City of San Diego Is Illegally Providing Free Trash Collection for 16,000 Short-Term Vacation Rentals

In an explosive admission that the City of San Diego is illegally providing free trash collection services to up to 16,000 short-term vacation rental units, the interim City Auditor has notified the City’s Chief Operating Officer of this fact.

In a memo dated July 10, 2019, Kyle Elser, Interim City Auditor notified COO Kris Michell, that his office had received a “Fraud Hotline report” that the City was improperly providing free trash pick-up services to thousands of short-term vacation rentals.

Generally, a vacation rental is a property that is leased out for less than a month at a time. Elser and the city use the terms “short-term residential occupancy (STRO)”; and it’s the City’s Environmental Services Department (ESD) that is responsible for trash collection.

In the memo, Elser dropped this bomb:

Our investigation determined that up to 16,000 STRO units receive free trash collection service from the City.

Here are some choice quotes from the memo:

There are approximately 16,000 STROs operating throughout the City, according to a City-retained consultant’s estimate as of March 2018. In a March 2017 Memorandum of Law, the City Attorney determined that STROs in residential zones appear to be prohibited.

… all STRO activity is still subject to existing laws. For example, hosts are required to pay Transient Occupancy Tax for rental periods of less than one month.

… According to the law, free trash collection service is provided for “residential refuse” that is generated from a single family or multi-family residential structure that is owned, leased, or rented for a period one month or more.

Therefore, most residences that are occupied for less than one month at a time do not appear to be eligible for free trash collection service.

Elser points out a gaping hole in the system; he stressed, “Currently, ESD staff do not evaluate STROs for trash collection service eligibility.”

The acting City Auditor concluded, that despite the law prohibiting free trash collection for non-residential units, ” the City continues to provide trash collection service to STROs at no charge.”

Here is the entire Memo:

Our Office received a Fraud Hotline report regarding the City’s Environmental Services Department (ESD) improperly providing free “nonresidential” trash collection services at short-term residential occupancy (STRO) properties that are occupied for less than a month at a time. According to the San Diego Municipal Code (SDMC), the City Attorney’s Office, and ESD’s Regulation, STRO rental properties do not qualify for free trash collection service.

Our investigation determined that up to 16,000 STRO units receive free trash collection service from the City.

We made one recommendation with three proposed solutions to the ongoing “very likely” prohibited collection of trash from STROs and requested a response from management indicating whether they agreed or disagreed with our recommendation. Management responded that they “partially” agreed with the recommendation and committed to evaluate financial and operational impacts, but did not agree to take any of the actions we recommended. We will bring this report to the attention of the Audit Committee of the City Council and ask that the report be forwarded to the full City Council for further discussion of our proposed recommendation.

The City Provides Free Residential Trash Collection

Since 1919, the City has provided residential trash collection and solid waste management services. The services have been offered at no cost to eligible residences since the 1980s. At that time, amendments to SDMC § 66.0127, known as the People’s Ordinance, refined the eligibility criteria for free trash collection. Under the amendments, free trash collection was generally limited to single-family homes within City limits. The City also provides residential recycling and greenery collection services at no cost to residents.

According to the ESD’s budget data for Fiscal Year 2018, approximately 108 City employees were involved with the collection of approximately 388 tons of trash at an annual cost of around $34 million from the General Fund. The ESD website estimates that there are approximately 289,000 residences serviced on a weekly basis. The City of San Diego is one of the only cities in California that offers free trash collection service to its residents.

Short-Term Residential Occupancy in Residential Zones is Apparently Prohibited

A short-term residential occupancy (STRO) typically involves the rental of real property for less than a month at a time. The City has attempted to regulate STROs several times, most recently on August 2, 2018, the City Council adopted ordinances relating to code enforcement and STROs. [Editor: see footnote 1 below]

Negative residential impacts associated with the STROs operating throughout the City, such as improper trash disposal, were cited as part of the rationale for regulating STROs. Although trash collection was identified as an issue related to STROs, the proposed ordinances did not address or regulate the free residential trash collection that the City has been providing to STROs.

There are approximately 16,000 STROs operating throughout the City, according to a City-retained consultant’s estimate as of March 2018. In a March 2017 Memorandum of Law, the City Attorney determined that STROs in residential zones appear to be prohibited. As such, changes to the SDMC are necessary to address the regulation of STROs.

On October 22, 2018, the Council repealed the two new ordinances that would have established license requirements and other regulations related to whole-home STROs. The repeal was the result of a referendary petition opposing the new ordinances. However, all STRO activity is still subject to existing laws. For example, hosts are required to pay Transient Occupancy Tax for rental periods of less than one month. The future regulation of STROs is uncertain as of this report.

Free Trash Collection Service for Short-Term Residential Occupancy Units is Very Likely Prohibited

A June 9, 2017 memorandum from the City Attorney’s Office (Attachment A) determined that free trash collection for STROs was “very likely” prohibited by the People’s Ordinance. According to the law, free trash collection service is provided for “residential refuse” that is generated from a single family or multi-family residential structure that is owned, leased, or rented for a period one month or more.

Therefore, most residences that are occupied for less than one month at a time do not appear to be eligible for free trash collection service. Currently, ESD staff do not evaluate STROs for trash collection service eligibility. However, the proposal of any new STRO regulations may provide the opportunity to address the apparent improper free trash collection for STROs.  According to the City Attorney’s Office, the City Council could submit an initiative proposing the amendment or repeal of the People’s Ordinance to address the restrictions prohibiting trash collection service to STROs.

Conclusion

Although the City Attorney’s Office determined that free trash collection for STROs is “very likely” prohibited by the People’s Ordinance and the operation of STROs in residential areas is apparently unlawful, the City continues to provide trash collection service to STROs at no charge. We identify possible solutions in our recommendation.

Footnote 1 : Specifically, Ordinance Number O-20977 related to the enforcement of STROs and Ordinance Number O-20978 established an STRO License, Affordable Housing Impact Fee, and other requirements. The latter ordinance also proposed to define a STRO as occupancy of less than a month, consistent with the definition of “transient” in the City’s existing Transient Occupancy Tax Code under SDMC § 35.0102