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San Clemente, California
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AGENDA REPORT
CITY OF SAN CLEMENTE
CITY COUNCIL MEETING
CITY OF SAN CLEMENTE
Meeting Date: May 20, 2025 Agenda Item: 10E.
Submitted By: Community Development
Prepared By: Adam Atamian, Community Development Director Subject:
..titl e
CONSIDERATION OF A RESOLUTION TO INITIATE A ZONING AMENDMENT RELATED TO
THE AMORTIZATION PROCESS OF SHORT-TERM LODGING UNITS, AND AN
INFORMATIONAL REPORT OF EXISTING TRANSIENT OCCUPANCY TAX REVENUE AND OPPORTUNITIES FOR ENHANCEMENT OF THAT REVENUE SOURCE ..body Fiscal Impact:
Due to the expiration of an amortization period for non-conforming short-term lodging units (STLUs) set to occur in May 2026, the City anticipates a reduction in Transient Occupancy Tax (TOT) of approximately $130,000 per year. Should the City Council determine to modify current regulations, or initiate other TOT-generating measures, the City could anticipate an increase to, or the maintenance of existing, TOT revenues.
Summary:
Transient Occupancy Tax is a tax levied on overnight accommodations, including hotels, motels, short term rentals, and similar businesses. In San Clemente, the TOT rate is 10%, which is a common rate within Orange County but is less than some other tourist serving destinations such as Laguna Beach (14%), Buena Park (12%), and Anaheim (15%)1. The City’s 2025 fiscal year (FY) budget anticipates $3.55 Million in TOT revenue, of which approximately $2.5 Million comes from hotels and motels and $1 Million comes from STLUs, including short-term apartment rentals (STARs).
The City’s current STLU-generated TOT revenue is set to decrease due to the expiration of a 10- year amortization period that was applied to certain STLUs that existed prior to the adoption of STLU regulations that occurred in 2016. This loss of TOT is anticipated to be approximately $130,000 per year.
To address this loss of TOT, and to inform the City Council of opportunities to increase TOT from STLUs more generally, City staff is providing a number of options to expand TOT revenue for the City Council’s consideration. These opportunities include the following, with each discussed in more detail within this report:
1. Provide a process for amortized STLUs to convert to STARs, where possible, regardless of the 300-foot minimum separation requirement.
2. Extend the amortization period for the amortized STLUs. 1 Refer to Attachment XX, 2022-23 City Transient Occupancy Tax Revenue for CA Cities 1 Attachment 2
Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
3. Increase development potential of hotels and motels City-wide through zoning code enhancements or other special exceptions, beyond the zoning modifications currently contemplated as part of the Gateway Overly.
4. Expand the allowed areas or capacities for STLUs, including the option for a limited-term expansion related to the 2028 Olympics or other major regional events.
5. Revisit a ballot measure to increase the TOT rate in San Clemente.
Background:
Current Revenue
The City’s biennial budget2for FY25 and FY26 includes $3.55 Million in TOT revenue for each year. Figure 1 shows projected and historical TOT revenue.
Figure 1
This revenue accounts for 5.14% of the City’s tax revenue, or 4.11% of all City revenues. A breakdown of all tax revenues is shown in Figure 2, below. [Continued on next page]
2 https://www.san-clemente.org/about-us/city-finances/city-budget 2 Revenue Assumptions
for Major Revenue Sources
Transient Occupancy Tax {TOT)
TOT is a 10% "bed" tax that is added to hotel room bills and vacation rentals within City limits. TOT revenue is budgeted at $3.6 million for both FY 2024-25 and FY
2025-26, which is comparable to the FY 2023-24
adjusted budget amount.
San Clemente is a coastal town, therefore transient
occupancy tax revenue is dependent upon weather and
tourism conditions for individuals to stay in San
Clemente. Lodging in excess of 30 continuous days is
exempt under the City's transient occupancy tax.
en
C:
$4.0
$3.0
~$2.0
~
$1 .0
$0.0
FY 2023 FY 2024 FY 2025 FY 2026
Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
Figure 2
In the calendar year 2024, San Clemente received $3,231,300 in TOT revenue. In comparison, the City of Dana Point received $16.9 Million3in revenue in FY24; San Juan Capistrano budgeted $2.3 Million4for FY25; and Laguna Beach anticipates $10.8 Million5in TOT for FY25.
Short Term Rentals
There are 161 short term rentals that are actively paying TOT. In San Clemente, short term rentals are classified into two types. The first is short term lodging units (STLU), which are units in designated visitor serving areas6, such as the Pier Bowl and North Beach. STLUs do not have distance separation requirements, and the owner is not required to reside on site; however only 20% of residential units in each allowed area may be used as STLUs. The second type is a shortterm apartment rental (STAR), which is permitted outside of the visitor serving area; however, these units require the property owner or manager to reside on site and cannot be within 300-feet of another permitted STLU or STAR.
