No business licenses will be issued for short-term residential rental businesses in the city, effective at the close of business May 30 and continuing through Oct. 13.
The more than four-month pause the Hot Springs Board of Directors adopted Tuesday night allows time to develop a regulatory scheme for a business practice not specifically addressed by the city's zoning and taxation codes. The board updated the city's hospitality tax code in January to include cabin, bed-and-breakfast, house and campground in the list of lodging facilities subject to the Hot Springs Advertising and Promotion Commission's 3% sales tax.
Visit Hot Springs said those facilities were already collecting the tax. The new language aligned the city's hospitality tax code with the state hospitality tax code.
The planning and development department said short-term rentals fall under the residential category in the zoning code's table of uses. City Attorney Brian Albright said they are classified as tourist accommodations in the North American Industry Classification System that's the basis of the city's business license and occupation tax schedule.
The city's authority to levy the tax proceeds from the local tax chapter of the state tax code.
"The lack of regulations associated with short-term residential rentals results in the potential for health, safety and welfare concerns for those occupying same, along with the potential for parking and traffic congestion, disproportionate solid waste accumulation for once-a-week residential services and perceived nuisance to adjacent full-time residents," said the recitals section of the ordinance the board adopted.
In addition to initiating a pause on business licenses, the ordinance defined short-term residential rentals as accommodations offered for periods of less than 30 days and established an annual tax of $50 per bed.
The ordinance was adopted on a 6-1 vote, with District 4 Director Carroll Weatherford opposing it.
The engineer developers planning a subdivision off Buena Vista Road hired to prepare their application for Planned Development zoning told the board the ordinance targeted his clients' project. Last month the planning commission unanimously recommended the board grant Planned Development zoning for the 20 acres between Aberina Street and Five Points Road zoned Lakes Area Residential.
Planned Development, a specialty zoning designation that's become more sought after as the availability of land that can be developed within the confines of conventional zoning designations diminishes, would allow the two dozen cabins and homes proposed for the site to be used as short-term rentals.
An ordinance ratifying the planning commission's recommendation was on Tuesday night's agenda, but the board voted not to suspend the rule requiring ordinances be read at three different meetings. The ordinance will be read a second time at the board's March 16 business meeting.
Several residents of Starcrest Street and Lighthouse Cove Subdivision voiced their opposition to the project at the planning commission's Feb. 11 meeting. The Hot Springs Lodge and Resort short-term rental project on nearby Wayward Winds Terrace the developers received Planned Development zoning for last year also faced opposition.
"There's a whole lot of people who'd probably like to speak to this issue," Aaron Burroughs, the engineer developers Josef France and Chris Post hired to prepare and present their rezoning application, told the board. "There's a whole lot more thought that needs to be put into it before it's pushed through. I think this will be a big hit to our community.
"This is kind of an attack to our project, because you put our project on hold until this moratorium could pass tonight. It seems like we were blindsided by some political maneuvering. Nobody said there's going to be an agenda item affecting your multimillion dollar project."
Several real estate professionals spoke in opposition to the pause on business licenses. They said the abeyance, referred to as a temporary moratorium in the original title of the ordinance, could slow a brisk real estate market. The Arkansas Realtors Association said the average price per residential unit sold last year in Garland County increased by 14.5% compared to 2019.
"It sends a signal that this might not be a favorable town for short-term rentals," Beau Durbin, of ESQ. Realty Group-Hot Springs, told the board. "I know of several million dollars of investor money moving into town, projects under contract. A lot of these projects involve components of short-term rentals. It's the only way to make the deals work. It's the only way to take a building downtown and do a commercial space and make it cash flow.
"It's the only way to make these older homes in downtown neighborhoods work from an investor standpoint. We need to convey the message to the market now that we're not cutting it out. We're going to think about it and establish some rules and regs."
Existing short-term rentals have until May 30 to apply for a business license, the price of which will increase by 5% next year and 2% in 2023. The annual fee a business pays is based on the economic sector assigned to it by NAICS. The city said the fee is projected to raise $750,000 this year for the general fund.
Businesses have to renew their license annually. Albright told the board licenses may not be renewed for short-term rental businesses that don't comply with the regulatory scheme the city develops during the four-month pause.
"We were very conservative with that timeline, knowing the board would need more than one work session," Albright, speaking to the board, said of the four months, which were six months in the original text of the ordinance.
District 1 Director Erin Holliday's motion to strike the provision suspending the issuance of business licenses wasn't seconded.
Albright told the board short-term rentals that comply with the new regulations, but are in an area for which they are not zoned, could petition for a preexisting nonconforming use.
Short-term rentals weren't specifically listed in the 18 goals the 2019-20 board established for 2021. City Manager Bill Burrough told the board his staff will prioritize drafting rules and regulations for the board to review.
"We will elevate that up in your priorities," he said. "I want to make sure that those who have an interest in that issue know we'll be working on getting it back to you hopefully much sooner than the time frame we discussed tonight."