Cantrell administration predicting increase in short-term rental sales as part of infrastructure deal

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Mayor LaToya Cantrell’s administration has been busy in Baton Rouge trying to strike a deal to divert more hotel/motel tax revenue to infrastructure projects in New Orleans. A potential deal is still being fleshed out, but it will likely include a package of legislation that includes House Bill 43, which would raise taxes on Airbnbs and other short-term rentals by 6.75 percent, pending a vote by city residents.

The administration believes that the tax will generate $10.5 million in revenue for the city each year. And the math assumes that the New Orleans short-term rental market will remain steady, or even expand, despite the New Orleans City Council’s recent work to place stricter limits on short-term rentals.

The bill advanced through the House Municipal, Parochial, and and Cultural Affairs Committee on Thursday morning. One amendment was added: 25 percent of the revenue will go to New Orleans and Co. (formerly known as the New Orleans Convention & Visitors Bureau) and 75 percent will go to an infrastructure fund.

According to the bill’s fiscal note, which was based on information from the city, getting to $10.5 million per year requires short-term rental sales of $156 million. That’s an $18 million increase — 13 percent — over sales last year, based on deposits into the New Orleans Quality of Life Fund. Since 2017, a portion of state hotel taxes collected on short-term rentals has been deposited into that state-created fund. The money ultimately goes to the city for short-term rental enforcement.

The fact that the Cantrell administration is counting on an increase in STR sales is concerning, and a bit perplexing, to council members and affordable housing advocates who have been working to overhaul the city’s short term rental regulations over the past year. Within the next few weeks, the Council is poised to vote on a slate of new restrictions that, if passed, are expected curb the total number of short-term rentals in the city.

“There’s always a prediction, but the prediction is in line with what collections are right now,” said Cantrell’s Chief of Staff John Pourciau. “With a very large stipulation that the potential changes that could happen to the short term rental market obviously upset what those numbers look like.”

He said the increased annual short term rental revenue estimate was in part based on an uptick in the first few months of 2019, in spite of an ongoing freeze on one type of short-term rental license.

“That we as a city saw an increase even after the moratorium went in is relevant,” he said.

Still, members of the City Council appeared to be caught off guard. Council members Jason Williams, Helena Moreno, and Joe Giarrusso declined to comment on the story.

“We’re not commenting on the deal currently, just because we don’t have enough information from the mayor,” said Councilwoman Kristin Palmer’s Chief of Staff, Andrew Sullivan.

According to Cantrell’s Communication Director, Beau Tidwell, the administration derived the $156 million figure from Quality of Life Fund collections from July 2018 — the beginning of the state’s fiscal year — through March 2019 — the last month that data is available.

That formula yielded a higher number than the 2018 total because the first three months of 2019 saw a significant increase in monthly deposits. The average monthly deposit in 2018 was $456,000. For the first three months of 2019, the average was $753,000.

That indicates that short-term rental sales have been growing, even though the council passed a moratorium last May on whole-home rentals in the city’s most popular neighborhoods.

In February 2018, before the city launched the temporary ban, there were $615,000 in deposits to the Quality of Life Fund. In February of this year, that number climbed to an all-time high of $959,000, despite the moratorium.

Commercial STRs increase, taxes collected on unlicensed rentals

It’s unclear why sales appear to have grown. But one possibility is that while the number of  residential licenses has significantly decreased, commercial licenses — which were largely unaffected by the moratorium — have shot up by 33 percent since April 2018, one month before the moratorium.

Unlike whole-home residential licenses, which allow short-term rental operators to rent out their homes for up to 90 days per year, commercial licenses allow houses and apartments to operate as full-time short-term rentals, provided they are located in commercial or mixed-use districts. As of May 1, there were 1,124 active commercial licenses in New Orleans, compared to 845 in April 2, 2018.

The increase in commercial licenses is concentrated in a handful of neighborhoods, city short-term rental data show, including the Seventh Ward, Central City and Bywater.

Commercial licenses in the Seventh Ward: April 2018 (left) and May 2019 (right)

Another possible explanation is that taxes can be collected from unlicensed short term rentals, meaning that a drop in licenses may not have been accompanied by a equal drop in Quality of Life Fund deposits.

In late 2016, Airbnb agreed to collect hotel-motel taxes on behalf of the city and remit them to the state. Some of those dollars eventually end up in the quality of life fund. Airbnb spokeswoman Laura Rillos told The Lens that these taxes are automatically collected from every booking in New Orleans.

As of this week, there were about 3,100 short-term rental licenses in the city, down from about 4,500 in April 2018. However, not every rental listing on vacation rental sites like Airbnb is permitted by the city.

Expedia-owned Homeaway recently started collecting and remitting taxes on behalf of New Orleans operators in April, according to a company spokesman. But before that, all short term rental operators on all platforms besides Airbnb were personally responsible for paying the taxes.*

A 2018 report from Jane Place claimed that as of March 1, 2018, there were 2,744 unpermitted short term rental listings on Airbnb.

More recently, a website that tracks Airbnb listings called Inside Airbnb states that as of Dec. 6, there were 6,508 New Orleans listings on the website, more than double the number of licenses.

A recent memo from the Cantrell administration highlighted the enforcement challenges arising from Airbnb’s refusal to share their data.

