The Changing Face of Tahoe: On the South Shore

by Kimberly Pryor

South Lake Tahoe has been undergoing steady change for over a decade. As has happened in North Tahoe, rising real estate prices have driven out a portion of the middle class. Yet these folks' motivations for leaving are often different from their North Shore cousins'. While the middle class citizens of the North are leaving because they can't afford to buy houses, much of the South Shore middle class population already own homes, but are opting for the much larger houses in the lower elevations of Nevada.

In fact, by both California and Tahoe standards, real estate in South Lake Tahoe is still "affordable housing"—the median price of a single-family home there was $379,900 in 2004, compared to the statewide figure of $450,000. Median home prices in North Tahoe communities in 2004 were $806,000 in Incline Village, $589,000 on the California side and $539,900 in Truckee.

Yet many of South Tahoe's homes are small structures on small lots—no dream home for a growing family. Often, because Mom and Dad bought a starter home in the 1980s or '90s, they can now take $200 or $300K of equity over the hill to Minden/Gardnerville or Carson City. This middle class trickle started in the mid-'90s and continues today. In 1993, when Sally and Doug Battista decided to sell their South Lake Tahoe home, they didn't want to leave The Lake. They had been here 20 years. Their daughter had attended Tahoe Parents Nursery school and they hoped their newborn son could do the same. But their 1,300 square foot home was bursting at its seams with the couple, their two children, Doug's mother and their dog.

When the couple began searching for a larger home, they were shocked. "What we could afford was on a cliff, in the shade," Sally recalls. Instead, they purchased five acres in Gardnerville and have built a larger home with a mother-in-law unit and a big backyard for the kids.

"Yes, people have left and people are still leaving," says David Jinkens, South Lake Tahoe City Manager. "But just as when I was 12 and we lived in San Francisco, we moved out to Fremont to get a larger home. I think there are many affordable homes here, if they were on the market. And there are homes that can be fixed up. But do you want to have an acre? That's not affordable."

Affordable housing plans. Redevelopment of the "downtown" near the casino core. Declining school enrollment. All these factors have become part of the changing face of South Shore. "In the last couple of years, we've changed more than we have in the ten prior," says Carl Ribaudo, president of Strategic Marketing Group (SMG) of South Shore. Ribaudo's group recently released a report, "Understanding the South Shore: An Economy in Transition." "We wanted to sit down and look at this change in an analytical way," he says.

At the forefront of SMG's white paper are rising home prices and a trend of wealthy second homeowners buying into the community, creating what many locals call "the Aspenization of South Tahoe." The 2004 median home price of $379,000 was a 17 percent increase over the previous year, but the median household income increased by only five percent to $37,000—evidence of the widening gap between workers and the dream of home ownership.

According to the white paper, every five percent increase in housing prices since 2001 has resulted in a one percent loss in school enrollment. Over the last four years, the California-side Lake Tahoe Unified School District lost nearly 17 percent of its population, seven percent in the past year alone. Teachers were laid off due to declining student numbers. Over on the Nevada side, Kingsbury Middle School is considering closing.

While middle-class families with school-age children have left the community, or opted for home schooling or other choices, the city's overall population has increased steadily since 2000 to 24,000. This is largely due to an increased minority population; minority students comprise 46 percent of the Lake Tahoe Unified School District, up seven percent since 2000.

"We are drifting more toward a have and have-not city," says Charlie McDermid, owner of Holiday Inn Express in South Lake Tahoe and a founding member of Tahoe Tomorrow, a nonprofit organization devoted to helping South Shore cope with change. One initiative that Tahoe Tomorrow has pushed is the conversion of older motels into affordable employee housing.

"We have a disproportionately large number of older, smaller units which are economically obsolete," says McDermid, "and their owners are struggling to survive. They will not prosper as motels."

The city has made headway on affordable housing with three projects currently in the works which will provide 77 units for low-income residents. Last year, the Tahoe Regional Planning Agency began to provide incentives for affordable housing developers.

