483 days for 120 square feet: How Santa Cruz’s permitting process almost killed one entrepreneur’s dream

Margins Wine’s new tasting room on the Westside of Santa Cruz, a neighborhood already buzzing with more than a dozen wineries, breweries and restaurants, really puts the emphasis on “room.” 

The 120-square-foot space isn’t much bigger than a pantry. It’s so small that there’s no bar separating staff members from guests. Instead, tasters grab one of the two seats along one wall or simply stand while they’re guided through a tasting of owner and winemaker Megan Bell’s low-intervention natural wines. She doesn’t serve food and shares a public bathroom with more than a dozen other suites in the complex. 

But the “wine cubby,” as Bell calls it, feels cozy and inviting. On opening day in mid-December, a handful of friends mingled almost shoulder to shoulder inside, glasses of crisp chenin blanc and earthy Santa Cruz Mountains pinot noir in hand. 

That cheery vibe stood in stark contrast to Bell’s frustrations at the clunky bureaucracy she faced while navigating Santa Cruz’s permitting process in order to bring her tasting room to life.

In all, it took Bell 483 days from her first application to the city, to opening the doors of the tiny tasting room, a space half the size of a college dorm room. She had to submit an application for her building permit four times, faced monthslong waits for approvals, signatures and inspections, and stumbled through the city’s confusing system looking for answers to basic questions. 

In that time, her project budget nearly doubled – not including the lost revenue from not being open – forcing Bell to supplement business loans with cash and launch a GoFundMe to stay afloat. For the last six months of the permitting process, her entire winemaking business hung on by the thread while she waited weeks to obtain the required permits. 

By the time the tasting room finally opened in mid-December – six months after its original planned launch date – Bell estimated that Margins Wine was on the cusp of bankruptcy.

Bell’s experience is hardly unique, says architect Bill Kempf, who has worked on almost every significant restaurant project in Santa Cruz County in the last 25 years, from Mentone in Aptos to Beer Thirty in Soquel to Firefish Grill and Woodies Cafe on the Santa Cruz Wharf.

He says all the jurisdictions within the county are difficult to work with when it comes to building permits, but the City of Santa Cruz is the worst. 

“I do this day in and day out, and I pity the person who tries to take this on themselves,” says Kempf. “We know what the issues are, and we deal with them on a daily basis, but if you’ve never done this — forget it. It’s going to take you forever.”

Santa Cruz officials acknowledge that there are problems with the city’s building permit system caused by issues such as outdated software and chronic staffing shortages that have forced the city to turn to private planning consultants to help. 

Bell, however, worries that Santa Cruz’s permit system has become stacked against entrepreneurs like herself who are struggling to retain the city’s vibrant small-business culture. 

“I don’t want other people to be prevented from trying new projects because they know that they’re going to fail financially if they try,” says Bell. “The only businesses that can afford to have a place sitting empty like this is a national chain. If the city wants to support local businesses, they need to fix the system.”

Delays, resubmittals and long waits result in tens of thousands of dollars lost

Bell’s journey to opening a bricks-and-mortar location began in August 2022, when she signed a three-year lease for her space in the Swift Street Courtyard with a goal of turning a former 120-square-foot break room for Kelly’s French Bakery into a wine tasting room. She hoped to be open by June 2023. 

The nine-month timeline, she felt, was ample, and would allow her to take advantage of the vital income stream during the summer months before the hectic harvest season in the fall that would leave her little time to do anything besides pick grapes and make wine.

Not every new restaurant or tasting room requires a planning permit; if a food or drink business goes into a former restaurant space and won’t change the layout much, it’s usually not required. But obtaining a planning permit is one of the first steps for new builds or those, like Bell’s, that are opening in spaces that previously held other types of businesses. 

Bell also needed a change-of-use zoning permit, since the space would transform from the former break room into a retail business. 

She began working with Santa Cruz-based design firm SpaceCamp Design Build, Inc. and submitted the application to the city on Sept. 13 to obtain the change-of-use permit. Right away, she hit a snag; the city wouldn’t consider her application because it had to resolve another outstanding issue with  the building. For the next month there was no communication from the city; Bell found out her permit wasn’t being processed only when she called to check on it. The city finally allowed her to submit her application at the end of November. 

