. Incorporation of Recitals. The City Council finds that all the facts, findings, and conclusions set forth above in this Resolution are true and correct and are incorporated herein by this reference. SECTION 2. Set Aside of a Portion of Vacation Rental TOT for Funding of Affordable Housing Programs. The City Council hereby establishes, as a policy of the City of Palm Springs, that twenty five percent (25%) of the annual four and one half percent (4.5%) General Fund Portion of TOT revenue generated by Vacation Rentals (including Homeshares), as those terms are defined in Chapter 5.25 of the PSMC, be Item 3E - Page 6 55575.18140\41241770.1 directed to the development, maintenance and operation of affordable housing programs, as such programs may be adopted and amended from time to time by the City Council. SECTION 3. Not a Special Tax. This Resolution establishes the policy of the City Council to set aside a portion of the Vacation Rental TOT (which is a general tax) for the purposes of affordable housing programs. This Resolution is not intended by the City Council, and shall not be interpreted in a way, as to create a special tax. This Resolution and the policy established by it may be modified by the City Council, now or in the future, by a simple majority vote. SECTION 4. Retroactively Effective. This Resolution shall be retroactively effective as of July 1, 2022, and shall apply to the City’s Fiscal Year 2022/23 budget. SECTION 5. CEQA. The City Council determines that the adoption of this Resolution is exempt from environmental review under the California Environmental Quality Act (“CEQA”) because this Resolution merely establishes a funding mechanism for the provision of affordable housing and, as such, this Resolution is not “an essential step culminating in action which may affect the environment” and environmental review required under CEQA will be performed when projects funded by the TOT are chosen and defined. (Kaufman & Broad-South Bay, Inc. v. Morgan Hill Unified School District, (1993) 9 Cal.App.4th 464). SECTION 6. Adoption, Certification, and Publication. The City Clerk of the City of Palm Springs shall certify the passage and adoption of this Resolution. This Resolution shall take effect immediately upon its adoption. SECTION 7. Severability. If any provision of this Resolution is found to be unconstitutional or otherwise invalid by any court of competent jurisdiction, that invalidity will not affect the remaining provisions of this Resolution, which can be implemented without the invalid provisions, and to this end, the provisions of this Resolution are declared to be severable. PASSED, APPROVED AND ADOPTED at a regular meeting of the City Council of the City of Palm Springs on this ____ day of ________________, 2023. GRACE GARNER MAYOR ATTEST: BRENDA PREE CITY CLERK Item 3E - Page 7 55575.18140\41241770.1 CERTIFICATION STATE OF CALIFORNIA ) COUNTY OF RIVERSIDE ) ss. CITY OF PALM SPRINGS ) I, BRENDA PREE, City Clerk of the City of Palm Springs, California, do hereby certify that Resolution No. ____ is a full, true, and correct copy, and was duly adopted at a regular meeting of the Palm Springs City Council held on __________, 2023, by the following vote: AYES: NOES: ABSENT: ABSTAIN: IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of Palm Springs, California, this ______ day of ______________, 2023. BRENDA PREE CITY CLERK Item 3E - Page 8