At a time when Ventura and San Luis Obispo are experiencing a rise in sales and transient occupancy taxes, the city of Santa Barbara is struggling to offset a decline in revenue, largely fueled by an exodus of retail companies.
City Administrator Paul Casey said the issue is “complicated.”
“Clearly internet sales and an overall nationwide upheaval in retail are a big factor,” Casey said. “Hotel sales tax – we’ve had five to six years of really strong growth in TOT – last year flattened out.”
Sales tax was down from $5.745 million in the final quarter of 2015 to $5.671 million for the final quarter of 2016. The 1.3 percent sales tax decline comes on top of a 9.5 percent drop in transient occupancy tax for the month of February 2017, compared to the same month the year prior.
City officials blame the rain for the decline but acknowledge that the drops in sales and transient occupancy taxes – the city’s two largest revenue sources – is a significant problem that needs serious attention.
Recently, city leaders met with the business community to ease concerns about the decline in taxes, and specifically, the loss of retail tenants.
Among the big efforts, the city is hoping to “engage Macy’s,” which recently announced that it is leaving its Paseo Nuevo mall spot with 48 years left on its lease. Santa Barbara is hopeful that the city will sub-lease at least one floor of the three-store building to a retail tenant.
“We’ve contacted them to encourage a high-quality retailer to take the Macy’s space,” said Bob Samario, the city’s finance director. The city is also optimistic about Pacific Retail’s plan to improve the Paseo Nuevo. Improvements include new lighting, accent paving, landscaping, and seating furniture.
Among the more symbolic changes are plans to add more art installations, poetry in windows of vacant spaces and art on sculpture pads.
Downtown Santa Barbara is also conducting a $50,000, privately funded study to develop a retail strategy plan.
Michael Martz, commercial real estate broker for Hayes Commercial Group, said the problem is the result of multiple factors, including the number of homeless people on State Street, a decline in retail as an overall nationwide trend, and the success of the Funk Zone.
“On one hand, that is great because it has helped that area,” Martz said. “On the other hand, it is taking away from State Street.”
The proliferation of wine tasting establishments and breweries have disrupted the average shopper’s experience, Martz said, which impacts the downtown.
“Ten years ago, before (the Funk Zone) was there and a vibrant area, the majority of people who would come here, their main recreating was walking on State Street and shopping,” Martz said. “Now, they never even get up to State Street. It’s great down there (in the Funk Zone). People go there all day and night all the time and they do that in lieu of buying a new pair of shoes and a bracelet on the 800 block of State Street.”
Martz also agreed with Downtown Santa Barbara doing a study. Rather than focusing it on the retailers, he said, the study should focus on pedestrian foot traffic to retailers and give brokers an idea of how many people are traveling downtown during peak periods.
“They need to do more foot traffic studies,” Martz said. “Santa Barbara is very well known but we don’t have good data on foot traffic counts.
In San Luis Obispo, sales and transient occupancy taxes are on the rise.
“The city has a robust local economy, an active downtown, and a thriving retail sector made up of a good mix of local, regional and national players,” said Lee Johnson, SLO economic development manager.
Johnson said SLO continues to grow as not just a market for driver from Los Angeles and San Francisco, but also with national and international travelers.
“San Luis Obispo also works very closely with our local and regional partners to ensure a focus on the things that promote economic development and quality of life in our community,” Johnson said.
Martz isn’t exactly sure why but he said SLO is in a much better spot than Santa Barbara.
He said the downtown rents are just as high. One of the differences, he suspects, is that SLO lacks the “abusive” homeless problem that Santa Barbara has. Downtown SLO is also more compact, unlike downtown Santa Barbara, which stretches about 12 blocks.
Ventura’s sales and transient occupancy taxes are also up.
In 2014, sales tax was $22.8 million. At the end of 2016, the number was at $24.27 million. TOT rose from $4.77 million in 2014 to $5.8 million at the end of 2016.
The city’s efforts to fund tourism marketing have paid off, Venture officials said.
“The increase in TOT also reflects the increase in sales tax as overnight visits will result in increased restaurant and merchandise sales,” said Mark Watkins, Ventura’s city manager. “The city’s investment in our downtown has resulted in a vibrant area that continues to attract new investment. Ultimately a lot of what we do is to provide an environment where people and businesses want to be. We do that with good public infrastructure, outstanding public safety and great public amenities.”
Martz said Santa Barbara has some soul searching to do.
“It’s a slow process,” Martz said. “This has been building over the years. It has gotten to the point where people are starting to get concerned about it. There isn’t a quick fix.”