Consideration and Adoption of Resolution No. 2026-19 and Ordinance No. 2026-11:  a resolution declaring as a public record that certain document filed with the city clerk and entitled "2026 Short-Term Rental Code Updates; and an ordinance amending the Flagstaff City Code, Title 3 Business Regulations, but adopting by reference that certain document entitled "2026 Short Term Rental Code Updates"; providing for penalties, repeal of conflicting ordinances, severability, authority for clerical corrections, and establishing an effective date

1. Adopt Resolution No. 2026-19
2. Read Ordinance No. 2026-11 by title only for the final time
3. City Clerk reads Ordinance No. 2026-11 by title only (if approved above)
4. Adopt Ordinance No. 2026-11

The City of Flagstaff has monitored and regulated short-term rentals (STRs) since 2020. Staff is recommending key changes to more closely align with state law regulatory options and to address ongoing compliance challenges. These include increasing the license fee to the state maximum of $250, requiring liability insurance and background checks, implementing fire safety requirements, and updating neighborhood notification requirements.  A 60-day Notice of Proposed New Rates/Fees for Short-Term Rental License Fee and accompanying report was posted on the City website on March 18, 2026. 

Proposed Fee Increase:
The ordinance increases the annual license fee to $250. The City anticipates approximately 1,100 STRs will receive licenses annually. The full cost recovery amount would be approximately $270 per license ($297,000 ÷ 1,100); however, the maximum rate allowable per statute is $250. This increase will generate additional revenue of approximately $71,500 annually.

Other City Code changes do not have a financial impact.

Increase regulation of short-term rentals within state regulatory authority.

1. Adopt the ordinance and resolution as proposed.
2. Adopt the STR Fee increase and amend the STR code recommendations.
3. Do not adopt the ordinance and resolution.

Summary of Changes
The ordinance amends City Code Chapter 3-12 (Short-Term Rentals) and Chapter 3-10 (User Fees) to:

1. Definitions: Amends the definition of a "STR" to clarify it does not include a unit used for a nonresidential use (similar to existing language in the prohibited uses section of the code and conforming with state law).  Adds definition of a "special event" as an event which requires a temporary use permit (on private property) or special event permit (on city property), for purposes of STR licensing.  
2. Neighborhood Notifications: Aligns requirements with state law (A.R.S. § 9-500.39), which requires notification only before the first rental or when emergency contact information changes. Notification is limited to adjacent properties, not all surrounding neighbors. The City's STR mapping system provides ongoing public notification.
3. License Fee: Increases the annual fee from $185 to $250, the state law maximum.
4. Prohibited Uses: Adds provision from state law which allows the City to require that the STR owner reside on the property if there is an accessory dwelling unit (ADU) on the property that was issued a certificate of occupancy on or after September 14, 2024.
5. Insurance: Requires $500,000 minimum liability insurance or advertising through an online marketplace that provides equivalent coverage (state law maximum). 
6. Background Checks: Requires owners or online marketplaces to conduct sex offender background checks on booking customers.
7. Posted Notice Requirements: Updates required postings to include winter parking restrictions, fire restrictions, solid waste collection information, and human trafficking hotline. Removes the STR complaint hotline (complaints are now filed online).
8. Fire Safety Requirements: Adds requirements for smoke alarms, carbon monoxide detectors, fire extinguishers, and clear egress paths consistent with residential building codes and hotel requirements.
9. Fire Watch During Restrictions: Requires owners to disable grills and fire sources during Stage 2 or higher fire restrictions to address documented issues with visitors being unfamiliar with local fire restrictions.

Key Considerations:
State Law Alignment: The proposed changes align with Arizona Revised Statutes § 9-500.39, which defines a STR, establishes the maximum license fee ($250), allows cities to require the owner of a STR to reside on the property where there is a new accessory dwelling unit, permits insurance requirements ($500,000 minimum), and allows background check requirements.
Definitions: Updates definition of STR to clarify it excludes a unit used for a nonresidential use per state law.  Also, adds a definition of a "special event" as this is not defined by state law for purposes of STR licensing, to include an event requiring a temporary use permit (on private property) or special use permit (on city property).  
Neighborhood Notifications: State law limits mandatory notification to properties immediately adjacent, across, and diagonally across from STRs, and only requires notification before the first rental or when emergency contact changes. This may result in inadequate neighbor awareness. The City's public STR mapping system provides comprehensive ongoing notification to all interested parties.
Accessory Dwelling Units: State law allows cities to require a STR owner to reside on site if there is an ADU with a certificate of occupancy issued on or after September 14, 2024 located on the property. Having the owner reside on site may help preserve local housing supply and with site control.
Fire Safety Justification: The wildfire risk in the Flagstaff area, combined with documented instances of STR guests being unfamiliar with or ignoring fire restrictions, justifies the requirement for owners to disable fire sources during Stage 2 or higher restrictions. The fire safety equipment requirements (smoke alarms, CO detectors, fire extinguishers, egress) are standard requirements for new residential construction and hotels.
Insurance Requirement: Most Arizona cities require STR insurance. AirBNB and VRBO each offer insurance for units advertised through their platforms (VRBO has a deductible). Standard homeowners' insurance does not cover STR use.
Background Check Requirement: Most Arizona cities require background checks for STR guests. The requirement is satisfied if the online marketplace (such as AirBNB or VRBO) performs the background check.

History

• 2016: Arizona SB 1350 preempted municipalities from prohibiting short-term rentals.
• 2019: The Flagstaff City Council expressed interest in regulating STRs but lacked regulatory authority under state preemption.
• April 2020: Council directed staff at the budget retreat to purchase STR monitoring technology to track STR activity in Flagstaff.
• September 2020: Council approved a contract with LodgingRev for STR monitoring software to identify STR properties and monitor compliance.
• January 2021: The City began requiring STR registration, though regulatory authority remained limited. At this time, 573 properties were identified as operating STRs in Flagstaff.
• February 2022: STR monitoring identified 750 properties operating as short-term rentals, representing 31% growth from January 2021.
• July 2, 2022: Arizona SB 1168 was signed into law, granting municipalities authority to require STR licensing and establish regulations for health, safety, and welfare purposes.
• October 11, 2022: Council directed staff to develop an STR licensing system utilizing the new state authority.
• April 2023: STR inventory reached 1,045 properties, representing 39% growth from February 2022.
• July 2023: Council adopted Ordinance No. 2023-20 establishing the STR licensing program with an initial license fee of $175. The ordinance included requirements for licensing, neighbor notification, emergency contacts, and enforcement provisions.
• October 2024: The City transitioned from LodgingRev to Deckard/Rentalscape for STR monitoring services. 
• September 2024:  A new state law became effective, adding  A.R.S. § 9-461.18, which requires municipalities to allow for construction of accessory dwelling units (ADUs), and amending A.R.S. § 9-500.39 to allow municipalities to require a STR owner to reside on the property that contains an ADU with a certificate of occupancy was issued after September 14, 2024.  
• Current Status (2026): The City's monitoring system has identified 1,119 STRs operating in Flagstaff. Of these, 1,055 have current or expired licenses, representing approximately 94% compliance with licensing requirements. The City's STR monitoring software maps all licensed STR locations and provides emergency contact information on a public webpage, serving as an effective ongoing neighborhood notification system.

• Safe and Healthy Community

Regional Plan Goal LU.7: Support tourism and visitor services while protecting residential character.

None

Protect 1.1: Advocate to the State of Arizona to allow greater local control of vacation rentals and second homes.
There are many references to Short-Term Rentals in the 10-Year Housing Plan