Prior to the City’s 2016 and 2018 ordinances regarding short term rentals (codified under Section
17.28.292), a number of short-term rentals without owner/manager on site already existed outside of the designated visitor-serving accommodation zones. The City grandfathered these units, but placed them on an amortization schedule. Some units may be eligible to resume operations if converted to a STAR permit, but not all can remain in operation once the June 2026 amortization date is reached due to minimum distancing requirements from other STLUs or STARs. There are 38 amortized units, 29 of which are active and accounted for about $130,000 in TOT revenue in 2024. The map provided in Figure 3, below, indicates the STLU allowed areas (outlined in orange) and approved STLUs (orange), approved STARs (green), and amortizing units (blue). 3 https://www.danapoint.org/home/showpublisheddocument/39528/638816086471370000 4 https://sanjuancapistrano.org/ArchiveCenter/ViewFile/Item/1376 5 https://www.lagunabeachcity.net/home/showpublisheddocument/19846/638622540039630000 6 Maps of ATLU allowed areas:
https://library.municode.com/ca/san_clemente/codes/code_of_ordinances?nodeId=TIT17ZO_APXCSUECMA 3 General Fund Revenue Summary
by Category
Revenues FY 2022-23 FY 2023-24 FY 2023-24 FY 2024-25 FY 2025-26 Description Actual Adj Budget Projected Budget Budget
Property Tax $41,667,449 $42,697,000 $43,185,000 $45,229,800 $47,398,200 !Transient Occupancy Tax 3,342,858 3,552,000 ,300,000 8,550,000 ,550,000 Sales Tax 12,608,182 13,095,000 13,095,000 13,348,000 13,659,500 Franchise Tax 2,471,832 2,443,000 2,501,000 2,527,000 2,500,000 Property Transfer Tax 631,886 700,000 710,000 715,000 720,000 -- Assessments & Delinquent Taxes 66,168 63,230 65,230 67,250 67,750 Business License Tax 1,236,502 1,223,000 1,205,000 1,205,000 1,215,000 Total Taxes 62,024,877 63,773,230 64,061,230 66,642,050 69,110,450 Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
Figure 3
Other Visitor-Serving Accommodations
There are 758 motel, hotel or bed and breakfast rooms in the City. There has been some attrition of older motel stock that have closed business or converted into housing uses, including 6 units from the former C-Vu motel, 10 units from the former La Vista Inn, and 5 units from the former House of Trestles for a total of 21 lost units.
Pending and Approved Hotel/Motel Projects
In addition to the existing stock of hotel rooms, the City may see construction of additional facilities in the near future:
Hotel Clemente (225-229 Avenida Del Mar): 28 hotel rooms with a restaurant in the downtown core. This project was approved by the City in late 2024 and recently was deemed complete by the Coastal Commission. The developers are awaiting their hearing date with the Coastal Commission and hope to submit for building permits with the City later this year.
4 Legend
- STLU Allowed Areas
STLUs
0 0
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Short-Term Ap artment Rental
(STAR)
Short-Term Lo d g1 ·ng Unit
(STLU)
STLU Amoritized
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Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
Sea Cliff Boutique Motel (402 Pasadena Court): 11 hotel rooms with a restaurant in the Pier Bowl.
Hanson Hotel (1801 N. El Camino Real): 61-room hotel with café and restaurant in North Beach. Staff anticipate scheduling a public hearing for this item this summer (2025). Lodge Hotel at the Outlets (401 W. Avenida Vista Hermosa): 125-130 hotel rooms + conference center. However, this project has been inactive for more than 5 years.
If these four facilities (totaling 225 rooms) are constructed, the City could see additional TOT revenue of about $1.31 Million, based on an assumption of a $200 room rate for an 80% occupancy with a continued 10% TOT rate.
2016 Ballot Measure to Increase TOT
In 2016, the City Council initiated a ballot measure for residents to consider increasing the TOT rate from 10% to 13%. However, the measure was defeated by a narrow margin of 8 votes, as shown in Figure 4, below.
Figure 4
Opportunities to Increase Revenue from TOT
Staff has compiled, and seeks the City Council’s guidance and direction on, the following list of potential options to increase the City’s TOT revenue:
1. Provide a process for amortized STLUs to convert to STARs, where possible, regardless of the 300-foot minimum separation requirement.