Whether due to an affordable housing shortage or not, many area businesses are having a tough time finding and keeping employees. Grass Roots Natural Foods, which opened in 1973, has had steady business over the last several years, but struggles with staffing issues. "We used to get flooded with applications without even putting an ad in the paper," says Grass Roots' owner Jon McElroy, a local since 1975 who bought Grass Roots from its original owners in 1984. "Now we don't. It seems like there are a lot less people coming into town looking for entry-level jobs. I've talked to other business owners and they all have the same problem."

The Changing Business Climate

While South Lake Tahoe is still largely a town of locally-owned businesses, the corporate world has become a much more visible part of the community over the last decade.

Twenty years ago, the town's hotels, restaurants and shops were almost all locally owned. Heavenly, then owned by the Killebrew family, is now owned by Vail Resorts. Harvey's, then owned by Harvey and Llewellyn Gross, is now owned by Harrah's corporation. Marriott and Embassy Suites have major innkeepers in the town.

Many have welcomed the participation of national corporations. "A company like Vail has provided a great deal of resources, not only in terms of the capital infusion but also in marketing and leadership," says Mike Bradford, Chief Executive Officer of Lakeside Inn & Casino, the last privately held casino at South Shore. Charlie McDermid has found that the Holiday Inn name draws guests to his motel. Shawn Yokes, who opened Nestlé Toll House Café in Heavenly Village almost three years ago has found brand recognition a key to her success; the long time locals who will soon open Cinnabon in Heavenly Village hope for the same.

A combination of corporate money and innovative local shop owners is fueling a retail renaissance, from Heavenly Village to Ski Run Marina to the factory stores at the Y. "The joke used to be that we had to train our staff not to laugh when people asked about where to shop on the South Shore," says Kathy Farrell, Executive Director of the Tahoe-Douglas Chamber of Commerce. "That's changed."

The influx of big corporations has generated concern, however, among some owners of retail shops and motels, who fear being gobbled up as the smallest animal on the food chain. For businesses who don't adapt to South Shore's new economic climate, that fear could become a reality, says Ribaudo. The key may be to find a unique niche. A business such as the Black Bear Inn, for example, can survive a transitioning economy.

But Bradford says that most of the smaller motels and shops will find it difficult to generate the resources to reposition their offerings. "It's more than a state of mind. It's being able to make the financial investment. Those who don't have the resources to innovate are being left behind. The further behind they get, the less capable they are of being competitive."

Motels have needed to adjust to a Saturday- night-only visitor who is more particular and wants to view rooms on the Internet before making a reservation. The group tour market is evolving as well; seniors are more independent and refusing to be told what to do for an itinerary.

"The property owners have noticed they need to change their marketing strategies," said Patrick Kaler, Executive Director of the Lake Tahoe Visitors Authority/ Tahoe Douglas Visitor's Authority. Lakeside Inn, for example, which recently undertook an extensive remodel, has begun sending direct mail pieces to anyone who buys a South Shore home. Other motels have increased their business with value-added packages that include recreational activities.

For its future economy, the City is also looking beyond the tourist industry, envisioning South Shore as a future home for computer software developers from the Bay Area, for example. As a first step, South Lake Tahoe has hired an economic development coordinator. But there are plenty of hurdles to clear, Jinkens concedes. For one thing, the city needs a place to house imported businesses. "We can market all we want," he says, "but it's like marketing a new car and when the customer comes to buy we don't have any models available."

One solution being discussed is to convert unused space at the South Lake Tahoe airport into a business activity center, while continuing to use it as an airfield. This would allow the facility to be part of a future public transportation system envisioned for the city, serving flights from Los Angeles and the Bay Area.

"We talk about an alternative to the automobile, yet we as a region have not done enough to define what that means," Jinkens admits. "It's great to talk the talk, but in terms of transportation we haven't walked the walk.

