City Council
Report
City Council Meeting: September 26, 2023
Agenda Item: 5.G
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To: Mayor and City Council
From: David Martin, Director, Administration
Subject: Approval of Contract with SHI International Corp. for purchase of software from Granicus, LLC. for short term rental address verification, compliance monitoring, permitting, and tax collection services for the City of Santa Monica Recommended Action
Staff recommends that the City Council:
1. Adopt a finding of Categorical Exemption pursuant to Section 15061(b)(3) (Common Sense Exemption) of the California Environmental Quality Act (CEQA) Guidelines; and
2. Authorize the City Manager to negotiate and execute a professional services agreement with SHI International for purchase of software services from Granicus, LLC for short term rental address verification, compliance monitoring, permitting and tax collection services for the Community Development and Finance Departments. This recommended award is made as an exception to the competitive bidding process pursuant to Section 2.24.250(c) and is for a total amount not to exceed $455,560 over a five-year period with future year funding contingent on Council budget approval.
Summary
As the City of Santa Monica continues to recover from the economic impacts of the COVID-19 pandemic, the City is seeking ways to streamline its operations to improve its efficiency and effectiveness. There is an opportunity to improve the efficiency of administering the home-sharing program and improve outcomes for the community by reducing the illegal use of housing units by short-term users.
Currently, the permitting and enforcement aspects of the home-sharing program are performed manually, which slows the issuance of the licenses, creates impediments to effective identification and enforcement of illegal home-share listings, and limits the 2 of 10
amount of taxes collected from home-sharing activities in the City. Cloud-based software systems exist which can help cities automate licensing and permitting workflows, identify illegal home-share listings, and collect the required taxes owed. By leveraging the power of artificial intelligence and coupling it with human analysts, these services allow Santa Monica to increase efficiency and effectiveness in operations while better serving the community. The proposed Agreement with SHI International Corp. would include cloud-based software services from Granicus, LLC, for short term rental (home-share) address verification, compliance monitoring, permitting, and tax collection services for the City of Santa Monica.
Background
On May 12, 2015, the Santa Monica City Council adopted the "Home-Sharing Ordinance," adding Chapter 6.20 to the Santa Monica Municipal Code clarifying prohibitions against short-term vacation rentals and imposing regulations on homesharing. This law became effective on June 12, 2015, and was subsequently amended by ordinances adopted on January 24, 2017, June 27, 2017, and September 24, 2019.
The Home-Sharing Ordinance allows eligible residents (owners and long-term residents) to apply for a home-sharing permit and business license so that they can home-share their primary residence. In addition, the September 24, 2019 amendments to the ordinance contain listing and advertising requirements, restrictions on the number of group bookings, occupancy and visitor vehicle limitations, and other prohibitions.
These amendments took effect on October 24, 2019 and apply to all home-shares, including those operating under business licenses obtained prior to the effective date of the ordinance. On May 9, 2023, the City Council also approved an amendment to the Home-Sharing Ordinance which permitted home-sharing in certain qualifying accessory structures and created a home-sharing legalization program.
Discussion
The current Home-Sharing Ordinance provides for regulations of two types of ShortTerm Rentals:
• “Home-Sharing” – The law authorizes home-sharing, which is the rental of 30 consecutive days or less of one or more bedrooms in the home that is the 3 of 10
primary residence of the host while the host lives on-site in the home throughout the visitor’s stay.
• "Vacation Rental” – The law continues the City’s longstanding prohibition against vacation rentals. A vacation rental is the rental of 30 consecutive days or less of a home, in whole or in part, for exclusive transient use. The visitor enjoys the exclusive private use of the unit.
Currently, the City of Santa Monica permits home-sharing by any natural person who:
(1) is either: (i) a long-term resident of a dwelling unit, or (ii) an owner of a dwelling unit; and (2) uses that dwelling unit as his or her primary residence.
According to insideairbnb.com, as of June 6, 2023, there are over 1,300 short-term rental listings in Santa Monica on Airbnb. AirDNA, another major short-term rental market analysis company, estimates there are just over 1,100 listings. This number does not account for listings found on sites other than Airbnb and VRBO. These listings are found throughout the city. The overwhelming majority of these listings are for entire homes/apartments, which likely violates the requirements of the Home-Sharing Ordinance as the host is required to live on-site during the guests’ stay. Whole unit listings are those most likely to result in the removal of housing from the long-term rental market.
