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SF lodgers’ tax revenue up, but could be higher

The good news from city officials is that lodgers’ tax revenue in Santa Fe continues to outpace totals in previous years, thanks in part to a good economy and the money the city is now collecting from short-term rental units.

The bad news is the city could be doing even better.

“I still think there’s another couple of hundred thousand dollars that we’re not collecting in short-term rentals,” Randy Randall, executive director of Tourism Santa Fe, said during an Occupancy Tax Advisory Board meeting last week.

Randall’s comment came after he delivered what was otherwise a glowing recap of lodgers’ tax revenues from the month of September, the most recent data available.

The report shows the city collected $1.11 million in lodgers’ tax revenue that month, up a tidy $78,400 from September 2017. A little more than $160,000 of the total – roughly 10 percent – came from short-term rentals. That amount was up about $28,000 over September of last year, even as some residents continue to fight the proliferation of short-term rentals in Santa Fe.

“We’re up 9½ percent year-to-date,” Randall said of the lodgers’ tax revenue, which according to Randall’s schedule for a budget year reflects what’s been collected since June 1.

“I did a quick calculation the other day and if we just continue to see a 5 percent increase in hotel lodgers’ tax collections and about a 10 percent increase in short-term rental collections, we will exceed last year’s result of $11,489,000 by just shy of a million dollars.”

The lodgers’ tax is 7 percent – that’s $14 dollars on a room that costs $200 a night.

With lodgers’ tax revenue from hotels and motels also running ahead of last year’s pace, the city collected $5.26 million from lodgers’ taxes from June through September, the height of the tourist season. That’s up more than $460,000 over the same four months of last year. And that’s despite a good, but not great, July, during which the National Governors Association’s summer meeting was held in Santa Fe.

‘Value for the city’

Critics complained the city would be hurt by hosting the NGA meeting at a time of year when hotels in Santa Fe would be full anyway. While the $1.33 million of lodgers’ tax revenue from July was $58,000 better than July last year, it was a much lower increase than what was collected in the other three summer months and was sandwiched by collections of $142,675 in June and $152,295 in August.

“The governors’ convention itself probably didn’t generate a lot of extra revenue for us because it was a Thursday, Friday, Saturday event when we’re going to be full anyway,” Randall said. “And the rate they paid, if anything, in some of our better hotels was a little below what it might have been had they sold (rooms) to individuals. But what it did do was give us national exposure. That’s the value for the city and to the state as a whole.”

Looking at the data, Randall said the hotels on Cerrillos Road fared better during the NGA event.

“A lot of the support for the convention stayed on Cerrillos Road and they run a lower occupancy than the downtown properties during the summertime. While they might have been filled on Friday and Saturday anyway, they may have picked up one, two or three extra nights from police and support that came in early and stayed late,” he said.

July, however, was the best of the four months in short-term rental revenue from lodgers’ tax, taking in $179,265.

The four-month run continues a general upward trend in short-term rental revenues that has occurred over the years. He said a strong economy coming out of the Great Recession and effective marketing campaigns by the city have contributed to the trend.

More permits issued

The revenue generated from short-term rentals has consistently contributed to gains in revenue from the lodgers’ tax in recent years. The final numbers from 2017-18 show it has more than tripled since 2015-16, jumping from $529,000 to $1.61 million.

That can largely be attributed to two things that happened two years ago: an increase in the number of short-term rental permits the city issued and an agreement to collect lodgers’ tax by Airbnb.

The City Council kicked off 2016 by nearly tripling the number of short-term rentals that could legally operate in the city. At a time when the city was facing a $15 million deficit, the council took action to increase the number of short-term rental permits from 350 to 1,000.

Actually, the sky’s the limit. Language in the legislation allows the city to issue more than 1,000 permits “whenever demand for short-term rental units exceeds the number permitted,” though an increase would require City Council approval after a public hearing.

Not only was increasing the limit an effort to help close the budget gap, but also it opened the door for hundreds of rental units that had been operating illegally to fall in compliance.

Now, there are 812 short-term rental units registered with the city and another 41 in the process of getting registered, Land Use Director Carol Johnson said.

The city used to have a contract with a vendor to monitor websites in order to identify illegally operating short-term rentals, but the contract expired about a year ago. She said the city is in the process of issuing a request for proposals seeking a new vendor.

“Cities have been most effective when they have the information pulled from the web,” she said in an emailed response to questions.

The selected vendor will provide them with the contact information the department needs to enforce regulations, she said.

