Dead Nazis and Broken Noses: Sedona rejects vacation rentals

by Cyndy Hardy
Appears in the March issue of The Noise. Available for reprints.

SEDONA, Feb. 19 – A random stranger recently told me that if he lived in Germany during WWII and a couple of SS soldiers showed up at his house asking if he was hiding Jews in his basement, “I’d have two dead Nazis on my porch and Jews in my basement.”

The violent image shocked me. This wasn’t about Jews and Nazis. We were talking about how people pick and choose what laws they abide, specifically people who operate more than 400 illegal short-term vacation rentals in Sedona. His point was that government has absolutely no right to dictate what a person does with private property and that a person is justified to use any means – legal or not – to fight government interference.

While my new friend and I talked coffeehouse politics, an old saying kept running through my mind like a tune that won’t go away: “Your right to punch me in the nose ends where my nose begins.” Given his passionate stance against government interference, how far should full-time residents go to protect their own property rights and neighborhoods?

There’s a feud brewing between neighbors in Sedona that will inevitably end up in court – potentially diverting taxpayer dollars from road and sewer projects; pedestrian safety and nonprofit subsidies – to fight a classic battle: city zoning versus private property rights.

The city is caught in the crossfire: those who illegally operate vacation rentals say the zoning amounts to an unlawful “taking” of their property; some full-time residents say by not enforcing its zoning, the city diminishes their property right. The city is further pinned down by an old law it couldn’t enforce; a new law meant to fix that; and a generalized public image that government is always the bad guy.

Illegal vacation rentals became a hot issue at City Hall in 2007. While they may be cozy and homey for the tourists, some full-time residents say these rentals are a nuisance: increased traffic, overcrowding, loud music and generally unsettling to people who find security in knowing their neighbors.

Vacation renters do not behave and take care of a property the way full-time residents do, according to resident Bob Cleland.

Short-term vacation rentals are homes that tourists rent for less than 30 days instead of staying in hotel rooms. Vacation rentals in Sedona are usually upscale single-family homes in residential neighborhoods, but can include condominiums, duplexes, and multifamily homes.

City code limits lodging uses to specific zones and short-term rentals in residential zones have specifically been illegal in Sedona since about 1995.

People on vacation often like to party, according to resident Helen Knoll, an attorney who lives near illegal vacation rentals. Sometimes there are four or five cars per household, she said. The government has a right to put reasonable controls on property rights, and she supports the city’s ban on residential short-term rentals. “It’s hard to party for 30 days; not so hard to party for seven nights,” Ms. Knoll said.

“I understand that the ordinance is on the books. That doesn’t make it right,” Stephen Schwartz, an attorney and part-time Sedona resident who has counseled local short-term rental operators, said at the Sedona City Council’s Jan. 22 meeting.

Mr. Schwartz invoked Magna Carta, saying that renting one’s home is a fundamental property right and they city has no legitimate government interest in banning it.

“If that were true,” Sedona City Attorney Mike Goimarac said, “then every homeowner could rent for less than 30 days,” There are more than 6,000 homes in Sedona. “The question is do you still have a residential neighborhood?” he asked. Neighborhood complaints were the driving force behind recent attention to short-term rental violations, according to Goimarac.

Ann Schwartz, a short-term rental advocate, said complaints have been minimal. I talked to Sedona Code Enforcement Officers Jim Windham and John Egan a few days after the meeting. They agreed with Ms. Schwartz, saying the city has received less than 10 complaints in the past eight months, which is typical for any given year. They also said complaints are recorded by residence, not necessarily by occurance, and that most of the complaints come from a small number of rentals.

Paul Kanter and his wife, Sue Meyer, have a Seattle, Wash. address and own five properties in the Sedona area, according to Yavapai and Coconino County records. Ms. Meyer is president of Sedona Vacation Rental Solutions Association, an organization of vacation rental operators spearheading opposition to the city’s short-term rental laws.