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Santa Monica AirBnB Listings as of June 6, 2023
(Source: insideairbnb.com)
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Most recently, one Code Enforcement Officer has been assigned to addressing all home-sharing violations in the City. Complaints are addressed on a reactive basis. The investigative process is entirely manual, which makes the enforcement process slow and inefficient. In order to verify that a violation exists, the officer must find a link to a listing at the property where concerns are being raised. Links are often turned off and on by the host at various times of the day, often activated during hours where staff is unlikely to be on duty.
Once a live link is identified, staff must be able to tie the unit in the listing to a particular property or address. This is the most difficult part of the process as hosts generally do not post photos of the outside of the building or the unit on the listing. The addresses are also generally not included in the listing. Without being able to tie a listing to an address, Code Enforcement is unable to move forward with the enforcement process.
Leveraging the use of the Granicus, LLC software through an agreement with SHI International Corp will support the Code Enforcement Officer assigned to addressing home-sharing violations to more effectively address violations and streamline the permitting and revenue collection processes by automating the required processes, which are currently done manually. This service can enable more effective enforcement of the home-sharing program.
Granicus, LLC. provides a cloud-based software platform that engages in web scraping, a process that extracts underlying HTML code and data to extract content and data from a website, to identify listings and extract as much information as possible to allow their artificial intelligence (AI) models to narrow down the list of possible address/owner matches. Once a listing is found, Granicus uses the power of AI as well as human analysts to identify the exact addresses and owner information for each identifiable home-share /short-term rental listing. The fact that the City of Santa Monica has a high number of multi-family buildings will complicate the process and likely lower the effectiveness of the program, the platform will still result in a higher number of identifiable listings than the current manual process will. 6 of 10
The Granicus software will also automate the systematic capture of listing screenshots.
Listing status, metadata and full screen screenshots are time stamped and made available in real time on the rental unit record. This evidence collection streamlines the code enforcement process by providing documented evidence of every address match to support all of Santa Monica’s enforcement efforts. Users can easily track the status of individual rentals and create case notes on the unit’s record.
As complaints are received, or violations are confirmed, the platform’s compliance monitoring abilities allows staff to stay in control of the enforcement process and save time by sending courtesy letters and notices of violation, using City approved templates, with the click of a button. These letters can include photos or other evidence which can increase our outreach effectiveness and efficiency. This process will enable Code Enforcement staff to be more proactive in the enforcement of the Home-sharing Ordinance.
The platform also includes a mobile permitting and registration portal. This simplifies Santa Monica’s currently manual permitting and registration processes and significantly reduces the administrative costs on the back end.
Transient Occupancy Tax (TOT) will also be collected through the Granicus platform.
Currently, TOT is primarily collected from Airbnb and VRBO. A few properties as well as the platform Trip Advisor also pay the City directly. The City entered into agreements with Airbnb and Homeaway whereby the platforms would collect the required taxes and remit them to the City on behalf of their users. The data included with the remittance is anonymized and cannot be traced to any specific listing nor easily audited. The Granicus platform will provide a user-friendly process to licensees where they can remit TOT for transactions booked through platforms beyond Airbnb and VRBO. Monthly emails will be automatically sent to licensees, reminding them of the deadline to pay the taxes owed and providing a direct link to the portal where income can be itemized, and taxes paid.
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Rental activity monitoring automates and strengthens the City’s ability to audit hosts, maximizing the impact of audit efforts. By looking for signs of rental activity, Granicus can assist with identifying tax fraud and occupancy and/or booking violations by homeshare listings. Listing reviews and calendar updates are two of the methods used to identify rental activity.
Granicus can help streamline the audit process by allowing the City to request all backup information be submitted through simple, interactive online forms. Hosts can easily upload short-term rental revenue statements to verify rental activity.
Concerned neighbors can call a 24/7 short term rental hotline or report incidents online directly through the service. This portal allows reporting parties to provide information on alleged incidents and are asked to submit photos, videos or other proof of the alleged violation. If a property is registered, Granicus immediately calls and texts hosts and/or emergency contacts to seek acknowledgement and resolution. Complaints and resolution notes are saved in the database so serial offenders can be held accountable.
