City of Hermosa Beach - File #: REPORT 23-0049

File #:

REPORT 23-0049 Version: 1

Name:

Type:

Action Item

Status:

Passed

File created:

1/12/2023

In control:

City Council

On agenda:

1/24/2023

Final action:

1/24/2023

Title:

CONSIDERATION OF FEES AND OTHER CHANGES TO THE TEMPORARY OUTDOOR DINING PROGRAM (Environmental Programs Manager Douglas Krauss)

Attachments:

Staff Report Text

Honorable Mayor and Members of the Hermosa Beach City Council

Regular Meeting of January 24, 2023

Title

CONSIDERATION OF FEES AND OTHER CHANGES TO THE

TEMPORARY OUTDOOR DINING PROGRAM

(Environmental Programs Manager Douglas Krauss)

Body

Recommended Action:

Recommendation

Staff recommends City Council:

1. Consider the encroachment market rent rates from the recent appraisal of local real property;

2. Consider concluding the temporary outdoor dining encroachments on Pier Plaza; and

3. Consider concluding the allowance of roof-top dining areas on private property authorized during the COVID-19 pandemic.

Body

Executive Summary:

At its November 3, 2022 meeting, City Council extended the temporary outdoor dining and downtown lane reconfiguration programs through May 1, 2023 and directed staff to return with an item to consider a permanent version of the temporary outdoor dining program before the extended expiration date. An item to consider a permanent version of the program will include any necessary environmental determinations, code changes, or other administrative instruments necessary to implement the program.

Council also directed staff to return with an item discussing encroachment fees and possible changes to some of the temporary dining program elements on Pier Plaza. Possible changes for City Council consideration include eliminating the temporary encroachments on Pier Plaza, ending temporary authorization of rooftop dining, and discussing changes to encroachment fees.

Background:

The City has long supported and encouraged outdoor dining on private and public property to activate place-making strategies and supplement indoor operations. With the onset of the pandemic and related health orders, businesses were limited to conducting business outdoors. Recognizing this hardship, City Council approved a program to allow expanded outdoor dining and other commercial activity. The City also suspended zoning and parking requirements to allow outdoor dining on private property and established a temporary encroachment permit program to allow encroachments into sidewalks and public streets. The City further allowed existing permanent encroachments, such as those on Pier Plaza, to temporarily expand their encroachment areas. Both the private property programs and encroachment program (together, the “Outdoor Permit Program”) include a basic set of guidelines. These guidelines include:

• Business hours no later than 11:00 P.M.;

• Maintenance of cleanliness;

• Alcohol service only with food; and

• Insurance maintained by permittees.

The City has issued over 60 temporary outdoor dining permits in a variety of commercial locations. Initially, City Council allowed these uses without consideration of any encroachment area rents or reimbursement of lost parking meter revenue. Pursuant to the urgency ordinances that established and later extended the Outdoor Permit Program, the program remains in effect until terminated or superseded by ordinance. At its June 22, 2021 meeting, Council approved extension of the program through December 31, 2021 and authorized implementation of a reapplication process for outdoor dining areas that included:

• Renewal of applicants’ permissions from neighboring businesses where decks encroach upon the frontage of these other businesses; and

• Requirement of a surety bond or deposit to fund any City costs related to deck removal in the event of maintenance emergencies or abandonment.

At its December 14, 2021 meeting, Council approved an extension of the programs through May 31, 2022. At its January 25, 2022 meeting, Council discussed implementing new fees for the temporary outdoor dining encroachments and approved a fee of $1.50 per square foot per month to begin March 1. Several businesses have since removed their temporary dining areas. City staff has worked with all the businesses utilizing the temporary encroachments to help ensure fees and necessary paperwork have been submitted.

To date, all but a few businesses are current on its fees. As of December 2022, there are eleven businesses with outstanding fees totaling approximately $40,000 in uncollected revenue for calendar year 2022. These businesses have been notified of these outstanding fees and Code Enforcement staff is following up with citations and possible removal of on-street decks where applicable. Program revenues for the temporary encroachment areas are estimated to be approximately $295,038 annually based on the current temporary encroachments. At its February 8, 2022 meeting, Council also approved reinstatement of the prior permanent encroachment fees. These fees generate approximately $287,821 annually. At its November 3, 2022 meeting, Council extended the temporary program through May 1, 2023 with direction to staff to return before that date with an item to consider a permanent version of the temporary outdoor dining program for Council’s consideration.

