ENCINITAS: Voters to decide on taxing short-term rentals

By RUTH MARVIN WEBSTER - Staff Writer | Tuesday, May 20, 2008 1:22 PM PDT ∞

ENCINITAS ---- It seems an easy sell to ask Encinitas voters to tax tourists, but supporters of Propositions F and G ---- two initiatives on the June 3 ballot that would do just that ---- aren't celebrating yet.

The two measures are aimed at taxing short-term vacation rentals the same way that city hotel, motel and bed and breakfast guests are taxed. However, tax revenue from the short-term rentals would mostly be used for beach sand replenishment and stabilization projects.

Supporters of the tax have said it makes sense and creates a fair playing field for businesses that provide lodging to tourists. But they said that getting voters to OK any kind of tax hike is no easy feat, especially in a June election.

"My concern is that low voter turnouts have a more conservative voter base and they will vote against anything that says tax, even if they are not against them," said Mayor Jerome Stocks.

"But I'm optimistic that they both will pass," he added. "It just doesn't feel right that B&Bs will collect that tax, but vacation rentals won't. It's just a matter of fairness."

The numbers

As things stand now, out-of-town guests who stay in local hotels, motels and bed and breakfasts pay a 10 percent transient occupancy tax, or TOT. Eight percent of that tax revenue goes into the city's general fund, with the additional 2 percent earmarked for beach sand replenishment.

Proposition F would add that tax to short-term rentals ---- units that rent for 30 days or less ---- at a rate of 8 percent. That money would be put in the general fund from which the city provides fire, police and other services. A simple majority is required to pass Prop. F.

The second proposition on the ballot, Proposition G, requires a two-thirds vote to pass and would add an additional 2 percent tax on the rentals, but those funds would be earmarked for beach sand replenishment and stabilization projects.

According to the city's finance department, the existing transient occupancy tax brought in roughly $1.2 million in the 2007-8 fiscal year and much the same amount in the previous fiscal year.

With an estimated 130 short-term rentals within the city limits, the new propositions could bring in roughly an additional quarter of a million dollars annually, Stocks said.

It is estimated that the balance of the city's sand fund is currently $1.6 million.

Each year the city spends $40,000 a year for beach sand replenishment at Moonlight Beach, according to city manager Phil Cotton.

Encinitas has also spent $77,500 in sand-tax monies on the Army Corps of Engineering Study and another $50,000 was used to purchase 88,000 cubic yards of sand from the SANDAG Dredging Project.

The arguments

Joe Sheffo, a candidate for city council, said he is opposing the propositions because he objects to the city raising taxes by targeting short-term renters.

"Prop F raises revenue for the general fund in an economic downturn because it is easier than making tough decisions about the budget," Sheffo said. "This is really about raising revenue for the city and if sand replenishment is so important, why is such a small portion of the tax (just 2 percent) going to that?"

However, other city leaders have rallied behind the initiatives and previous sand-tax measures.

In 1998, a group that included Encinitas Chamber of Commerce membership director Mike Andreen, former Chamber of Commerce President Russell Griffith, Coast Dispatch Editor Dennis Lhota, coastal activist Steve Aceti and Stocks formed the Citizens of Sand Committee.

The committee successfully lobbied voters to pass Proposition R, which upped the city's transient occupancy tax by 2 percent set aside for beach sand replenishment.

Andreen is now a key supporter of Proposition G and said that it just makes sense to extend the 2 percent tax to short-term vacation rentals.

There appears to have been little organized opposition to the two measures. The voter information booklet with the sample ballot provided by the San Diego Registrar of Voters contains only an argument in favor of the propositions.

Kevin Cummins, president of the Encinitas Taxpayers Association, said he finds it suspicious that there has been no public outcry.

"It doesn't make sense that a whole group that is about to be taxed has not voiced any opposition," Cummins said. "It doesn't pass the smell test."

Cummins said he believe council members who support the tax "wanted to get it done and out of the way quickly before the people on the other side even know that this is happening."

He said the initiatives were probably placed on the June ballot because council members "don't want the propositions on the same ballot as the one when they are going up for re-election."

Cummins said he's not against including short-term vacation rentals in the transit occupancy tax, but said the council missed an opportunity to lower the tax rate on hotels and motels at the same time.

"The city is getting a new revenue source, so we're saying let's make the measure revenue neutral and drop the TOT across the board to 8 or 7 percent," Cummins suggested. "That would help the local economy."

Contact staff writer Ruth Marvin Webster at (760) 901-4074 or rwebster@nctimes.com.

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