SB 584 is a laudable, but flawed affordable housing funding proposal

A 15% statewide transient occupancy tax would be a big blow to many cities

A measure that would establish a statewide transient occupancy tax on short-term rentals narrowly passed out of the Senate last week and is now headed to the Assembly. The bill would have a crippling impact on cities that rely on locally imposed transient occupancy taxes as a primary source of General Fund revenues. 

SB 584 (Limón) would impose a 15% tax on the occupancy of short-term rentals. Proceeds would go back to local governments as grants for “laborforce housing.” The bill describes laborforce housing as public housing projects built with a skilled and trained workforce or prevailing wage rates. 

The League of California Cities is working with Sen. Limón to address member concerns about the bill, particularly the impact of a statewide transient occupancy tax.

The bill’s author notes that using residential homes and apartments for commercial purposes reduces the available supply of permanent housing. While the intent of the bill is laudable, the mechanism for capturing funding is flawed.

Over 400 cities have a transient occupancy tax, with the most common rate being 10%. For many of these cities, tourism and hospitality are essential economic drivers: Their transient occupancy tax is a primary source of General Fund revenue. In some instances, it can represent over two-thirds of General Fund revenues. These revenues support basic city functions, including fire and police.

Imposing a 15% statewide tax — combined with local rates averaging 10% — would put severe downward pressure on communities. In some cities, this could result in a total tax rate of more than 25%.

Cal Cities is in conversation with Sen. Limón and the bill’s sponsors about both the importance of local transient occupancy taxes and the need for more funding for housing. Cal Cities has proposed alternative collection mechanisms that would provide much-needed funding for affordable housing while also protecting equally important funding for essential services.