PROVINCETOWN — The select board, community housing council, and year-round market-rate rental housing trust will reconvene on Dec. 15 to tackle, for the second time, a slate of housing proposals for town meeting.
The most difficult question is sure to be how much of the new money coming from short-term rentals — a subset of the town’s rooms tax revenues — should go to housing. The answer will affect the scale of housing efforts the town can pursue.
Provincetown’s “Fiscal ’22 Town-Wide Goals” sets as a policy goal to “capture new short-term rental revenue collected in fiscal ’21 and fiscal ’22 for housing.”
The question has been discussed all year. In May, town staff proposed allocating 13 percent of the rooms tax revenues to housing — around $440,000. Select board members asked for more, and on Oct. 18, at the first meeting of the three committees, Town Manager Alex Morse suggested 26 percent for housing — around $880,000.
To some, that still did not sound right. Year-round rental housing trust chair Nathan Butera asked if all the short-term rental funds could be spent on housing. That would be about $2 million for the last fiscal year, according to state tax data.
A Debate Foreshadowed
Before the new rental tax revenue started to roll in, leaders across Cape Cod were signaling its importance.
“Setting aside the new revenue before it gets absorbed into general operating budgets and before the ability to invest strategically in long-term municipal needs is lost is critical,” said Andrew Gottlieb, executive director of the Association to Preserve Cape Cod.
“I can’t think of a town that won’t more than double their existing revenue” said Ryan Castle, CEO of the Cape Cod and Islands Association of Realtors. “This is about town leadership,” he said.
By 2021, the housing crisis had become more acute. In June, state Sen. Julian Cyr said, “I am pushing the 20 communities I represent in the Cape and Islands to commit to a fundamental reimagining of what we are willing to do on housing. It’s incumbent on local officials to recognize our own agency in solving this crisis.”
The fact that Provincetown already has a rooms tax revenue allocation formula that supports four important funds presents another puzzle.
The first proposal on the agenda for the Dec. 15 meeting is to add a fifth category, for housing, and rewrite the allocation formula. Many town leaders have said they would like to roughly level-fund the other four beneficiaries, perhaps with a little extra on top, and then direct the rest of the “new” revenue to housing.
How much ends up going to housing will depend not only on how the five-way split is written but also on the total amount coming in. And that’s hard to guess, because the pandemic had a dramatic but temporary effect on both hotel and short-term rental revenue.
Building a Forecast
Before the rooms tax was expanded to cover short-term rentals, it was bringing in about $2.2 million per year to Provincetown. Rooms tax revenue rose slowly and consistently every year since 2011 — even though the total number of hotel rooms in town went down. But prices of hotel rooms increased, and tax revenue continued to rise.
The expansion of the tax in July 2019 came eight months before the pandemic struck in March 2020. Hotels were closed for almost three months. For the rest of 2020, Cape Cod experienced a survival-level season, with businesses operating at about 70 percent of normal levels, according to Wendy Northcross, then-CEO of the Cape Cod Chamber of Commerce.
Rooms tax revenue exploded anyway, because of adding short-term rentals to the base. Provincetown’s rooms tax revenues went to $3.1 million, and then $3.5 million.
The state Dept. of Revenue (DOR) still maintains it cannot split the revenue from the first four quarters during which the expanded tax was collected, corresponding to fiscal 2020. But for fiscal 2021 — July 1, 2020 to June 30, 2021 — DOR figures show that the hotel portion of the rooms tax brought in only $1.4 million, while the new short-term rental tax brought in $2.05 million.
Forecasting remains difficult, however, because hotels have typically brought in $2.2 million per year. All indications are that hotels have recovered in 2021 and, indeed, their revenue in the first quarter of fiscal 2022, which ended on Sept. 30, is higher than ever, according to new rooms tax data provided to the Independent by the DOR.
Short-term rentals brought in $2.05 million in a year when every other indicator was below normal. Meanwhile, independent data from the market-research website AirDNA.co confirms that short-term rentals also had a bigger year in 2021 than they did in 2020.
AirDNA aggregates detailed listing data from Airbnb, VRBO, and Homeaway. Among the data points it offers are total revenue numbers for all the bookings in a given town, month by month, for three years.
The Independent matched these revenue data with the quarterly reports from the DOR and found them closely correlated for the four quarters of short-term rental tax revenue in fiscal 2021.
Based on that tight correlation, and the last six months of activity reported by AirDNA, Provincetown’s short-term rentals had a big summer, bringing in $31.8 million in just six months. That means the short-term rental tax will yield $1.9 million just in the first two quarters of fiscal 2022. A four-quarter figure would likely be around $2.5 million.
A Conservative Estimate
Town staff are forecasting much lower total rooms tax numbers. Based on the pandemic year of fiscal 2021, which brought in $3.48 million in rooms tax revenues, town staff have presented forecasts of $3.4 million.
Historical and current information on the performance of hotels and short-term rentals suggests a number closer to $4.7 million.
Select board chair Dave Abramson has complained about the town’s “very conservative” forecast. And board member Louise Venden said, “We need to put all the cards on the table here.”
If leadership’s goal is level funding of every area other than housing, and the total revenue forecast is too low, the percentages required for that level funding will mean that the percentage for housing will be low. Then, if an extra million dollars comes in, most of it will go to the other four funds and not to housing.
“Getting the maximum amount of money to that fund without cutting off the others” is how Abramson has described the goal.
