Welcome to today's business session.

Our first item is approval of minutes for business session of December.

December 1, 2022.

Second.

Been moved and seconded.

All in favor indicate by saying aye.

Aye.

All opposed.

Motion passes.

Short-term rental compliance audit, city audit.

Good afternoon, Mayor Lucas, members of City Council, Doug Jones, City Auditor's Office.

I'm here to present our audit of short-term rental permit compliance.

I will discuss the audit objective, provide some background, and summarize our findings and recommendations.

In front of you are copies of the audit report, the highlights page, and the PowerPoint slides.

The team for the audit was Jonathan LeCure and Terry Bray.

John is with me today to run the slide presentation.

I also want to introduce our newest team member who is in the chambers.

Beth Pauley started with us on Monday as an auditor.

Well, before we talk about the permit compliance audit, I want to briefly touch on last week's audit that focused on the impact short-term rentals have on the city's convention and tourism taxes and fees.

Because of legislation enabling the convention and tourism tax and the hotel motel occupancy fee, the city was unable to assess and collect about $2.6 million in taxes and fees between July 2021 and August 2022.

The CNT tax is used to fund visit KC, the neighborhood to tourism development fund, and the city's convention and entertainment centers.

Regarding the occupancy fee, the per room night fee is paid by hotels and motels and those revenues paid for debt and operations related to the T-Mobile Arena.

I want to remind you of this so that we don't confuse the occupancy fee with the short-term rental permit fee.

The purpose of the permit fee is to cover the cost of processing and enforcing permits.

This audit focuses on hosts' compliance with the city's permit requirements.

Both of our short-term audit rental audits were based in part on public audit suggestions, and we conducted this audit in accordance with government auditing standards.

A short-term rental is when a person or a business, a host, provides a house, apartment, or non-traditional hotel residence, a property or a unit for rent as overnight lodging for less than 30 days.

A host may be an owner, renter, or an investor that does not occupy the property.

The city began regulating short-term rentals under City Code Section 88-321 in 2018.

This section requires hosts to obtain a permit to operate a short-term rental.

This process includes verif verifying the zoning that allows the activity, meeting neighborhood notification or approval thresholds, and agreeing to abide by certain rules about the safe occupancy and operation of a lodging business.

Most hosts are not obtaining permits as required when operating their short-term rental.

Since the requirement began in 2018, only about 7% of hosts have obtained a permit.

As of August 2022, we estimated that about 11% of current hosts had a permit as required.

With nearly all the short-term rental market operating outside the city's permit program, the city does not know where these units are operating, whether they are allowed to operate in those locations, whether they are safely operating, and importantly, who is operating them.

Creating an effective permit program is the first step in regulating this activity.

All subsequent enforcement flows from this.

Because most hosts are not obtaining permits as required.

This is important because permit fees fund the staff who manage and enforce the program.

Without these revenues, the department does not have the resources it needs to oversee a program of this size.

Additionally, over the past year, the city only received about $17,500 in renewal fees from short-term rental hosts.

If all the $1,800 units listing in August had been registered as required, and if only 30% of those were renewals, the city should have expected to collect over 100,000 in renewal fees last year.

Kansas City's regulations are difficult to for enforce and ineffective.

City ordinance meant to balance the rights of homeowners to rent out their homes with the rights of neighbors to preserve and protect the character of their neighborhoods.

The city needs to properly design regulations and the necessary communication and information to effectively regulate the operation of short-term rentals in Kansas City.

Kansas City does not prohibit a host from listing their unit for rent without a permit.

Observing the public dialogue about short-term rentals, there seems to be a common misunderstanding that this is already how the city's regulations apply.

They do not.

The city also does not require intermediaries to verify units have permits when facilitating booking and transaction fees on their platforms.

Other cities we reviewed regulate both or one of these activities.

Regulating these activities helps prevent a unit from hosting a guest in a neighborhood.

Involving intermediaries makes it more likely that hosts will comply since they cannot complete a booking without a permit.

Our report identifies several approaches the city cities take that allow intermediaries to demonstrate they verify hosts have permits.

Short-term rentals operating without a license.

It does not specify which records are required.

Other cities specifically identify records and processes for the city to obtain those records.

For example, some cities require intermediaries to provide records for all units listed on their platforms, the listing address, host contact information, number of rooms in a unit, number of guests, dates of bookings, among other information.

Having this information and contact with intermediaries allows the city more information to take enforcement action against hosts who do not comply and work with intermediaries to address nuisance properties.

City Planning and Development Department needs to prepare for more effective permit rules.

Currently, development staff who primarily assist city committees and developers to complete development activity spend a part of their time reviewing short-term rental applications.