At that same meeting, Council directed staff to return with an update on encroachment fees based on a current property appraisal report addressing the City’s public right-of-way encroachments. In conjunction with the discussion of fees, staff recommends City Council provide staff direction regarding the possible end of the temporary outdoor dining encroachments on Pier Plaza and the temporary allowance of rooftop dining, as well as any other program adjustments.

Past Council Actions

Meeting Date	Description
June 9, 2020	Approved Ordinance 20-1410U allowing temporary permit program for outdoor dining in response to pandemic.
July 14, 2020	Directed staff to proceed with development of lane closure plans.
June 22, 2021	Approved extension of the outdoor permit program through December 31, 2021.
July 13, 2021	Approved Resolution authorizing extension of lane reconfigurations.
October 26, 2021	Approved development and implementation of permanent versions of these programs.
December 14, 2021	Approved development of permanent programs, and extension of temporary programs through May 2022
January 25, 2022	Discussion and approval of new fees for temporary encroachments
February 8, 2022	Approved reinstatement of existing fees for permanent encroachment areas
May 24, 2022	Approved extension of programs through January 2023
June 14, 2022	Approved additional refinements to the outdoor dining programs
November 3, 2022	Approved extension of temporary programs through May 1, 2023

Analysis:

The City currently charges fees for public right-of-way encroachments that vary with location and business operation and hours. The rates are shown in the table below:

Location and Operation Category	Fee per square foot per month
On Pier Plaza, open after midnight	$5
On Pier Plaza, closed before midnight	$2
Not on Pier Plaza, or snack shop on Pier Plaza	$1

The City previously authorized an appraisal of public right-of-way encroachment areas in 2017 to inform reconsideration of fees. For the categories described above, this appraisal provided market rental rates of $5.63 (Pier Plaza, open after midnight), $4.50 (Pier Plaza, closed before midnight) and $1.58 (Not on Pier Plaza, or snack shop). At that time, the City did not adjust fees based on the appraisal report. At its January 25, 2022 meeting, Council implemented fees of $1.50 per square foot for temporary dining encroachments citywide.

A new appraisal was completed in November 2022. The appraisal assessed properties in the public right-of-way, including existing permanent encroachments and temporary dining encroachments. Unlike the existing rates for permanent encroachments, the appraisal did not consider the business type or operation hours. It assessed, based on three location categories and assigned property values to each, as shown in the table below:

Locations	Market Rental Rate (per square foot per month)
Pier Plaza	$5.67
Non-Pier Plaza (areas primarily along Hermosa Avenue, north and south of the Plaza)	$4.63
East of Hermosa Avenue (primarily Pier Avenue, up to Pacific Coast Highway)	$4.00

These values were determined using data from recent property acquisitions in the area and the region. The appraisal factors in a review of similar appraisal data throughout the region. Conversations with local commercial real estate brokers indicate that these appraised rental rates are on par with current actual rental rates for interior spaces in Hermosa Beach which are trending about a dollar per square foot higher across these same areas. The information is provided to Council to assist in consideration of changes to the current encroachment fees for both permanent and temporary areas. The information can also assist in determining fees for the proposed permanent outdoor dining encroachment program, which will be brought for Council’s consideration before May 1, 2023.

For Council’s consideration and discussion, staff developed a revenue estimate based on a hypothetical fee scenario applying the recently appraised rates to all current encroachments, per location. The estimate does not factor in the business operations and hours. The chart below shows a comparison of approximate current fee revenues and the revenue from the hypothetical fee scenario. The information is detailed in Attachment 1. Both revenue estimates include fee information for the permanent and temporary dining areas, both on Pier Plaza and elsewhere.

Fee scenario	Estimated Revenue
Current	$582,859
Using appraised market rates applied to current encroachments	$1,617,125

As set by Council, the fees for permanent encroachment areas citywide are currently based on a combination of location, business operation type, and hours open. The estimates based on the new appraisal report market rental rates indicate potential increases in encroachment fees for individual businesses ranging from 13 percent to 1,000 percent. Staff also developed a scenario showing these hypothetical increases phased in over two years to help offset impact of the increased fees (Attachment 2). The estimate of $1,617,125 using the appraisal market rates assumes that all permanent and temporary encroachments would endure although staff recommends Council consider eliminating temporary encroachments on Pier Plaza, as explained later in this report.