A dashboard is provided where detailed reports are available, allowing the City to track all home-share related complaints in real time. Information will be widely available through 311, the City’s website and shared on social media and citywide messaging once it is available.
All personal data that is collected will be available only to those City staff members with login access. The primary users will be Code Enforcement, Finance, and City Attorney staff.
Past Council Actions
Meeting Date Description
4/28/2015 Ordinance 2484 – Creation of Home-Sharing Ordinance 1/10/2017 Ordinance 2535 – Home-Sharing Ordinance update; amend definitions, limit obligations on hosting platforms
6/13/2017 Ordinance 2547 – Home-Sharing Ordinance update; treatment of accessory dwelling units
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9/10/2019 Ordinance 2616 – Strengthen regulation of home-sharing and vacation rentals
10/25/2022 Resolution 11481 – Establish a special home-share legalization program to authorize previously permitted home-share operators to resume operations pending updates to the Home-Sharing
Ordinance and Zoning Ordinance
3/11/2023 City Council workshop to select Council priorities and provide direction on the Fiscal Year 2023-2025 budget
3/21/2023 Zoning Ordinance amendments for Housing Element implementation, including amendments to accessory structures 5/9/2023 Ordinance 2784 – Authorize home-sharing in certain accessory structures and incorporate a home-sharing legalization program Vendor Selection
Staff met with and attended demonstrations of the two most prominent short-term rental monitoring services, Granicus (Host Compliance) and Avenu Insights (Harmari). Both providers demonstrated an overview of their services and capabilities. After internal discussions, staff decided that Granicus is the system that best meets the needs of the City of Santa Monica.
Exception to Competitive Bidding
Staff recommends contracting with SHI International Corp. for services from Granicus, LLC. to furnish and deliver home-sharing address identification, compliance monitoring, registration, and tax collection services as an exception to competitive bidding per Municipal Code 2.24.250(c): competitive procedures were followed by a governmental agency, federal, state, county, city, joint powers agency, special district, or cooperative purchasing agency, that are equivalent to the procedures required in Chapter 2.24, and the goods or services are supplied to the City at the same or better price.
In 2018, The city of Mesa, Arizona conducted a competitive process through the Omnia Partners, Public Sector Purchasing Alliance, for technology products, services, solutions, and related products. Contract #2018011-02 was awarded to SHI International Corp. to provide information technology solutions and services. SHI International offers software services from Granicus. The City of Mesa, Arizona has partnered with OMNIA partners to make this solicitation available to other public agencies nationally, including state and local governmental entities, public and private primary, secondary and higher education entities, non-profit entities, and agencies for the public benefit. The City of Santa Monica will piggyback on this contract which offers a 4.5% discount for Granicus services.
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Environmental Review
The award contract is categorically exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines. The award contract is covered by the common sense exemption which states that CEQA does not apply, “where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment.” The contract will provide the city with cloud-base software services for administrative functions. Therefore, it can be seen with certainty that the contract would not result in adverse physical impacts on the environment, and as such, is categorically exempt from CEQA.
Financial Impacts and Budget Actions
Staff seeks authority to approve funding from the General Fund to award a contract with SHI International to purchase Granicus cloud-based short-term rental software services.
Future year funding will be contingent on Council budget approval.
Agreement Request
FY 2023-24 Budget
Request Amount Future Years Account # Total Contract Amount $45,308 $410,252 01700005.550010 $455,560
The revenue impact is uncertain since part or all of the revenue collected from properties not currently paying could be offset by the removal of illegal listing that are paying. Staff will adjust revenue budgets accordingly in the future.
Prepared By: Daniel Mick, Code Enforcement Manager
Approved Forwarded to Council
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Attachments:
A. SHI Quote-23637892
B. Breakdown of Yearly Charges
C. RE_ Cooperative purchase agreement (SHI International) for short-term rental services through Granicus (Host Compliance)
D. Granicus Oaks Initiative Form
E. FY23-24 Living Wage Certification Form Granicus
F. SHI International - Oaks Initiative Form