I asked if flagrantly breaking the law was the best way to get what they wanted. Mr. Kanter said many people “did what they did” after researching the market and talking with city officials. “They were told, ‘yes it’s on the books but we don’t enforce it,’” he said.

Mr. Windham denied Mr. Kanter’s claim. In a typical scenario, Mr. Windham said, after receiving complaints from neighbors he would knock on the door of a suspected illegal vacation rental only to be told the occupants were friends or family of the owner. There’s no law against letting your family stay in your second (third, or fifth) home. By the time any given case could be investigated, the tourists were long gone and not likely to come back to be witnesses in a prosecution.

Even if the city could execute a prosecution, the existing law only allows a $250 fine, which operators could easily write off as a cost of doing business. It’s easier to prove they are operating vacation rentals by finding the ads than it is to prove a tenant isn’t a friend, Mr. Goimarac said. He drafted an ordinance to ban advertisements on illegal rentals and the City Council was set to pass it in November 2007.

No longer under the radar, SVRSA members came to the table with their own draft ordinance to legalize and regulate short-term rentals between seven and 30 days where not prohibited by homeowners associations. The draft ordinance proposed permits, regulated the number of people allowed per room and required operators to pay bed taxes.

The city also received a warning shot in the form of a letter from Florida civil attorney Richard G. Rumrell, who represents Steve Milo in a current short-term rental lawsuit against Venice, Fla. The letter warned the city that its ban is unconstitutional and asked the City Council to defer its decision until he could brief the city.

The city retained its own outside counsel, Perkins Coie, Brown & Bain and, “after receiving more public input in subsequent work sessions the Council, opted to stick with our current ban on short-term rentals,” Mr. Goimarac said, essentially saying ‘no thanks’ to SVRSA’s bid for amnesty.

The Sedona City Council passed the ordinance at its Jan. 22 meeting making it illegal to advertise short-term rentals. Violators face a class 1 misdemeanor with fines up to $2,500, up to six months in jail and possible civil penalties. Each day a violation continues constitutes a separate offense. The law was set to take effect on Feb 22.

Publicly, council members and city staff said “it’s about the integrity of neighborhoods” and “the city’s right to enforce its zoning.” Illegal vacation rental operators cried foul, saying the law would hurt out-of-state owners who rent out their Sedona homes to pay the mortgage with the dream of someday moving here for good.

Something doesn’t add up. On the surface, just below the platitudes, it seems the City Council may have snubbed SVRSA for minor trespasses: the numerous emails from short-term rental supporters – so many that one city official called them a nuisance; the threatening letter from Mr. Rumrell, who reportedly wouldn’t say who he represented.

Deeper down, the City Council may have reacted to pressure from various homeowners associations that “didn’t have the huevos,” according to Vice Mayor Jerry Frey, to enforce their bylaws, putting the burden of enforcing and defending zoning back on the city. “They made the city the bad guy on this,” Mr. Frey said.

Since Jan. 22, “We have happily observed that many entities have already voluntarily modified their internet advertisements to delete references to daily or weekly rates,” Mr. Goimarac said.

But, what has the city really stopped? Web sites that once blatantly advertised daily and weekly rates now simply advertise a monthly rate – some as high as $18,000 – or direct the customer to contact the owner or agent for pricing. Even if the operators charge a monthly rate, how can the city stop them from refunding three weeks of the fee?

One way might be to catch them before they finish updating their Web sites. Foothills Property Management’s site lists a vacation home called Serene Phalet in Uptown. There are no daily or weekly rates listed, but when you check availability the calendar highlights a one-week minimum stay.

Probably, Mr. Goimarac now has two laws to enforce – the code banning short-term rentals and the new law that criminalizes advertisements for them – and seemingly no better tools to do it than he started with. Sedona does not levy residential property tax, does not require business licensing and does not enforce its business registration ordinance.

Outside tools haven’t changed, either. The city gets its sales tax information from the Arizona Department of Revenue. Yavapai and Coconino Counties tax rental properties differently than owner-occupied properties, but they don’t often audit occupancy use, Mr. Frey said. Anyone doing business in Arizona, including vacation rental owners, must register with the Arizona Corporations Commission, according to Public Information Officer Rebecca Wilder.