Four months later, on April 4, 2023, Bell received the change-of-use zoning permit. Bell had hoped the entire process to open would take nine months only to find that the first step alone took seven months. 

With the change of use finally approved, Bell and her designer, Trevor Jones, applied for a building permit to start construction on April 21, although the chance to open in the summer began to look dim. 

On May 9, the city denied the application. This was expected – plans are rarely accepted in the first round and it’s normal for the applicant to be required to make changes based on comments from the city’s departments.

Four different agencies within the city – building, planning, police and fire – are involved in approving building applications, in addition to other Santa Cruz County agencies like the health department, depending on the type of business. Applicants can’t get their permit until each agency has signed off. With each application, some may approve, some may deny, but all departments give feedback separately. 

Bell received comments from the building and planning departments with the denial on May 9. Comments from the police and fire department were supposed to take two weeks. But two months later, she was still waiting. Without the comments, her plans technically weren’t officially denied, so she couldn’t resubmit them. 

In July, her original target opening date behind her, Bell began to “badger the city,” she says, to find out what was going on. A clerk discovered that her denial was missing a signature from the police department. The building department was able to get the signature from the police that same day, and the plans were officially denied. Jones had long since addressed the original issues on the plans related to the ventilation system, among other things, and they quickly resubmitted them on July 13.

The next day, Bell’s application was denied again. This time, among other things, the city said that her 120-square-foot tasting room increased the commercial space for the entire complex, requiring it to have an additional drinking fountain, and it was Bell’s responsibility to install it. This issue was not mentioned in the first denial. 

In early August, when Lookout first spoke to Bell, her application for a building permit had just been denied for a third time. Her security alarms needed to be motion- and manually activated, the city said, and it needed to know the number of plumbing fixtures for all the suites in the entire complex – not just Bell’s tasting room. This was particularly frustrating for Bell because this information was already in the plans.

Within a few days, Jones informed the planning and building departments where the reviewers could find the information they needed, but Jones and Bell still wouldn’t be able to resubmit the application for several days. 

The city’s cumbersome system doesn’t allow applicants to directly resubmit their plans; instead, Bell had to request a resubmittal. Once the building department got her request, it reached out to its external permit reviewer and all of the other departments – police, fire and planning – to make sure everyone was ready for the review. This lengthy process was required for every resubmittal. 

“We just keep adding five days every time this happens and when it happens four times or more, that’s almost a month,” says Bell.

On Aug. 21, 2023, almost 14 months since signing a lease for her space and two months after she’d originally hoped the tasting room would be completed and open to the public, Bell finally received her building permit, allowing her to finally start construction. 

Construction began right away. Within days of receiving the building permit, workers gutted the inside, and installed plumbing and electrical the following week. Bell scheduled back-to-back improvements, from painting and countertops to tiling and installing appliances like the wine refrigerator and dishwasher, in an attempt to complete the process as soon as possible. She opted to have her cabinets built offsite so they could be quickly installed when the time came. 

She hoped to finish by mid-October, but once the contractors arrived, they realized that the space was too small for them to work simultaneously; this added more than two months to the timeline. 

By November, she admitted her business was as close to bankruptcy as it had ever been. “It’s not mismanagement of funds by me. We’ve been fine on very little capital for seven years. There was no way for me to anticipate that the project would be held up this long,” says Bell. 

On Dec. 15, she failed her final inspection, not because anything was wrong with her tasting room – she had to lower her sink a quarter of an inch – but because of minor updates that needed to be made to the complex’s public bathroom, which Bell shares with the other tenants in the suite. The bathroom had passed inspection in 2021 when her neighbor, 11th Hour Coffee, opened around the corner, but the inspector told her that it was her responsibility to make the changes as a new commercial business. 

Bell says she could have easily made the updates before the inspection if the inspector had told her they needed to be made. 

“They’ve done several pre-inspections in advance of the final inspection. They should have inspected the bathrooms so they could tell us what to fix so we could have fixed it before the inspection,” said Bell at the time. “It’s the same inspector.” The oversight seemed so egregious after so many delays that it almost felt personal. 

