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City Must Adopt Two-Pronged Approach to Address Budget and Social Services
by Steve Pleich (spleich [at]
Sunday Jun 18th, 2017 11:26 AM
We need the commitment to support a unified strategy and the resolve to stay the course.
There has been much discussion recently about our ability to adequately fund community-based social safety net programs while simultaneously balancing our ever-increasing budget. The just approved budget projects a deficit of more than $2,000,000 with no realistic or sensible plan to recover that shortfall. I believe it is time for our council to look at more imaginative, resourceful and practical ways to fund a full range of these programs within the bounds of sensible spending and without putting unacceptable strain of the public purse.

There currently seems to be a consensus among public policy makers, law enforcement and city officials that a robust and supportive social safety net, anchored by mental and behavioral health services and support, is critical to creating positive outcomes for people in physically or psychologically challenging circumstances in our community. And just as certainly, we seem to agree that community policing and public safety programs can only succeed by increasing access to these services as a central part of an overall strategy. The question that confronts our community is how do we pay for it? I suggest a two-pronged strategy that both restores balance to our city budget while provided additional revenue for much needed social services. I propose (1) an increase in the Transient Occupancy Tax (TOT) and (2) a decrease in the number of approved and regulated vacation/Airbnb units.

The first prong of this integrated strategy would be a 1% increase in the TOT. Local history tells us that a proposal to designate a portion of our TOT revenue to social services is not an original idea. Indeed, a measure to increase the TOT 1% with 30% of that increased revenue to be applied to homeless services was placed before the voters in 2000. And while that measure did not receive the required two thirds majority needed for passage, it did receive approximately 13,000 yes votes to about 11,000 nays. This indicates to me that the idea of TOT revenue being used to supplement community based programs was one that the residents of Santa Cruz (and perhaps even our lodging industry itself) generally favored at least in concept. Our tax is currently levied at a rate of 11% in the City of Santa Cruz. Estimated revenue from the TOT for 2016 was $10 Million. 2017 revenue is estimated at $12 Million. Using those revenue figures, 1% of the TOT raises about $1 Million annually. I propose that we put a measure on the ballot which would raise the TOT to 12%. This is both reasonable and timely in consideration of the fact that the most recent increase in the TOT (from 10 to 11%) was approved by the voters of Santa Cruz in 2012. Moreover, this increased rate would be in line with regional vacation destination municipalities so as not be place our lodging industry at a competitive disadvantage. The additional $1 Million would not be entirely designated to the community programs budget. However, it would be eminently reasonable and fiscally responsible to designate 40% of that increased revenue to the fund. $400,000 could make a real difference is terms of measurable results produced and lives changed for the better within our city. That’s the first prong.

The second prong of this strategy is directly related to the first. As most residents know, the TOT is defined as a tax on any rental unit offered “for hire for 30 days or less.” This tax is levied on traditional units such as those offered in our local hotels and motels as well as on short term rentals which have gone virtually unregulated in recent times and exacerbated by the modern Airbnb boom. But here’s where the synthesis of strategies really begins. Private vacation or Airbnb rentals only bring in about a third of the TOT income per unit as hotel/motel units. That right, about 1/3. And although we have more than five hundred hotel units under construction in our city, we also have more than 500 vacation rental units which, if not regulated and reduced in number, will generate a fraction of the future income of the hotel units when they come on line. The City of Santa Cruz has determined, through both City Council and Planning Commission consideration, that a policy of developing more and higher end hotel units is in the best economic interest of our community. But this policy cannot exist in a vacuum. Either we stay the course and confirm our faith in this policy by reducing the number under-performing vacation rentals, or we give ourselves over entirely to the prospect of runaway private enterprise and unbalanced budgets.

As a political matter, this two-pronged approach is both problematic and challenging. But placing a measure on the ballot to generate increased TOT by itself is a fool’s errand when the practical math does not support the hoped-for result of decreasing the budget deficit while increasing funds for social services. We, as a community, need to make a hard choice and then communicate that choice in no uncertain terms to our elected officials. The formula for prosperity, balanced budgets and adequate social services is there. We only need the commitment to support a unified strategy and the resolve to stay the course.