At the end of the STLU amortization period, the City anticipates, and has already received, a number of applications to convert STLUs to STARs. These applications present a few issues. First, only STLUs located on properties with more than one residential unit will be able to convert to a STAR. Second, of those STLUs that could convert to STARs, staff anticipates that multiple applications will be submitted that are within 300 feet of another non-amortized STLU or STAR, or within 300 feet of another application to convert an amortized STLU into a STAR. The City typically processes requests on a first-come, firstserved basis.
Staff recommends that the City Council provide direction to staff on whether to maintain the status quo in processing applications for STLU to STAR conversions (first-come, first5 Yes 15,035 49.99%
El,ection results from Orange County Elections Office @ Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
served) or to initiate a Zoning Amendment to allow amortized STLUs to apply for STAR permits regardless of the 300-foot minimum distance requirements. Staff envisions that the required distancing would still apply to new STAR applications. Staff has provided a draft resolution for the City Council’s consideration (Attachment 1) that includes a zoning amendment initiation to allow amortized STLUs to apply for STAR permits regardless of the 300-foot minimum distance requirements.
2. Extend the amortization period for the amortized STLUs.
Another option to address the concerns discussed in item 1, above, would be to further extend the amortization period. This would provide for a continuation of the current STLU licenses, without the need for staff to process multiple new applications for STARs, which all require a public hearing. Additionally, more time to allow current STLUs to continue to operate would allow further natural attrition of those uses as properties change ownership or property owners decide to use their properties for longer term occupancy.
3. Increase development potential of hotels and motels City-wide through zoning code enhancements or other special exceptions, beyond the zoning modifications currently contemplated as part of the Gateway Overly.
Initiating a zoning amendment to increase the development potential of visitor-serving accommodations would likely increase TOT revenues by providing additional density for hotel and motel rooms, where those uses are currently allowed. This could be accomplished by increasing the allowable floor area ratio (FAR), height, or other standards to further incentivize development of additional short-term accommodations in the City.
Additionally, the City could consider offering special zoning exceptions in select areas to allow visitor-serving uses where they are not currently permitted, providing more flexibility and strategic expansion of lodging capacity in anticipation of high-demand events or longterm tourism growth.
4. Expand the allowed areas or capacities for STLUs, including the option for a limited-term expansion related to the 2028 Olympics or other major regional events.
To increase TOT revenue from STLUs, the City Council could consider expanding the STLU-allowed areas or percentage of allowed units in the visitor serving STLU areas. By expanding the designated visitor serving areas, such as the Downtown, Pier Bowl, or North Beach STLU areas, the City could facilitate an increase in STLUs that would generate additional TOT. Furthermore, by increasing the limitation on STLU density in these areas, which are currently capped at 20% of residential units in each allowed area, additional STLUs could be accommodated, also increasing TOT revenues.
Another option is to explore more limited term expansions of STLU uses. As the 2028 Olympics approach, the City Council could consider temporarily allowing some additional, or all, residential properties not currently licensed as STLUs or STARs to operate as STLUs during the summer months of 2028 to accommodate the expected surge in visitors.
This policy would help alleviate pressure on hotels and traditional lodging, offering a wider array of accommodations at varying price points. Homeowners could benefit economically 6 Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
by renting out their homes or spare rooms, generating income during a peak tourism period. For the City, increased visitor spending and collection of TOT revenue from these rentals could provide a financial boost to support public services and Olympic-related infrastructure demands.
However, this approach also poses challenges. A rapid increase in short-term rentals could lead to neighborhood disruptions, traffic congestion, and complaints about noise or trash— especially in residential areas not accustomed to tourist activity. There’s also a risk of exacerbating housing availability issues if property owners temporarily convert units from long-term housing to short-term rentals. To mitigate these effects, the City would need a clear and temporary permitting process with defined start and end dates, robust TOTcollection mechanisms, and enforcement strategies to prevent abuse. Considerations would include a registration/permitting process, setting occupancy limits, and partnering with rental platforms to ensure compliance. Community input and transparent communication would be essential in building public support and minimizing unintended consequences.
5. Revisit a ballot measure to increase the TOT rate in San Clemente.
Pursuing a ballot measure to increase TOT revenues could provide the City with a valuable opportunity to generate additional funding for critical public services, infrastructure, sand nourishment projects, and tourism-related impacts without directly taxing residents. By targeting short-term visitors, an increased TOT rate can help offset the costs associated with large events, tourism-driven wear on public assets, and housing displacement pressures. However, careful consideration must be given to potential opposition from the hospitality industry, STLU/STAR operators, and tourism advocates concerned about competitive pricing. For such an effort, the City should clearly articulate how the new revenues will be used and align the measure with community priorities such as public safety, and beach, infrastructure, or transit improvements.