Bell had already missed the critical summer season, and if she missed the holiday rush, too, she feared it would be the nail in Margin Wines’ coffin. That day, she didn’t mince words with the inspector: “I told him if we don’t open before Christmas, we’re fucked.” 

He granted her a temporary occupancy permit that would allow her to open that same day on the condition that she fix the bathroom issues by the next inspection. That temporary occupancy permit proved to be a lifeline: She made nearly as much money in the last two weeks of December than she did in the entire month of January, when many people give up drinking after the holidays. The official occupancy permit finally arrived too late for the Christmas rush, on Jan. 9, 2024.

Bell’s original budget for the tasting room was $69,000, which was going to be completely funded by a loan. The final figure was $134,000, mostly due to construction fees, including installing a $20,000 heating, ventilation and air conditioning system that the city insisted on, but which she and her designer did not think they would need for such a small space. That amount was partially loan-funded and partially covered privately by Bell out of her budget for grapes; she now owes growers tens of thousands of dollars, although many have given her generous terms to pay them back. 

The most financially disturbing outcome wasn’t the out-of-pocket cost; it was the lost revenue for the months she wasn’t open, estimated at about $10,000 per month. The final figure also doesn’t include the salary for an employee she hired to work at the tasting room and kept on retainer, not knowing when the tasting room would open. 

Ironically, the direct-to-consumer tasting room was supposed to be a lifeline for her wine business, allowing Bell to make more money per bottle than the wholesale market. 

In the years since the pandemic, production costs for everything from glass to grapes to cardboard have risen, but consumers have demanded lower prices at wine shops and restaurants, negatively affecting Bell’s bottom line. 

But by the time it opened, Bell estimated that Margins Wine was a mere two months from bankruptcy. 

40% staff shortage at the building department leads to reliance on outside firms

The amount of time it takes to navigate the permitting process from start to finish varies widely between projects, but 483 days is not common, says John McLucas, the deputy building official in Santa Cruz, who manages plan reviews and inspections. 

However, change-of-use applications, like Bell’s, can be “problematic,” he says, especially when it comes to fire safety requirements and separating it from other occupancies. But according to McLucas, after Bell was past the initial obstacles, the rest of her timeline looked “pretty normal.” 

It’s not uncommon to have to submit plans multiple times. Sometimes, there are misunderstandings between the plan reviewer and the design firm on how things are noted in the plans, and it can take several iterations before the plans can be approved. The process is laborious because the goal is to solve any issues before construction starts. “We don’t want them to start building and have an inspector come in and say, ‘That’s not the way you should be doing this. You have to tear all this stuff out and rebuild it,’” says McLucas. 

But there are areas of Santa Cruz’s permitting process that McLucas acknowledges need to be improved.

His department is struggling with a 40% staff shortage, which means that he and his colleagues “wear a lot of hats.” McLucas was a structural engineer before he joined the building department in 2015, and in that time the department has never reached its full capacity. 

The substantial staff shortage is the biggest contributor to issues like long wait times for inspections and miscommunications between applicants and other departments. “We’re at about 60% staff, and we don’t have a lot of control over what comes in as far as work volume,” says McLucas. 

It’s difficult to hire positions at the building department because of the scope of experience required. Plans examiners and building inspectors need at least a journeyman’s level of experience in the field, which can take five years or more to achieve, on top of specialized knowledge of plan review. Fewer young people are entering building administration, says McLucas, which narrows the hiring pool. 

And the cost of living in Santa Cruz County is a deterrent to worthy candidates. Many times, the city has made an offer to a candidate, only to see them back out once they compare it to local housing costs and salaries in other areas. “That happens over and over,” says McLucas. 

He says he chose to work locally because he was tired of commuting to San Jose, and had financial flexibility that allowed him to make that decision. “It’s not something where I needed that extra money,” says McLucas. “I would say that’s probably true of most of the people that work here. They just do it because they like it.”

