As the short-term rental business continues to boom — and state and local excise tax money pours into town coffers — planners and housing advocates are weighing everything from legislative action to local earmarks in an effort to address the industry’s impact on the Island’s housing stock.

The issue came into direct focus at an informal meeting of the all-Island planning boards in early November that included representatives from towns across the Island.

“We are hemorrhaging housing to a short-term rental industry,” said Ben Robinson, chair of the Tisbury planning board and a key player in organizing the meeting. “This issue, out of all the housing issues, seems like one that is squarely in the planners’ purview.”

Although planners didn’t focus on specifics in the meeting, they discussed the logistics of bringing proposed legislation to a future town meeting that would limit corporations from buying and leasing short-term rental properties. And they discussed broadly the impact the short-term rental industry had on Island housing, looking to work collaboratively to address the issue.

“I think we all can agree that we don’t want corporations, non-members of our community, to use our community to fatten their wallets,” Chilmark planner Richard Osnoss said.

Data from the state Department of Revenue shows that the Island has seen local receipts from the rooms excise and short-term rental tax steadily climb since the tax was instituted in 2019 — a growth that town leaders said could be both an indication of more scrupulous collection methods, as well as the enduring strength of the short-term rental industry on the Vineyard.

While the Island brought in $3.48 million total from the rooms excise tax in FY2020, that number ballooned to $5.54 million in FY2021 and $8.63 million in FY2022.

In the first quarter of FY2023, which runs from July 1 through Sept. 30, the Island brought in $3.82 million in tax revenue, more than it did in the entirety of FY2020.

The total represents the largest first quarter on record for the tax revenue, and includes $2.74 million in money just from the 2019 addition of short-term rentals to the tax on hotel rooms.

The tax allows towns to assess a tax of up to six per cent on properties rented short-term. Aquinnah, Chilmark and Edgartown assess a four per cent tax on the rentals, while Tisbury, Oak Bluffs and West Tisbury assess a six per cent tax. The tax is generally collected from renters, although the onus is on property owners to pay it to the state.

The state then pools the money and rebates it back to the towns on a quarterly basis. Since it was instituted in 2019, the short-term rental tax addition has brought in about $12 million in revenue to Island towns.

According to town administrators and accountants interviewed over the past week, the money goes into town general funds, where it is used to help decrease each town’s tax levy. At the end of the fiscal year, any amount of room excise above the town’s budgeted estimate goes into the town’s “free cash,” which the town can use for any municipal purpose approved at town meeting.

Because receipts from the tax have been unpredictable, accountants said that they have been budgeting for the tax very conservatively, meaning that there have been significant surpluses at the end of the fiscal year.

Edgartown town administrator James Hagerty estimated that the town would have about $11 million in free cash at the close of this year — a number he attributed in part to the short-term rental tax, and in part to spending freezes from the pandemic.

Tisbury town accountant Jon Snyder estimated the town’s year-end free cash in the $4 million to $5 million range, and said it has increased in the past four years, in part due to the excise tax.

“When you look at it year-to-year, it goes up steadily,” Mr. Snyder said. “But we’ve been estimating conservatively, because when you estimate your tax levy, you don’t want to have to go back to the taxpayer for more money.”

The extra free cash has been spent on a wide variety of projects in the towns, ranging from buying new highway department tractors to climate resiliency planning to financing capital stabilization funds, including affordable housing initiatives, town reports show.

But as towns grow more flush with cash from short-term rentals, planners are beginning to look at it as an elephant in the room, eyeing the money as a po

tential salve for affordable housing shortages. In Chilmark, the town’s affordable housing committee requested in a recent letter that 75 per cent of the revenue from the tax go to the town’s affordable housing trust. A similar request for 25 per cent of the funds was discussed at an affordable housing meeting in Edgartown.

“I can respect the request,” said Chilmark select board chairman Bill Rossi. “But we’re accumulating a lot of money for affordable housing without projects to spend it on.”

Town officials have pushed back on the requests to earmark the money specifically for affordable housing, saying that it could hurt their tax levies, that the revenues fluctuate and that there isn’t a large enough queue of projects to merit the funding. A prior iteration of the housing bank requested towns use 50 per cent of the short-term rental money to fund the bank — an idea that was soundly rejected at town meetings in 2019.

“When you commit to a percentage like that moving forward, it’s a little bit of a Russian roulette on both sides; the town doesn’t know much it would be giving up, and the housing bank doesn’t know how much it would get,” Mr. Snyder said. “It’ll be a few years before we really have confidence in the short-term rentals [revenue]. But of course they have an enormous impact on the affordable housing problem.”

At the meeting in early November, planners discussed both sides of the coin, noting the need for collaborative action but also that short-term rentals are an integral part of the Island’s economy.

Laura Silber, who was recently hired as a housing planner with the Martha’s Vineyard Commission, recommended that the planning boards examine the experience of similar, geographically isolated resort towns, like North Lake Tahoe and Provincetown.

“Because we don’t have enough hotel rooms, we do need to maintain a level of that inventory in order for our tourist economy to keep functioning,” she said.

In West Tisbury, the affordable housing committee has considered drafting a warrant clarifying which rental uses would be allowed in town considering the precedent of a 2021 Supreme Judicial Court decision, Styller v. Lynnfield Zoning Board of Appeals, that ruled a plaintiff’s short-term rental operation violated Lynnfield zoning bylaws on the grounds that it was a commercial operation in a residential zone. Under the decision, administrator Beatrice Phear said, most of West Tisbury’s short-term rental properties would also be illegal, although enforcement remains a challenge.

Others in the November meeting, like Jim Wallen from Aquinnah, felt strongly that banning short-term rentals would hurt Islanders.

“I think a lot of people wouldn’t be able to live here if people couldn’t rent their houses” he said, adding that he rents his house out in the summer to be able to live there in the winter.

The planners resolved to work with speed on the issue, and decided to reconvene on Dec. 14 to continue their collaborative discussions on legislation that could regulate short-term rentals.

“The question is where to draw the line,” Ms. Phear said during the meeting.

Brooke Kushwaha contributed reporting.