A portion of tax revenue generated from short-term vacation rentals in the city will now be used toward affordable housing efforts following a recent vote by the Palm Springs City Council.
At a June 29 meeting, councilmembers voted 4-1 to approve setting aside a portion of the 11.5% transient occupancy tax (TOT) levied on vacation rentals. The resolution is retroactive and will impact revenue dating back to July 1 of last year.
Currently, 7% of the revenue from the 11.5% tax is used for the Community Promotions fund and cannot be used for affordable housing. The remaining 4.5% is put into the general fund.
The original proposal from staff was to set aside 25% of the 4.5% for affordable housing. However, Mayor Pro Tem Jeffrey Bernstein – who first suggested the idea – and Councilmember Christy Holstege voiced support for increasing the allocation to 50% during the June meeting. That was approved, meaning an additional $3.2 million should now be available to address affordable housing.
Councilmembers Lisa Middleton and Ron deHarte supported the original staff recommendation of 25%, preferring to wait and see how the money was spent before upping the percentage. In the end, only deHarte voted against the 50% proposal.
On Tuesday, Deputy City Manager Flinn Fagg said the money would go into a separate account exclusively for affordable housing. There have yet to be any specific projects considered for the money.
Fagg said the funding could be used to rehabilitate existing affordable housing units, permit fee waivers, contributions from or partnerships with developers, or purchase land for affordable housing developments.
Councilmember Holstege said she has spoken in the past with stakeholders about increasing the TOT tax itself but that it would require voter approval.
“This is a good start,” she said. “I’d love for us to do some analysis about our TOT in comparison to other cities and (see) what our market can bear.”
The issue surfaced during discussions around a state measure that would see a 15% tax on short-term rentals. Senate Bill 584 passed the State Senate and now sits in the Assembly, where one of its authors canceled its most recent hearing.
Middleton noted that in discussions with the California League of Cities on SB 584, the idea from Palm Springs to set aside a percentage of TOT was seen as “a much stronger alternative … because the money collected would remain in the city in which it was actually earned.”
Palm Springs councilmembers then asked staff to look into creating the resolution after hearing from concerned residents that the proliferation of vacation rentals decreases housing inventory.