Restaurants may be joining Santa Monica residents in sharing the costs of the City’s prospective budget shortfalls through rent increases, though it may just take some time before the area’s dining establishments feel the pinch.
The City Council directed staff on Feb. 22 to look into implementing adjustments by fiscal year 2013-14 to monthly license fees paid by restaurants to the City in order to use public sidewalk space for outdoor dining accommodations.
With the exception of three restaurants with fully enclosed patios on Ocean Avenue, restaurants may expect to pay up to $3.13 per square foot of sidewalk each month, up from the average monthly fee of $1.90 per square foot that restaurants currently pay for outdoor dining space; three establishments on Ocean Avenue may pay as much as $5.83 per square foot per month to be granted an outdoor dining license on public property.
If implemented, the proposed fee increases may result in about $200,000 in additional revenue to the City. However, restaurants will incur significantly higher monthly costs, ranging from about $400 per month on the Third Street Promenade to nearly $2,800 per month for one of the three affected restaurants on Ocean Avenue.
“What we’re actually recommending is, in light of the difficulties in the economy right now, these rates would effectively go into effect in two years,” said Andy Agle, the City’s director of Housing and Development. “The latest appraisal has been completed, showing that most outdoor dining license fees are below market rates.”
While the council was cognizant of the very real negative impacts upon a restaurant that a decision to increase fees of any sort would have, council members also noted that such fee increases are an expected cost of doing business in Santa Monica.
“It’s not like this is… overreaching by the City. It’s been reviewed by an appraiser, a leading person in the restaurant business has acknowledged it is a fair, commercial thing for the City to do, and therefore I don’t feel any reservation myself in moving forward on that,” Council member Bobby Shriver stated.
However, Council members Kevin McKeown and Bob Holbrook, who voted against the staff recommendation, took issue with the timing of implementing the fee increases. McKeown asked to implement fee increases within one year instead of two.
“We’re at a time when revenue is particularly important to us. We were undercharging for public sidewalk space by a factor of between three and five times. (That’s) a very significant difference in revenue that would help pay for other programs in this city that residents depend upon,” he said. “We have been giving away our public sidewalks for private use and private profit. I don‘t want put anybody out of business and I recognize it‘s a tough time for restaurants, but residents deserve to see the revenue come in from the business community just like they (residents) have been asked to contribute into the fund.”
Taking a wait-and-see approach was Holbrook, who thought it was too soon to predict what the economic climate would be in two years.
“I think we should come back in two years and revisit this before we take action. The chances are we (would propose such increases) anyway… given the economic conditions of that time when we reach that point,” Holbrook said. “I just prefer to make that judgment, realistically, two years down the line.”
To that end, Mayor Richard Bloom directed staff to be mindful of the economy’s progress and how it would affect implementing the proposed fee increases.
“If it appears as though the economy is not getting better and this is going to act as a constraint on restaurants and restaurants are going to start leaving us, I think that’s something staff needs to be tuned into,” Bloom said. “Restaurants in our community are very important to our vitality.”
Agle told the Council he does not expect the financial reality in 2013 to deviate too much from what was forecast in his report, but staff is open to make adjustments if need be.
“Our sense is that we will not see dramatic changes (in the economy during the next two years), but we could. If there were significant changes, we could commission a new appraiser then, as well,” Agle said.
A few restaurant owners and business leaders spoke out at the council meeting, voicing concern over the realistic impacts of the proposed fee increases.
“You are a landlord and should probably be able to collect fair rents,” said Richard Irving of The Ivy at the Shore on Ocean Avenue, agreeing with Shriver’s inquiry whether it is a fair assumption that rent for outdoor space is commensurate with the amount charged for interior space. “It might be difficult for places to make adjustments like that. In theory, I think it’s fair, of course.”
Irving added he is also concerned he may have to remove permanent improvements to his outdoor dining area; his licenses for improvements to his patio area are set to expire.
Speaking on behalf of several restaurants he represents, such as The Capital Grille, Claim Jumper, King’s Seafood Company, and Ben and Jerry’s, consultant Michael Dubin vehemently opposed the staff recommendation.
“The recommendation to increase the monthly license fees for outdoor dining on public sidewalks is onerous and flawed,“ Dubin told the council. “Outdoor dining should not be viewed as a fundamental income source to the City, but rather an amenity.”
Representing Downtown Santa Monica, Inc. (formerly Bayside District Corporation), Kathleen Rawson hoped the council would do as Holbrook suggested: wait to see how the economy plays out in the next two years.
“While the City does indeed deserve to get a fair rent for their patios, we are very concerned that this attempt may be ill-timed. I think we should… look at the situation (in 2012 or 2013) and reevaluate what the economy is doing to reinsure that these folks can stay in business,” Rawson told the council, adding that restaurants are already expecting fee increases in two years.
With the 4-2 vote, staff was also directed to “prepare necessary regulatory amendments to allow existing, legal non-conforming outdoor dining areas on Ocean Avenue to remain, provided there is no intensification or expansion of use.”
In not taking a wait-and-see approach, the council avoided concern about whether delayed implementation of fee increases would result in several restaurants, that are due to renew their five-year licenses within the next two years, to lock in the current rates for another half decade and grandfathering them against future fee increases until the renewed licenses expires.