For reference, Redondo Beach charges $2 per square foot for its outdoor dining decks and Manhattan Beach has temporarily waived its fees for outdoor dining decks, which is $3 per square foot for sidewalk dining encroachments. The appraisal report surveyed several cities throughout the region and found a wide variety of rates for similar public encroachment areas. Most of the cities surveyed charge nominal, below-market rates for their encroachment areas although many also charge additional one-time fees to cover such things as administrative costs or wastewater treatment costs. Most agencies charge per square foot while some charge flat annual fees.

Additional Recommendations

Staff recommends Council consider ending the allowance for temporary outdoor dining encroachments on Pier Plaza. These were initially authorized in response to the COVID-19 pandemic and the indoor dining restrictions that were instituted by Los Angeles County Department of Public Health. Restrictions on indoor dining have since been lifted and the businesses on Pier Plaza have benefitted from the use of the extra encroachment areas, which allowed the businesses to expand their existing 13 feet of dining area by an additional 12 feet into Pier Plaza-essentially a doubling of existing permitted outdoor dining areas. Businesses outside of Pier Plaza have also benefitted from the opportunity to utilize on-street dining decks, sidewalk areas, and private property dining areas, however, the available square footage is typically much more limited than that of the businesses on Pier Plaza, especially for on-street dining decks. To help balance the equity of public right-of-way used by downtown businesses, staff recommends Council suspend use of the additional temporary encroachment areas on Pier Plaza indefinitely. This would also allow some of this iconic community area, currently being used by private businesses, to be enjoyed again for passive use by members of the community and the general public, which was one of the original goals of the Plaza.

Additionally, in response to indoor dining restrictions implemented during the COVID-19 pandemic, the City allowed some businesses to add dining areas on their rooftops. Baja Sharkeez and Palmilla, both located on Pier Plaza, were allowed to utilize rooftop dining areas. The City allowed these temporarily with conditions that the businesses restrict overall building occupancy load to address concerns of ingress and egress. These rooftop areas were not previously designed for, nor approved for, regular use by patrons, but City Building Department staff worked with the businesses to ensure the safety of these temporary uses.

As with the temporary encroachments on Pier Plaza, the allowance of this extra dining area is no longer necessary and suspending its use would help improve parking availability, as well as the overall equitable distribution of dining availability in the downtown area. It would also alleviate the need for Code Enforcement staff to monitor these businesses compliance with maintaining occupancy loads. Staff recommends Council suspend use of these temporary rooftop dining areas. These businesses may contact the City’s Community Development department to apply for permanent use of these spaces and address long-term safety concerns and any other issues related to increased occupancy.

General Plan Consistency:

This report and associated recommendations have been evaluated for their consistency with the City’s General Plan. Relevant policies are listed below:

Governance Element

Goal 6. A broad-based and long-term economic development strategy for Hermosa Beach that supports existing businesses while attracting new business and tourism.

Policies:

• 6.4 Business support. Support the Chamber of Commerce, retailers, tourist service businesses, artists, and other agencies to develop an aggressive marketing strategy with implementation procedures.

• 6.6 Pop-up shops. Develop plans and programs for underutilized spaces, such as vacant buildings, utility corridors, parkways, etc., for temporary retail, restaurant, and community promoting uses.

Mobility Element

Goal 1. Complete Streets (Living Streets) that serve the diverse functions of mobility, commerce, recreation, and community engagement for all users whether they travel by walking, bicycling, transit, or driving.

Policy:

• 1.1 Consider all modes. Require the planning, design, and construction of all new and existing transportation projects to consider the needs of all modes of travel to create safe, livable and inviting environments for all users of the system.

Goal 7. A transportation system that results in zero transportation-related fatalities and which minimizes injuries.

Policy:

• 7.1 Safe public rights-of-way. Encourage that all public rights-of-way are for all users at all times of day where users of all ages and ability feel comfortable participating in both motorized and non-motorized travel.

Fiscal Impact:

The current fee of $1.50 per square foot per month for the temporary dining areas generates approximately $295,038 annually. The permanent encroachments generate approximately $287,821 annually. As described above, should Council approve increasing all fees to match the rates detailed in the appraisal report and eliminate the factors of business operation type and hours, annual encroachment fee revenue would be approximately $1,617,125. Should Council approve ending the temporary encroachments on Pier Plaza, this revenue estimate would decrease by approximately $117,162.