11:30 a.m. The Napa City Council wants to bring order to a segment of the tourism industry that allows domestic stays in homes in the city’s neighborhoods rather than in hotels or B&Bs.

“What we have going on here is an industry out of control,” Councilman Jim Krider said at a council hearing Tuesday night on the growing vacation rentals business.

Currently, 49 vacation rentals have city licenses, but possibly several hundred more are operating illegally, paying no bed tax into city coffers.

The city is missing out on hundreds of thousands of dollars in revenue, while providing no oversight to make sure that these businesses are operated responsibly, city staff said.

That’s going to change, council members agreed. Vacation rentals will be required to get a use permit that sets standards for operation. Neighbors will be able to weigh in at public hearings.

The city began issuing conditional business licenses for vacation rentals in 2003 even though zoning doesn’t allow it, Marlene Demery, the city’s interim planning manager, said.

Unfortunately, the city is only now addressing this oversight, while 49 operators wonder if they will be allowed to continue and others in the process of opening vacation homes are left in limbo, she said.

The council heard from 28 citizens, most of them vacation rental investors who said they would be financially harmed if the city pulled the rug out from under them. They relied on the city’s willingness to issue business licenses when they made their investments, they said.

Don’t penalize those who followed city procedures, but do go after illegal operators and set standards for new applications, said Michael Strong, representing the North Bay Association of Realtors.

Citing today’s troubled housing market, several operators said renting to tourists is the only way they can afford to keep their homes. Vacationers pay considerably more per night than permanent renters would, they said.

Vacation rentals are increasingly popular, especially in tourist areas like Napa Valley, Demery said. Most cities don’t allow them, but tourist meccas often make accommodation, she said. Yountville, St. Helena and Calistoga don’t allow them in single-family neighborhoods, she added.

Councilman Mark van Gorder said he has heard no complaints about vacation rentals. Noise from ice cream trucks has been a bigger issue, he said.

The one exception, he noted, was the bevy of residents from Bella Drive in north Napa who turned out Tuesday to say they had a rogue rental on their street.

“It destroys our quality of neighborhood,” said Bella Drive resident Mike Butler. “We have limousines. We have buses on our quiet street,” said fellow neighbor Nancy Schulz.

The Bella rental advertises on the Internet that it can sleep 12, said Chris Butler. She has counted as many as 13 license plates, she said.

New city rules should protect those already in business or about to open, but the illegals need to be shut down, council members said.

Using fees collected from vacation rental licenses to hire another code enforcement officer was one of van Gorder’s suggestions. This person would go after illegal operations.

Too many vacation rentals would not be good for a neighborhood, mayor Jill Techel said. With public input, the council may end up capping the number, she said.

When there were 37 licensed operators last year, the city collected $83,000 in bed tax. Like hotel and B&B visitors, vacation home guests are expected to pay a 12 percent tax to the city. With 49 licensed operators this year, revenue should grow to $150,000, staff estimated.

If all the illegal rentals were included, city revenue would likely triple or quadruple, staff estimated. Bed tax revenue from hotels and B&Bs was $7.8 million last year.

Several B&B operators noted their businesses are tightly regulated  by the city, while vacation rentals were unsupervised.

Many operators of vacation rentals — defined as rentals of less than 30 days — said they would welcome city regulation. They encouraged the city to crack down on operators who don’t have permits.

Councilman Peter Mott was skeptical about vacation rentals in neighborhoods. “I don’t necessarily think a majority of citizens of Napa want it in their neighborhoods,” he said.

Mott would be willing to allow current operations to continue, but he didn’t want new ones. He favored having city permits expire when a property is sold, but there was no council support for this.

Once staff has developed proposed regulations, the council will schedule another public workshop on rentals.