As COVID-19 ebbs, Santa Cruz looks to boost commercial areas, attract more visitors and diversify its economy

A little more than a year into the COVID-19 pandemic, the city of Santa Cruz is squarely focused on healing the economic damage that 2020 wrought.

But even before the virus began draining businesses of customers and city coffers of much-needed tax revenues, officials had begun studying ways to diversify the Santa Cruz economy — and now the lessons of the pandemic are being factored into that calculus.

Santa Cruz City Council members this month signed off on a five-year economic development plan for the city devised by Berkeley-based Strategic Economics, a consulting firm the city hired in 2019.

The 54-page plan broadly outlines a five-year strategy for economic growth that aims to improve the city’s No. 1 economic driver — the tourism and hospitality industry — while also attempting to build an economy that includes more tech, biotech, and sports and recreation companies, along with more artisanal producers, such as breweries, wineries and coffee roasters.

Developed over the course of 18 months at a cost of $91,000, consultants surveyed business owners and scoured economic data to identify economic pain points and devise solutions.

A key problem facing the city? Livability. About 75% of the local workforce lives outside Santa Cruz and commutes in, according to city data. Local businesses have difficulty recruiting and retaining workers because of the city’s shortage of affordable housing options, the consultants found.

A solution is to create more “workforce housing opportunities” — developments designed in cooperation with key employers, such as UC Santa Cruz, the Santa Cruz City School District and other large companies — to house their workers.

But, as is the case with most initiatives it identifies, the plan does not assign a price estimate for such developments or go into specifics about how to fund them.

In some cases, the plan advises the city continue to tap pandemic CARES Act funding and other government grant programs to help small businesses with micro-loans, rent support and other financial aid programs. In others, the solutions are low or no cost, such as simply improving communication with local businesses about existing city resources or helping them create “open for business” signage.

Outdoor dining a nice boost

In surveys, many Santa Cruz business owners complained of complicated, expensive permitting processes. In response, the city plans to evaluate what red tape can be cut as it did in 2020 to allow businesses to quickly transition to outdoor services.

The city also is planning to create a permitting program for businesses to have permanent outdoor dining and other outdoor operations, Economic Development Director Bonnie Lipscomb said.

Heading into the pandemic, Santa Cruz had a healthy, growing tourism and hospitality sector, the economic development consultants found. About 23% of jobs in the city were tied to hotels and restaurants, and money generated by tourism helped bolster a large part of the city’s budget.

Much of that has been heavily driven by Bay Area and California residents visiting Santa Cruz, mostly in the summer peak season. Because of the large segment of visitors coming in from places within a two-hour drive, Santa Cruz is “well-positioned for recovery,” and hotel occupancy was already beginning to show signs of life in early 2021, the consultants found.

However, in order to keep growing its tourism sector, the city will need to bring visitors from other regions — and in the off-season. The consultants’ strategies for doing this are wide-reaching. They include city leaders encouraging hotel owners to renovate their properties to the city finding money to revamp the Civic Auditorium, build a permanent arena for the Santa Cruz Warriors and move forward with key parts of the Santa Cruz Wharf Master Plan.

Beyond tourism

Santa Cruz should also take advantage of the economic potential in some of its other industries, the consultants found. Biotechnology, sports and recreation, technology and innovation, and specialty artisanal production all have room for growth.

Biotechnology in particular is “a very unique niche that Santa Cruz has,” consultant Derek Braun told the city council. Although it has grown more slowly than some other sectors in Santa Cruz, the city already has several key ingredients to make it successful, including numerous resources through UC Santa Cruz. Technology and innovation likewise benefit from the city and county’s various educational institutions and their proximity to other Bay Area tech hubs.

Thanks to Santa Cruz’s geography and outdoorsy lifestyle, sports and recreation is a “highly concentrated and rapidly growing” area, Braun said. The main challenge is the scarcity of available light industrial space in the city for those businesses to flourish, he said. Artisanal production companies, such as coffee roasters, breweries, wineries and other small makers, also need such space, according to Braun.

In order to accommodate enough space for businesses to grow in the city, Santa Cruz also will need to review its zoning and land use regulations in the Westside Industrial, Harvey West and Seabright areas, and assess what changes are needed so manufacturing, research and development and retail, restaurant and office spaces can coexist.

The economic development plan also calls for the city to find creative ways to fill vacant downtown storefronts. A program is already in the works to allow 10 pop-up shops on Pacific Avenue for six months, Lipscomb said. That proposal will go before the city council by May, but the city is also seeking other ways to “activate” vacant spaces, including with art installations and performances.

Santa Cruz benefits from its large share of local, small businesses — and the support the community has for local products and services — but brick-and-mortar stores are still trapped in an uphill battle against online retail. When big retail stores shut down, those spaces can be difficult to fill.

For that reason, the city wants to broaden its definition of what “anchors” could bring consistent foot traffic to Downtown, Eastside and Westside commercial areas. Medical offices and office space, including co-working space, could be useful tools for bringing a steady flow of people into commercial areas, according to the consultants.

“The retail industry is undergoing an evolution that favors ‘experiential’ businesses such as dining, drinking, and entertainment since these activities cannot be easily replicated through online sales,” their report says.

“As a result, there is a need to allow greater flexibility and diversity of uses in storefronts within retail districts, and the types of ‘anchors’ to attract foot traffic may also change since large retailers are less likely to fill these roles.”