Council Options:
Adopt Resolution No. 25-62 to initiate a zoning amendment to provide a process for amortized STLUs to convert to STARs, when located on a property with multiple dwelling units, regardless of the 300-foot minimum separation requirement, and provide staff with any additional direction or feedback on the other opportunities presented in this report. Modify and then adopt Resolution No. 25-62. Modification could include directing staff to draft an amendment that extends the amortization period for STLUs, increases development potential of hotels and motels City-wide, provides for expansion of STLU-allowed areas or capacity, provides for limited-term permitting of STLUs related to the 2028 Olympics or other major regional events, or directs staff to explore the option of a ballot measure to increase the TOT rate.
Continue the item with the direction to staff to provide additional information. Do not approve Resolution No. 25-62, and receive and file this report. This action will result in no new ordinance being drafted to maintain or enhance the City’s TOT revenues after the 7 Meeting Date: May 20, 2025 Agenda Item: 10E.
CITY OF SAN CLEMENTE
expiration of the STLU amortization period, and would also result in maintaining the status quo in processing applications for STLU to STAR conversions on a first-come, first-served basis.
Environmental Review/Analysis:
The initiation of an ordinance to amend the Zoning Ordinance does not qualify as a "project" under the California Environmental Quality Act (CEQA) because it only involves the work of staff to draft such an ordinance for future City Council consideration and has no potential to result in either a direct, or reasonably foreseeable indirect, physical change in the environment (State CEQA Guidelines, § 15378, subd. (a)). The action merely provides approval to allocate staff time to draft a potential ordinance, and does introduce any new activities or changes that could affect the environment. The proposed ordinance itself after being drafted would go through the appropriate environmental review.
Recommended Actions:
Staff Recommendation ..recommendation
STAFF RECOMMENDS that the City Council adopt Resolution No. 25-62 to initiate an amendment to the Zoning Ordinance to provide a process for amortized STLUs to convert to STARs when located on a property with multiple dwelling units, regardless of the 300-foot minimum separation requirement.
..end
Attachment: EXHIBIT
1. Proposed Resolution 25-62
Notification:
None.
8 EXHIBIT 1
RESOLUTION NO. 25-62
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
SAN CLEMENTE, CALIFORNIA, INITIATING A ZONING
AMENDMENT TO TITLE 17 (ZONING) OF THE SAN
CLEMENTE MUNICIPAL CODE TO MODIFY STANDARDS
AND PROCESSES RELATED TO SHORT-TERM LODGING
USES
WHEREAS, Title 17 of the San Clemente Municipal Code establishes zoning regulations, development standards, and procedures intended to guide land use and development in accordance with the City’s General Plan; and WHEREAS, per Title 17, amendments to the Zoning Ordinance are necessary to maintain its effectiveness as a regulatory and informational document and to ensure its consistency with the General Plan, adopted specific plans and State law. Zoning amendments are also necessary to provide for the implementation of the City's General Plan; and
WHEREAS, the initiation of a zoning amendment is a preliminary procedural step that enables staff to prepare draft amendments for public review, Planning Commission recommendation, and future City Council consideration; and WHEREAS, on May 20, 2025, the City Council considered a staff report, public comments, and directed staff to initiate zoning amendments described below.
NOW, THEREFORE, the City Council of the City of San Clemente does hereby resolve as follows:
SECTION 1. As directed at its May 20, 2025 meeting, the City Council hereby initiates a zoning amendment to Title 17 of the San Clemente Municipal Code to:
A. Provide a process for amortized short-term lodging units (STLUs) to convert to short-term apartment rentals (STARs) regardless of the 300-foot minimum separation requirement.
SECTION 2. The City Clerk shall certify to the passage and adoption of this resolution and enter it into the book of original resolutions.
PASSED AND ADOPTED this _____ day of ____________________, _______. 9 Resolution No. 25-62 Page 2
ATTEST:
___________________________ __________________________
City Clerk of the City of Steve Knoblock, Mayor of the
San Clemente, California City of San Clemente, California 10 STATE OF CALIFORNIA )
COUNTY OF ORANGE ) §
CITY OF SAN CLEMENTE )
I, LAURA CAMPAGNOLO, City Clerk of the City of San Clemente, California, do hereby certify that Resolution No. 25-62 was adopted at a regular meeting of the City Council of the City of San Clemente held on the _______ day of _______________________, _________, by the following vote:
AYES:
NOES:
ABSENT:
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the City of San Clemente, California, this _____ day of _________________, ________. __________________________
CITY CLERK of the City of
San Clemente, California
Approved as to form:
___________________________
Elizabeth A. Mitchell, City Attorney
11