“It makes enforcement for such provisions as illegal listing of unlicensed properties or listing in excess of licensed days extremely difficult to enforce,” it said.

“It is clear that tax revenue owed to the City is not being paid,” the memo said. “However, it is unclear what the scope of these unremitted taxes and fees may be given the lack of information to which the City has access.”

Concerns about linking STRs to infrastructure funding

Though the city is currently experiencing an increase in short term rental revenue, it’s possible that after the City Council passes new regulations, that trend will be reversed. The commercial permit increase, for example, could be tempered by proposed regulations that cap commercial licenses at 25 percent of a building.

The City Council has also been clear that the new regulations need to be matched with stronger enforcement. If the city cracked down on unpermitted listings, that could also stem the flow of money into the Quality of Life Fund.

The proposed short-term rental regulations are set for another council vote this month, and council members who spoke to The Lens said they have not heard from the mayor’s office about the issue, but it appears that it may soon get more involved.

“We’re still actively monitoring the situation,” said Pourciau. “And given the fact the vote with the Council is going to happen relatively soon, there’s going to be increased engagement with the council members to see what the next steps are for where short term rental regulations need to be for the city.”

Regardless, some advocates worry that the structure of the tax — linking short term rentals and vital infrastructure funding — will incentivize the expansion of short term rentals.

“Residents made it clear in the 2017 elections and in many public comment sessions at City Council meetings that we want fewer STRs displacing residents and driving up housing prices,” said Breonne DeDecker, the program manager for Jane Place Neighborhood Sustainability Initiative, an affordable housing group that has criticized short-term rental expansion in the city. “Instead of relying on increased numbers of STRs, the City should focus on how to better regulate STRs.”

The apprehension over the new tax does not stop with the revenue prediction. Another issue is that not all of the money would go to the city. Only 75 percent would go to municipal infrastructure projects, while the remaining 25 percent would be diverted to New Orleans and Co. for tourism promotion.

Cantrell’s negotiations at the state Legislature is part of the “fair share” campaign she launched in the fall. She’s argued that tourism entities like the Convention Center and Stadium District get too large a share of hotel-motel taxes, and that more should go towards municipal services.

Critics of Cantrell’s tax proposal argue that the revenue sharing deal flies directly in the face of that campaign.

“Any short term rental revenue going to tourism is an absolute non-starter for us,” said Andreanecia Morris, the Executive Director of HousingNOLA. “It is counter-intuitive.”

The tax also throws a wrench in council plans to use short term rentals to raise money for affordable housing projects. Currently, there is a disparity between hotel and short term rental taxes. Hotels pay 15.2 percent while short-term rentals 8.45 percent. The new 6.75 percent short term rental tax would bring those closer in line.

Some housing advocates had hoped to use a tax increase to fund affordable homes, arguing that the proliferation of short-term rentals is directly related to rising rents in certain neighborhoods.

Palmer, who has taken a leading role in changing the city’s short-term rental laws, previously committed to using new fees to provide $20 million a year to the Neighborhood Housing Investment Fund, which can be used to subsidize affordable housing developments.

The city currently imposes a $1 per night fee on short term rentals that is directed to the City’s Neighborhood Housing Improvement Fund. From April 2017 to Feb. 2018, that raised $550,000, according to the council.

Last year, Palmer brought forward a proposal to increase those fees to $10 a night for residential properties, $20 for smaller commercial properties and $25 for larger commercial properties. The City Planning Commission recommended a more modest increase in its 2018 study — $8 for whole home residential rentals and $10 for commercial properties. Partial unit residential rentals would stay at $1 a night.

Both Palmer and the City Planning Commission recommended raising permitting fees as well.

But the new tax puts that plan in limbo. If Palmer’s proposed fees were added on top of the new tax, short-term rentals would face much higher taxes and fees than hotel rooms.

“They take no responsibility in addressing the affordable housing crisis,” Morris said of the Cantrell administration. “Short-term rentals can help by being a revenue source for affordable housing, a revenue source the likes of which we haven’t seen. And giving any of that money to tourism … I’m gobsmacked.”

The legislation, House Bill 43, is sponsored by State Representative Jimmy Harris of New Orleans. It’s part of a larger package of legislation that the Cantrell administration hope will bring the city $48 million in one-time money and $27 million in recurring revenue, all of which would go to a dedicated infrastructure fund.

On Thursday, as he presented the bill in the House Municipal, Parochial, and and Cultural Affairs Committee and addressed concerns coming from New Orleans affordable housing advocates.

“What I want to put on record and let everyone know is we’re not doing anything to take money away from housing, because that’s been a concern from a local standpoint,” he said.

John Pourciau, Cantrell’s Chief of Staff, was sitting next to Harris and reiterated that sentiment.

“The mayor understands it’s a priority and were doing everything we can on it,” he said about affordable housing. “But this is a separate piece to make sure our infrastructure is accounted for.”

Stephen Perry, the President and CEO of New Orleans and Co., was also there to support the bill.

“This is one of the earliest points of unity between us, trying to figure out how to we attack this infrastructure problem,” he said. “The industry is very supportive of this.”

 

This story was updated after publication with comments from the mayor’s staff.

*Correction: As originally published, this article claimed that Airbnb was the only short term rental platform to collect and remit taxes for New Orleans rentals. Homeaway has done so as well since April, according to a company spokesman.

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