Capitola wharf

A tax on vacant homes in Capitola could prompt more housing options for residents and generate more than $1 million annually, city leaders said. (Stephen Baxter — Santa Cruz Local)

CAPITOLA >> A tax on vacant homes in Capitola could be headed to the November ballot, as the Capitola City Council on Thursday night called on the city attorney to draft a law for a potential ballot measure. 

The intent of a tax on empty homes is to add a cost burden to those who own a home in Capitola but don’t live in the city for at least three months, Capitola City Manager Jamie Goldstein wrote in a city staff report.  A second-home tax also could help make housing more available to residents who live and work in Capitola by prompting some second-home owners to rent or sell their homes, according to a city staff report. 

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The Capitola council has not yet decided the details of a potential measure or whether it will appear on the Nov. 8 ballot. The council has until its July 28 council meeting to put it on the ballot. Santa Cruz city leaders are expected to approve a similar measure for the Nov. 8 ballot that would tax vacant homes. 

At Thursday’s Capitola City Council meeting, Vice Mayor Margaux Keiser appeared more enthusiastic than other council members about a November ballot measure. 

“Strike while the iron’s hot,” Keiser said. “I feel like it is a subject right now that is happening around us in other counties.”

The city council voted unanimously to have the city attorney draft a potential law that included: 

  • A tax on homes that are not occupied for at least 90 days each year. 
  • Vacant single-family homes would be taxed $4,000 annually. Vacant condominiums would be taxed $2,000 annually. 
  • Exemptions could include homeowners who earn 50% or less of the area median income or have demonstrated financial hardship. Other exemptions could include short-term vacation rentals, homes with active construction, recently sold homes as well as exemptions for homeowners who have medical events or died, according to a Capitola city staff report.

Capitola Councilmember Kristen Brown made the motion to draft the potential law, but she said she was not positive she wanted the measure on the November ballot. The council also discussed waiting until the 2024 presidential election because of likely higher voter turnout.

Vacant homes in Capitola

Capitola census data suggests that about 400 homes could be subject to a second-home tax, city staff wrote in a report. Capitola city staff projects the tax could raise about $850,000 to $1.2 million annually. Capitola leaders have not yet decided whether the potential money would go to the city’s General Fund or to a specific program.

In part because it polled better, Goldstein suggested that Capitola’s vacant home tax could be $4,000 for homes and $2,000 for condos. A vacant home tax in Oakland is $6,000 for residential parcels and $3,000 for condominiums and duplexes. It was approved by voters in 2018. In the city of Santa Cruz, the proposed tax rates are also $6,000 for residential parcels and $3,000 for condominiums.

The cost to draft an ordinance in Capitola is about $10,000 to $15,000, plus about $5,000 to put the measure on the November ballot and roughly $18,000 the city already spent on polling, city leaders said. Initial enforcement of a vacant home tax would cost the city about $20,000 to $30,000, then about $5,000 to $10,000 annually, city leaders said. 

If Capitola’s vacant home tax would be put on the ballot by the city council as a special parcel tax, it would need more than 66% of the vote to pass, Goldstein said. The higher threshold would be needed if the money goes to a specific fund for, say, affordable housing development or senior services, according to state law and city staff. 

In Santa Cruz, a community group gathered signatures for a similar ballot measure for an empty home tax that would need more than 50% of the vote because it was voter-initiated, Goldstein said. There is not enough time to gather signatures for a voter initiated ballot measure in Capitola for November, Goldstein said. 

How a vacant home tax could work

  • Capitola city staff have proposed to review utility data to determine which properties appear to be occupied fewer than 90 days each year. Goldstein said he planned to talk to Soquel Creek Water District for data.
  • If a second-home tax were adopted, city staff could send a “determination notice” to those homeowners and ask those homeowners to submit information to the city to prove occupancy of more than 120 days, according to the city staff report. 
  • After considering a homeowner’s submission, city staff would issue a draft final determination notice. The homeowner then would be able to appeal the draft final determination to an external hearing officer.

A recent Capitola poll suggested there is 58% support for a vacant home tax of $4,000 for single family homes and $2,000 for condominiums. However, Goldstein said, that support waned when respondents were given arguments opposed and in favor of such a measure.

Because a potential ballot measure in Capitola is expected to require more than 66% of the vote to pass, Goldstein said a campaign would be necessary. 

“Honestly, I thought when we saw the polling results that we weren’t going to get anywhere,” Goldstein said at Thursday’s council meeting. But he said he didn’t see any organized opposition.

“I imagine — I don’t know this for a fact — that there was a fair amount of questions for folks as the first time they heard about this,” Goldstein said at Thursday’s council meeting. “Maybe some people were concerned that they were subject to the tax when they go on vacation. So potentially there is more room for people’s opinions to change. I certainly can’t guarantee it.” 

Signs, mailers and campaign plans would have to be made to promote a November ballot measure, Goldstein said. 

“To try to move the needle and get to 66%, it’s going to take a lot of work. It’s going to take a campaign. It’s going to take somebody putting their hand up and saying, ‘I’m going to do this,’” Goldstein said. 

“The real trick would be identifying specific uses for the tax that are consistent with high-priority voter issues. And also, potentially help to energize a campaign,” Goldstein said at Thursday’s council meeting. “What are the issues that people would hit the street and go door-to-door for? Is it funding for seniors? Is it funding for youth? Is it funding for the environment? Funding for roads?” Goldstein asked.

A recent poll of Capitola residents suggested that a need for more affordable housing is the top issue facing the city. (City of Capitola screenshot)

Return to in-person meetings

In other business, the Capitola City Council voted unanimously to conduct hybrid city council meetings in-person and online starting with the council’s Aug. 25 meeting. 

The council has met online only since the COVID-19 pandemic started in 2020. Other city commissions, such as the Capitola Planning Commission, also plan to return to in-person meetings after Aug. 25, city leaders said. 

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Stephen Baxter is a co-founder and editor of Santa Cruz Local. He covers Santa Cruz County government.