Debating the Past

Former City Councilman and retired Lake Tahoe school teacher Bill Crawford, a local since 1967, says that he will always remember the day a woman ran up to him in the Raley's parking lot with tears in her eyes and told him that the small shop she and her husband owned downtown would be closed by redevelopment. Thinking about that incident today," says Crawford, "I realize how redevelopment divided this community."

Crawford's biggest complaint about redevelopment, however, is the debt incurred by the City. Because the City of South Lake Tahoe has to borrow money out of its general fund to pay the redevelopment debt, Crawford believes municipal services will suffer. In addition, he says, to pay for the debt, the city council raises taxes.

"You can't tax yourself into prosperity," Crawford says.

According to Jinkens, however, redevelopment is on track to pay back its loan within 10 to 12 years. "In the last year, the Redevelopment Agency's bond rating has risen from BBB to AAA," he says, "a significant improvement in the financial community's confidence in the RDA's finances and the success of existing redevelopment efforts."

Yet, there are still grumblings in many quarters about the changes symbolized by redevelopment. One business owner who asked to remain unnamed, proclaims "The chamber of commerce got its way—for us to become Aspen."

Ribaudo doesn't buy the argument that downtown redevelopment is to blame for the woes of small businesses in other parts of town. Rather, he says, business owners who cling to the status quo instead of changing with the economy will "wipe themselves out. What we now have to do is find a way to make the rest of the town more exciting than it is."

The city has plans to transform the Y area, but as McDermid observes, "Part of the problem with Tahoe is that things move with glacial speed. There's a lot of talk about renovating the Y. And God bless, that's a great idea, but the talk has been going on for years."

The talk may evolve into action when the city drafts a preliminary plan sometime in July. Many Y-area business owners have expressed an interest in improving their property, Jinkens said. Once the plan is implemented, he believes it will demonstrate that the city is interested in "all parts of the community."

Meanwhile, the ball is in Marriott's court to give the city a proposal for what will happen across Highway 50 for the next stage of downtown redevelopment, a project that could be equal in scope to Heavenly Village. Marriott has first rights of refusal.

Community Strategies

Many of the issues South Shore faces mirror those of other U.S. resort areas. And just as other communities have coped with change, most South Shore leaders are confident that this area will also overcome the obstacles.

"The changes are coming," says Bradford, "for better or worse. It's irreversible. We have to recognize them and capitalize on them."

Barbara Childs, a realtor and the Board Chair for Tahoe Tomorrow, believes that second homeowners are an untapped resource. During 2003 and 2004, she points out, 75 percent of all South Shore home sales went to second homebuyers. Tahoe Tomorrow is now raising funds to find an executive director, whose first priority would be to go after grants for projects that involve second homeowners in the community. Childs would like to model the program after one in Beaver Creek and Vail, where semi-locals interact with locals during open houses. Once second homeowners are invested in the community, she says, they are more willing to donate funds to South Shore schools or even to projects such as a community center.

Farrell believes that area businesses will eventually need to take their cue from communities like Carmel, California, where employers offer front-line employees a "livable wage" rather than "minimum wage." Marsh points out that Heavenly Ski Resort has already adopted a livable wage policy, evaluating the cost of Lake Tahoe living on an annual basis and adjusting wages to ensure an adequate work force.

To address declining enrollment and other issues facing the school district, Interim Superintendent Lori Garcy has spearheaded a number of community roundtables. Prevalent opinions among those in attendance have been that the district could cope with the new reality by forming alternative means of education, such as charter schools, coaxing home schoolers back to the district, encouraging programs such as sports and music, and offering electronic classes for children who want to train on the ski slopes during school hours.

"We're not going to be where we were four years ago," says Garcy. "But if we're not going to be there where do we want to be? I don't believe in a victim attitude. I think the whole Tahoe area right now has to have the attitude where they say 'what do we need to do to preserve the important aspects of our communities? How can we make it work?'"