Anyone who – for profit – solicits, arranges or accepts reservations or money for occupancies of thirty-one or fewer days in a dwelling on behalf of another must have an Arizona real estate license, according to Tom Adams, assistant commissioner of investigations for the Arizona Department of Real Estate.

“If a Web site advertises available property and says ‘contact us,’ they need a license. If the information says to contact the owner, they don’t,” Mr. Adams said.

Perhaps another consequence is lost revenue. For a city government often accused of being “in bed” with business interests, the Sedona City Council did not opt to compromise with short-term operators. Odd, since city revenues are leveling off as development nears build-out and the city is currently brainstorming how to avoid a deficit. Mr. Frey said the potential tax revenue was never really discussed.

There are about 2,410 legal lodging units in Sedona, including 1,530 hotel, motel, resort and bed & breakfast units; 796 timeshare units; and 84 lockouts, according to the city’s 2007 Land Use and Population Report. There are about 448 advertised illegal vacation rentals, according to Mr. Goimarac’s investigations.

Legal Sedona lodging businesses pay a three percent hotel bed tax; timeshares pay an “in lieu” fee. Lumped together in the budget, bed tax is the city’s second largest revenue source, generating an estimated $1,527,727 for Fiscal Year 2007/2008.

Short-term rental operators do not pay bed tax. “We can’t tax them for something that is illegal,” Mr. Goimarac said. They would have paid taxes if SVRSA’s proposed ordinance had been accepted, according to Mr. Schwartz. “They wanted to,” Mr. Schwartz said.
Other communities have found ways to – pardon the pun – accommodate short-term rentals.

“Aspen is highly dependent on short term accommodations’ rentals for our economic existence. It’s part of what defines a resort economy,” said Larry Thoreson, sales tax administrator for the city of Aspen, where all short term rentals are subject to a combined sales and lodging tax rate of 9.6%.

Technically, short-term rentals are not allowed in residential zones in Aspen. “We know who they are, they must report and pay sales and lodging taxes, and they are occasionally audited by the state or city to keep them honest,” Mr. Thoreson said. “Any attempts on the city’s part to enforce our zoning would merely end such rentals and the attendant tax revenues.”

Complaints are rare in Aspen, according to Mr. Thoreson. “If you could afford a multi-million dollar property, would you be interested in the possibility of members of the lower classes occupying your abode, even if only briefly?” he asked. The average property value is about $6.5 million, and most rentals are handled by property managers who collect and remit the appropriate taxes, he said.

Short-term rentals are allowed in Telluride residential zones, according to the town planning department’s Mike Davenport. “There is a 2% excise tax on these units that is applied to the financial guarantee provided to airlines serving Telluride,” he said.

Telluride codes limit short-term use through deed restrictions to 30 consecutive days or
60 days per year. Units must be registered and submit a semi-annual report to the
Planning Director, Mr. Davenport said.

Flagstaff basically ignores illegal vacation rentals, according to Community Code Administrator Roger Eastman – who lives in Sedona and was the city’s senior long range planner before his position with Flagstaff. “Logic suggests that residential uses are for more than 30 days, but this is not specifically stated, which makes it hard to enforce. And as this is such a non-issue; we don't get more than one or two complaints a year, so we do not worry about them,” he said.

Mr. Frey said the city did not really look at how other cities handled residential short-term rentals, although he said he asked staff for the information. So, enforcement it is.

SVRSA members who talked to me after the Jan. 22 City Council meeting refused further interviews. “I spoke with our attorney and he advised me not to discuss the issue at this time. Once our lawsuit is filed, it will become self evident what actions we are taking going forward,” Ms. Meyer said.

The coffee is cold. As I pour the last of it into a planter, I wonder who will win the upcoming battle. Dead Nazis and broken noses, I think, and move on to the next article.