Santa Rosa sends rent control, cannabis tax to voters

Santa Rosa wants to cap rent increases at 3 percent and tax cannabis businesses up to 8 percent, but now it’s up to the voters whether either controversial policy will ever take effect.

The City Council decided Tuesday to place both measures on the June 6 ballot in a special election expected to cost taxpayers about $500,000.

The council voted unanimously to ?let voters decide both issues - rent ?control because landlords were able to force a referendum on the city’s suspended law, and the cannabis tax because state law requires voters approve new taxes.

The combination of two such potent political questions on the same ballot means Santa Rosa voters will have a lot to consider over the next three months.

“I look forward to our voters doing their research and making the final decision,” Councilwoman Julie Combs said of the rent control vote.

But despite the unanimous 6-0 vote, the council actually has been deeply divided on rent control, which has been hotly debated for nearly a year, with the council last year narrowly split 4-3 in favor of it.

In late August the council approved a rent stabilization ordinance, which caps rent increases for older apartments at ?3 percent per year and requires landlords have just cause to evict tenants.

But the law, which ?would have affected about 11,000 rental units in the city built before February 1995, was blocked from going into effect after paid signature gatherers submitted 12,524 signatures demanding the public have a say in the policy.

Problems with the ?2,876 signatures meant only 9,648 were found to be valid, but that was enough to force the council either to repeal the ordinance or put it up for a vote.

Combs, a strong supporter of rent control and other protections for renters, called it “a little disappointing” that real estate interests including the California Apartment Association “have blocked our ordinance” by funding a referendum drive using methods Combs called “deceptive.”

The city investigated claims that some signature gathers misrepresented their petitions as in favor of rent control but has not released any finding from that probe.

Unlike the divisive rent control issue, the idea of taxing cannabis businesses enjoyed wide support from the council; the only question was how high the rate should be.

City staff originally considered a cap of 10 percent or $38 per square foot of cultivation area, a rate similar to the county’s Measure A, which passed Tuesday by an overwhelming margin.

But the council subcommittee, seeking to strike a more welcoming posture toward the growing industry, reduced that to ?8 percent of revenues or $25 per square foot of growing area, whichever the business chose.

The city would retain significant power to audit the books of any business to ensure the cash-based businesses were complying with the law.

The two 20-somethings on the council, Jack ?Tibbetts and Chris Rogers, favored dropping the ?caps even lower: Tibbetts to 5 percent and Rogers ?to 6 percent. But after a lengthy discussion, Ernesto Olivares, chairman of the cannabis subcommittee, urged his colleagues to stick with the 8 percent and $25 rates.

A city review of 27 jurisdictions in the state with similar cannabis taxes showed most had caps between 10 and 18 percent, with only six below ?10 percent. The gap was even wider on a per-square-foot basis, from ?$3 per square foot for Humboldt and Lake counties to $50 per square foot for the City of San Jacinto.

A number of cannabis industry representatives urged the council to set the revenue cap lower, arguing that such a rate, given the myriad federal, state and local taxes being layered upon the industry, is simply unsustainable.

“Having a high tax rate of 8 percent really is a disincentive for investors to come into this space,” said Steve Monahan, head of an investment group that won recent approval for a 24,500-square-foot cannabis growing operation on Duke Court off Dutton Avenue.

Getting the tax all the way up to 8 percent, however, won’t be an easy task. The council agreed to lock in low rates, 1 percent for manufacturers, 2 percent for cultivators and 3 percent for recreational dispensaries, for two years, and to lock in any subsequent changes also for two years. The move was aimed at giving the industry some visibility.

Mayor Chris Coursey said expected any future tax increases would be small and unlikely to quickly approach 5 percent. If it did, a supermajority of five votes also will be needed to increase the rates above 5 percent.

Olivares said he was willing to even boost that threshold to require unanimous vote, a move that clearly pleased some members of the cannabis industry in the audience.

But with so much uncertainly at this early stage ?of the regulation of the industry, Coursey said he didn’t want to limit future councils unnecessarily and to give one council member “veto power” over the city’s ability to raise revenue.

“We’re dealing with a lot of unknowns here, unknowns from the city’s side, unknowns from the industry’s side,” Coursey said.

The low initial rates are expected to raise about ?$1 million for the city, which it says it needs to pay for things like code enforcement, permitting, policy development, public safety and public education.

As part of the ballot decision, the council declared a “fiscal emergency” as a result of Proposition 64, the Adult Use of Marijuana Act, which allowed recreational use of marijuana and established the procedures to regulate it.

You can reach Staff Writer Kevin McCallum at 707-521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @srcitybeat.