At a Monday meeting on Mayor LaToya Cantrell’s proposed 2020 budget, New Orleans City Council members pressed administration officials on whether the city was properly prepared for rules on short-term rentals scheduled to go into effect on Dec. 1.
“There’s serious skepticism, at least in my office, that we’ll be able to enforce to the degree that we need to,” Councilwoman Kristin Palmer said at the meeting.
Palmer, along with Councilwoman Helena Moreno, also once again questioned whether the city was properly allocating millions of tax dollars that are specifically earmarked for short-term rental enforcement.
“I’m talking about making sure that the money that’s coming in for enforcement is actually being used on enforcement,” Moreno said.
Monday’s meeting was part of the council’s annual budget process, which includes hearings on the proposed 2020 budget on a department by department basis. The council has until Dec. 1 to tweak and approve the budget. The Department of Safety and Permits — which is responsible for much of the city’s short-term rental enforcement efforts — was one of the five departments or agencies to present their budgets to the council on Monday.
As The Lens recently reported, Cantrell administration officials have gradually walked back plans for beefing up enforcement over the course of 2019. In March, Chief Administrative Officer Gilbert Montaño sent a memo to the council explaining that “in order to ensure the city is adequately staffed to handle Short-Term Rental Enforcement,” 16 new employees would be needed.
But now, the Department of Safety and Permits only plans to hire a quarter of that. According to the presentation from Safety and Permits Director Zach Smith, the department is adding four new employees to enforce the new, stricter short-term rental rules that the City Council passed this summer — two attorneys and two code enforcement inspectors.
The Department of Finance’s Bureau of Revenue, meanwhile, isn’t hiring anyone specifically for short-term rental enforcement, but is hiring new people to enforce sales tax collections, which will help to make sure that short-term rentals are collecting and remitting taxes, Chief Financial Officer Norman White previously told The Lens.
Smith explained that the reason why they are hiring fewer employees is because they now believe that short-term rental platforms, such as Airbnb, intend to cooperate with the new regulations.
“We’ve gone with a much leaner ask due to new information,” Smith said on Monday. “Right now, we believe we can take care of it.”
Among the most important changes in the new short-term rental rules — passed in August — is that platforms will need to get a permit to advertise homes in New Orleans, a permit that the city can revoke if they don’t abide by new requirements set out in the law. Vitally, the new rules require hosts to include a valid permit number in their listings and requires the platforms to remove listings whenever the city asks.
Smith said that if the platforms comply with the new rules, it will allow the city to shut down unpermitted rentals without going through a longer, more labor intensive adjudication process, which includes a formal hearing.
For properties that still have to go through adjudication, the two new attorneys will help speed up the process, Smith said. He added that the department is currently overhauling the adjudication process.
“We’ll continue to revamp the adjudication process to make sure that it’s simpler, it’s faster, it’s more correct, and it’s more battle tested for any legal challenges,” he said.
The March memo from Montaño to the council said that along with 16 new employees, the city would need a $1 million “platform accountability fund” to stave off potential legal challenges from the platforms. That fund has also been scrapped in the budget.
‘Do you know how ludicrous that sounds?’
Council members also questioned whether the city was properly allocating money from a state-created fund specifically earmarked for short-term rental enforcement.
The money in question comes from the New Orleans Quality of Life Fund, a fund generated from taxes on short-term rentals that the city can tap into specifically for costs related to enforcement.
The city drew down $6.2 million from the fund in the 2018-2019 state fiscal year, and expects to get an additional $4.3 million in 2019-2020.
“If you need more money for STR enforcement, we seem to have plenty of money coming down from the state,” Moreno, who sponsored the 2017 bill creating the fund when she was a state legislator, said to Smith.
This year, the short-term rental administration, which is housed within the Department of Safety and Permits, had a budget of only $544,451. That will increase to $825,000 if Cantrell’s proposed budget is approved.
“There are $5 million of indirect costs related to enforcement that aren’t shown on the Safety and Permits Department?” Palmer asked. “Do you know how ludicrous that sounds?”
Montaño previously explained at a council meeting this summer that the city tracks its use of the fund by estimating what percentage of each department’s work is dedicated to short-term rentals, then assigning that percentage of their budgets to enforcement costs. For safety and permits, the percentage was 21.1 percent.
Some of the costs listed in the city’s justification do not, on their surface, appear directly associated with short-term rental enforcement. For the money drawn down in 2018, $2.8 million went to “maintenance of office and grounds,” $1 million went to “maintenance of equipment” and nearly $400,000 was listed under “other.”
City Economist Deb Vivien told the council on Monday that the administration’s main priority with justifying the enforcement expenditures is making sure the city gets that money out of the Quality of Life Fund so that the state doesn’t retain it for itself.
“At the end of the day, getting the funds from the state to the city is the most important thing,” Vivien said.
She added that the administration is still open to changing the methodology to give a better accounting of where all the Quality of Life Fund money goes.
“There are all kinds of indirect costs that are also involved in enforcement across all agencies,” she said. “And the way that we justify drawing down the funds can be discussed if there’s a different methodology that you’d like to use to do that.”
Councilman Joseph Giarrusso had questions of his own on short-term rentals. He asked Smith whether the city had seen the “radical increase” in commercial permits that some short-term rental critics had feared would occur this fall. He specifically asked about Mid-City.
The new rules passed in August include a 25 percent cap on the number of units within large commercial buildings that could be used as Airbnbs. However, that will not apply to permits that are approved before Dec. 1. Some short-term rental critics urged the council to put a moratorium on new commercial permits until Dec. 1 to prevent a rush of applications meant to lock in rentals above the 25 percent cap.
“I wouldn’t use the word radical, but there has been an increase, especially in some of the commercial units that just came online,” Smith said. “We don’t expect that trend to continue.”
Smith was referring to a new gated community in Mid-City called 37Hundred Bienville. According to city data, all 20 of the luxury condos have commercial short term rental permits, which allow the owner to rent out the unit 365 days a year.
The permit holder for all 20 units is Hosteeva LLC, an international rental platform based in Metairie. A unit in the new development is advertised on their site at $142 a night.
According to city data, the number of active commercial short-term rental permits has increased by 331 since the new rules were passed by the City Council in August, up to a total of 1,371.