The Santa Barbara City Council will continue to consider adding a property transfer tax increase to the November ballot but won’t be moving forward with an increase in the city’s transient occupancy tax — for now. 

On Tuesday, the council discussed two potential ballot measures meant to generate more revenue as the city faces dwindling reserves and significant deficits. 

The first was a 2% increase in the TOT, and the second was an increase of $9.50 per $1,000 on property transfers of more than $3 million. 

Councilwoman Meagan Harmon said they were “all bad options.”

“I’m really, really struggling, putting yet another obligation onto our residents when the path is not clear to me that this is going to solve our problem,” Harmon said. “I will make as many hard decisions as I can in this next budget cycle, but I’m really struggling with passing my failure onto our community in this way.”

She added that she was against raising the TOT, and while hesitant over the property transfer tax, she wanted to explore a $60 tax per $1,000 on properties of more than $6 million. 

The rest of the council agreed that they didn’t want to burden the hospitality industry, especially as international visitors are declining. 

The city proposed raising the TOT rate from 12% to 14%. If added to the ballot and approved in November, the additional revenue would bring in $2.9 million in fiscal year 2027 and $5.8 million in fiscal year 2028, the first full year the increase would be in effect, according to the city staff report.

Multiple members of the local tourism industry spoke out against the tax, saying it would hurt the industry that provides significant economic growth to the city and support to other businesses. 

Andrew Firestone, a hospitality business owner, said his hotels serve families, and he was worried the tax would deter them from visiting Santa Barbara. 

“That is an important category of visitor to support, and we don’t want to price them out of coming to Santa Barbara,” Firestone said. 

While the council was against adding it to the ballot, they acknowledged that they might have to if they can’t go forward with the property transfer tax increase.

City Administrator Kelly McAdoo explained that pending litigation and state initiatives could prevent the city from increasing the property transfer tax, forcing them to put a TOT increase on the ballot instead.

If voters approved the property transfer tax increase of $9.50 per $1,000 on property transfers of more than $3 million, it would go into effect in early 2027. The tax would be expected to generate $5 million in revenue after the first full year of implementation, according to the city staff report.

The city’s current property transfer tax is $1.10 cents per $1,000 on all properties. Residents selling a property for more than $3 million would be responsible for paying the tax. 

Brian Johnson, CEO of the Santa Barbara Association of Realtors, argued that $3 million properties aren’t just luxury properties, but family homes that have appreciated in value over the years. 

“Neighborhoods like the Riviera, San Roque, the Upper East, the Mesa regularly see sales at or above this level, not because the sellers are wealthy investors, but because they are longtime residents whose modest homes have risen in value through no particular action of their own,” Johnson said. 

“Taxing them heavily at the moment of sale, often during retirement, estate settlement, divorce or health-driven move, compounds financial strain during already one of life’s most difficult circumstances.”

Instead of just focusing on properties worth more than $3 million, the council discussed interest in a tier approach, with a different tax rate depending on the price of the property.

Councilwoman Wendy Santamaria said she was more in favor of a property transfer tax, and didn’t want to put the burden of the city’s financial struggle on the shoulders of hospitality workers.

“This is the moment where we have to look at things through the lens of equity. For the folks that are able to shoulder that cost, it is imperative that we take that on,” Santamaria said. 

Mayor Randy Rowse said he had “no intention” of supporting any tax right now, especially after voters already approved Measure C, a 1% sales tax in 2017 and then an increased sales tax again with Measure I in 2024.

“Why would anybody trust us to think that this next $5 million pop, whatever we’re going to do here, is going to do the same thing?” Rowse said. “I wouldn’t trust us. I don’t trust us.”

City staff will return to the council at a later date to further discuss the property transfer tax.