Another issue that has plagued the department in the past was a lack of resources to dedicate to enforcement of the tax requirement for short-term rentals and the requirement to get a permit. A few years ago, just one person was in charge of enforcement.

“We currently have four field personnel, but lack the administrative and legal support to process cases and see better compliance. Organizational changes are in the works to address this,” said Johnson, who has only been on board since June.

Some pay, some don’t

A few months after the City Council increased the limit on short-term permits, the city announced it had reached an agreement with Airbnb for the vacation rental service to start collecting lodgers’ tax from hosts and remit the revenue to the city.

Randall said in an interview after last week’s Occupancy Tax Advisory Board meeting that nearly half of the $160,000 collected in lodgers’ taxes from short-term rentals this September came from Airbnb. The other half came from property companies that rent short-term units, such as Kokopelli Properties and Santa Fe Property Management.

Other companies offering short-term rental stays, such as FlipKey, VRBO and Craigslist, and anyone who has made a side business out of renting out properties outside the city’s permitted short-term rental program, likely don’t pay the city anything by way of lodgers’ tax.

“Nine years ago, there were 150 Airbnb units offered in Santa Fe,” Randall said. “Last year, there were 1,200 – and that’s just Airbnb. There’s got to be 2,000 units out there.”

And it’s not just lodgers’ tax that the city is missing out on, he said. Santa Fe’s hotels and motels pay the city gross receipts tax, as well as the lodgers’ tax, and so do property management companies. But not Airbnb. The GRT, similar to a sales tax, in Santa Fe is 8.4375 percent on the price of most goods and services (with the revenue divided among the city, county and state).

“Santa Fe has an agreement with Airbnb for lodgers’ tax because Airbnb will make agreements with the entity that collects the funds. The state collects GRT,” Randall said. “So what we don’t know is how many people in the short-term rental business are paying gross receipts tax. But what we do know is that, beyond Airbnb, the other organizations that represent multiple rentals here in Santa Fe are paying gross receipts taxes.”

A balancing act

The limit on issuing permits for short-term rentals was originally designed to help keep a supply of housing for people who aren’t just visitors, but who live and work in the city.

But partly because so many people were violating the law and not permitting their rentals, limiting permits hasn’t worked. Recent studies have shown that Santa Fe has a housing supply gap in the thousands.

Short-term rentals reduce housing stock for residents and are considered a factor in driving up home prices. Many advocates also decry the loss of the feel of having real neighbors as Airbnb and other short-term rentals proliferate.

At last week’s Occupancy Tax Advisory Board meeting, board member Jon Hendry ranted against the impact that short-term rentals has had on the city’s housing market.

“They should stay in a hotel because the hotel pays a wage and doesn’t hire people who don’t have papers for six or seven months in order to clean their house,” he said of visitors to Santa Fe. “I’m sick of it when people say this is how we’re going to solve these problems in Santa Fe, by taking money from short-term marketers. The short-term marketers in residential areas are the problem in Santa Fe.”

Hendry said the city ought to be treating short-term rental operators like commercial businesses.

“The first thing we need to do is make these people subject to GRT,” he said. “And the second thing the city needs to do is to say, ‘You’re running a commercial enterprise and you need to start paying commercial prices for the services the city is providing.’ ”

He also complained about renters taking up parking spots in residential neighborhoods and their contributions to the sewer system.

Land Use Director Johnson, who previously worked for Maricopa County in Arizona and for the city of Berkeley, Calif., was asked how the short-term rental situation in Santa Fe differs from other places she’s worked.

“The state of Arizona has passed legislation legalizing short-term rentals and limiting the extent to which municipalities may regulate them. So the situation is very different in Phoenix than either Santa Fe or Berkeley,” she said.

In Berkeley, legislation addressing short-term rentals was adopted just before she left.

“It was a similar situation to Santa Fe in that community members were concerned that accessory dwelling units which might otherwise be available for long-term housing were being used for short-term rentals,” she said. “On the other side of the equation, people testified that having a short-term rental was the only way they could cover their mortgage in such a high-cost housing market, and absent that option they would be forced to leave the area.”

It was a difficult issue to balance, she said. In the end, the Berkeley City Council voted to prohibit short-term rentals of accessory dwelling units, but they were allowed for accessory buildings that had a bathroom, but no kitchen. “They also restricted the number of short-term rental days for those properties where the owner did not live on site,” she said. “Similar conversations are happening in Santa Fe about the relation between accessory dwelling units and short-term rentals. Once we have our vendor in place to monitor the actual number of active short-term rentals, we will have access to the data needed to factually address this issue.”