As a result, the city relies on several private consulting firms to review permits and plans and, sometimes, perform inspections. The main company, CSG Consultants, offers municipal services like plan inspection, construction management and code enforcement to public agencies throughout California; its closest office is in San Jose. Most commercial plans, including Bell’s, are reviewed by CSG. 

Working with CSG allows Santa Cruz’s building and planning departments to manage their workloads. CSG partners with specialists in everything from structures to plumbing, and can assign a team to review something that would take one person a lot longer. But there are tradeoffs. CSG isn’t always as responsive to applicants, and the city frequently acts as a middleman to translate information. “That takes time. But as a resource, it’s necessary, just based on the volume of our work right now,” says McLucas.

Both McLucas and architect Kempf think the city could also improve its process for reviewing applications. In Santa Cruz, once plans are approved – a huge milestone for any project – the plans must be printed, shipped to CSG, stamped and shipped back. That process alone can add three to four weeks before construction can actually start, says Kempf. 

“The most frustrating thing to tell a client is that your project is approved, but it’s going to still take you a month before you’re going to have plans in hand,” says Kempf. He would prefer it if, instead of requiring physical plans, the city could review PDFs and process fees online without a hard copy, as Santa Cruz County does.

He’s seen business owners get into trouble financially while waiting on the city to complete its processes, often because of pressures from the landlord. Property owners in Santa Cruz are not required or given incentives to offer discounted or prorated rents to commercial tenants while the businesses wait to open. If such deals exist, it’s on a case-by-case basis. In Bell’s case, the landlord was clear from the beginning that he expected full rent from Day 1. 

“[Business owners] get into this business and, whether they’re seasoned or not, the landlord’s always pushing them and saying, you need to start paying rent on a certain date,” says Kempf. “So if the city isn’t performing, [business owners] get in this position where they’re just sitting around paying rent on something that they can’t use, they can’t generate any money from.”

A lack of communication between the city and the business owner can also add stress. One of Kempf’s clients who built a new restaurant from the ground up was hit with a $130,000 traffic impact fee to support the roads that go to the business, and had to go back to their lender for more funding. “They didn’t have that factored into the equation. He would have had to do it anyway, it’s just that they never made him aware of it,” says Kempf. 

Kempf believes the cause of the miscommunications like that and long wait times is human error and old technology, not any personal issues toward the business. He says Santa Cruz’s electronic processing system is outdated and has not kept pace with the county’s or other nearby cities’. As a result, everything “takes longer and is more arduous.”

“It’s not that they’re doing a bad job, it’s just that they have a bad system,” says Kempf. “Their technology is just way behind.”

New permit processing system is coming April 2025

The planning and building departments’ current technology has been in use since 2008, and is so old that it’s no longer supported by its own software. Prior to 2020, the city relied on face-to-face interactions with applicants at the office to answer questions and resolve issues. After the pandemic, the process moved almost entirely online, but the antiquated software wasn’t equipped to handle it. 

A new custom, state-of-the-art system is on the way. In June, the planning department awarded software company Tyler Technologies $2.2 million to implement its permit and licensing system. 

McLucas is in charge of integrating it over the next year and believes it will solve many chronic issues, save time and give both staff and applicants a better view of where their permits are within the process. “You’ll have real-time information as far as where it is in the system, and who’s looking at it, and who’s not doing their job,” says McLucas. 

The city aims to start rolling out the new software this summer, and to completely integrate it by April 2025. In the meantime, the planning department is working on interim fixes. The biggest priority: to forgo the use of paper plans, and eventually do away with paper altogether. City officials also want to communicate with Santa Cruz County offices electronically; right now, there aren’t any systems in place to do that. 

That could be available within the next six months, and could save up to a month at the end of the process once the building permit has been approved. 

“I acknowledge the process is very clunky. And we’re looking at every day to try to improve that,” says McLucas. “Right now, it’s just a matter of finding time to do that.”

Until the system improves, Bell believes that navigating Santa Cruz’s building permit process will continue to cause enormous stress on local entrepreneurs. “When I drive around town and I see these places that are half-built or with paper in the windows – it’s permitting,” says Bell. “If these businesses could be open, they would be open.”

Have something to say? Lookout welcomes letters to the editor, within our policies, from readers. Guidelines here.