The New Orleans City Council on Thursday took the initial step to set up a citywide vote on a new short-term rental tax.
The potential tax is part of a broader infrastructure deal that was brokered by Mayor LaToya Cantrell’s administration, Gov. John Bel Edwards’ administration and the tourism industry during the legislative session that ended in June. The deal included Act 169, which allows the council to levy a tax of up to 6.75 percent on short-term rentals, but only if New Orleans residents vote in favor of it.
Thursday’s motion was only passed to give public notice that on Aug. 8, the council will vote on the language of the ballot measure. If that also passes, the vote will be set for Nov. 16.
But even for this preliminary vote, some members of the public were already raising concerns, including where the revenue from the tax will go. Act 169 dictates that the revenue will be split: 75 percent will go to a municipal infrastructure fund and 25 percent will go to New Orleans and Co., a private organization that promotes New Orleans tourism.
New Orleans & Co., formerly the New Orleans Convention and Visitors Bureau, already receives millions of dollars per year in tourism taxes. And another part of the infrastructure deal, a planned merger with the city-controlled New Orleans Tourism Marketing Corp. will likely mean millions more for New Orleans & Co.
“I would find it difficult to vote for more money for Stephen Perry,” resident Michael Burnside said at the meeting, referencing the CEO of New Orleans and Company. “Frankly I think he has enough of my money already.”
The main issue discussed by council members was whether the public would have any say over how the tourism group’s portion of the money is spent.
“Do we have accountability on that 25 percent?” asked Councilwoman Kristin Palmer. “Because those are public dollars.”
“The accountability and transparency question, the mayor recognizes that’s a concern for the council,” said Cantrell’s Chief of Staff John Porciau. “It’s a concern for her.”
If the ballot measure is approved, the council will then have to vote again to create the tax. It will also have to approve a cooperative endeavor agreement for New Orleans & Co. that will allow it to collect the 25 percent.
“That is where we have our say regarding the transparency piece,” said Councilwoman Helena Moreno. “It’s on the CEA for that 25 percent that we’re going to have some control in making sure those tax dollars are used properly.”
She said that the council has the option to refuse to approve the agreement until they find it to be acceptable. Until then, she said, the money would go into an escrow account that’s out of reach of New Orleans & Co.
New tax leaves less room for affordable housing dollars
The other issue raised was whether a short-term tax will make it more difficult for the council to impose other fees — which could be used for affordable housing — on short-term rentals.
Currently, taxes on short-term rentals are significantly lower than on hotels. Hotels pay 15.2 percent while short-term rentals pay 8.45 percent.
Prior to Cantrell’s infrastructure deal, the council was poised to bridge that gap with new fees that would go to the city’s Neighborhood Housing Improvement Fund, which supports affordable housing projects. Late last year, council members floated a new short-term rental fee structure that would raise $20 million a year for affordable housing.
But if this tax goes into effect, the council will have to reduce those fees to make sure that the effective tax rate — meaning taxes and fees — for short-term rentals isn’t significantly higher than for hotels. Palmer told The Lens that she will still pursue fees for the Neighborhood Housing Improvement Fund, but that they will be lower than originally proposed.
On Wednesday, the Greater New Orleans Housing Alliance sent out an email saying that the tax is “bad for affordable housing.”
“They take no responsibility in addressing the affordable housing crisis,” Andreanicia Morris, the Executive Director of the group, told The Lens shortly after the deal was announced in May. “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 deal, hashed out by the Mayor, Governor John Bel Edwards, state legislators and local tourism industry entities, will give the city an initial infusion of $50 million for improvements at the Sewerage and Water Board. The cash rich Convention Center will provide $28 million while $22 million comes from the state’s Hazard Mitigation Grant Program.
The Cantrell administration also predicts that the deal will bring in $26 million in annual recurring revenue for infrastructure projects. That money will be raised, in part, by a 1 percent increase in hotel taxes. The short-term rental tax will bring in the rest. But it’s still unclear just how much that will be.
The administration originally said that the tax will generate $10.5 million. But the math assumes that the New Orleans short-term rental market will remain steady, or even expand, despite ongoing work by the New Orleans City Council’s to place stricter rules on the market — including the elimination of whole-property rentals in residential neighborhoods — and tighten city enforcement.
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.
“There’s a lot of concern from neighborhoods that have been overrun by STRs that this could actually incentivize wanting to have more throughout the city because it’s bringing in more money for infrastructure,” Palmer said at Thursday’s meeting.
“This is not a piece where the city believes it will be incentivized to create more short-term rentals,” responded Porciau.
He said that the initial revenue estimate didn’t take into account the potential new rules on short-term rentals, and that it will simply be a matter of time before the city knows how much revenue the tax brings in.