All four of the short-term rentals on Ada Phleger’s block in the St. Claude neighborhood either have an expired permit or have had their permit revoked by the city’s Department of Safety and Permits. But all four are still advertised on Airbnb or HomeAway and, according to Phleger, are still rented to tourists on a constant basis.
“It makes me feel a little crazy,” Phleger told The Lens. “I keep thinking the rules are going to mean something at some point and they really don’t.”
Residents like Phleger are hoping that the city can put years of lax enforcement behind it on Dec. 1, when new, stricter rules on short-term rentals go into effect. But documents obtained by The Lens show that over the past year, Mayor Latoya Cantrell’s administration became increasingly concerned that the new rules, if enforced, would be a big hit to the city’s budget as rentals are taken off the market. At one point, Cantrell’s director of policy wrote a memo on what would happen if she decided to veto the regulations, though she ultimately approved them.
From January to August, city officials went from suggesting as many as 16 new employees to bolster enforcement to as few as three, records obtained by The Lens show. At the same time, administration officials also appeared nervous about how they would justify the use of $6.2 million in funds dedicated to short-term rental enforcement.
Last June, The Lens wrote about Phleger’s fight to get the city to expel the short-term rentals from her block. All four we’re being operated by a Massachusetts-based company called Heirloom. One of the four homes was being rented for $1,710 on average per night.
Phleger, an attorney with the Federal Public Defender’s office, found evidence that one of the rentals may have been granted a permit improperly. The permit was issued for a half-double, and the owner was supposed to live in the other half. But Phleger found out it was converted to a single-family home, and it didn’t seem that anyone was living in it full-time.
For months, Phleger submitted complaints and stayed in contact with the Department of Safety and Permits. She looked up the house’s blueprints and tax assessment records. She sent the investigator photos of guests arriving and then, after being told that was insufficient, starting sending videos.
Finally, Phleger decided to get concrete proof by renting the house on Airbnb herself. She took pictures of the inside of the house, showing that it was a single unit and that there were no personal items inside. She sent the evidence to the city.
In June, the property went before a city hearing officer, who revoked the permit, levied a $2,500 fine and demanded that the owner provide confirmation that all pending bookings have been cancelled within 48 hours or face $500 daily fines.
In July, Julie Groth, who owns the property through a revocable trust, sued to appeal the decision in Civil District Court. The suit appears to be ongoing. Neither Groth nor her attorney responded to requests for comment for this story.
“We got through all the work of getting an adjudication and then everything continues exactly as it did before,” Phleger said.
The owner of another one of the rentals on Phleger’s block, Cory Girard, said that he isn’t currently renting his house and is working on getting a new permit. According to city records, his previous permit expired in June. As of Wednesday, there were no records of a new permit application for the house.
The owners of the other houses on the block that Phleger said are being rented illegally did not respond to requests for comment. A spokesperson for Heirloom declined to comment on behalf of the company.
A little more than a month after the adjudication hearing on Groth’s house, the City Council passed new short-term rental regulations that are far stricter than the current rules, especially when it comes to whole-home rentals in residential neighborhoods.
One of the most important aspects of the new regulations is the creation of a platform permit for Airbnb, Homeaway and other platforms. If they don’t follow the city’s rules, such as delisting unpermitted rentals at the request of the city, they could be stripped of their permits.
The new rules go into effect on Dec. 1.
From 16 to Three
The City Council spent more than a year designing a new regulatory scheme, and throughout that process there was a consistent sentiment: If the city doesn’t do more to enforce the rules, they won’t mean anything.
But over the past 11 months, officials in Mayor LaToya Cantrell’s administration seem to have dramatically walked back their enforcement plans.
The administration started planning in earnest in January, in part because the City Council required it to. On Jan. 10, The City Council passed two pieces of legislation that got the ball rolling on changing short-term rental laws. One motion sponsored by Councilwoman Kristin Palmer initiated the process for overhauling the short term rental regulations. A resolution by Councilwoman Helena Moreno told Montaño and the Department of Safety and Permits to examine how to beef up enforcement ahead of the new rules.
In a memo to Montaño that appears to be sent in January, Zach Smith, the director of the Department of Safety and Permits, and Jennifer Cecil, then the director of Safety and Permits’ One Stop Shop, outlined recommendations for what the department would need.
The memo said the department required six new employees, or 10 if the administration wanted to have round-the-clock enforcement. On top of that, the memo said, the city should “maintain a separate but focused” unit within the Department of Finance to handle short-term rental tax collections.
The memo also said the department would require $1 million per year for a “platform accountability fund” in case short-term rental platforms launched a legal challenge of the rewritten rules, as they have done in other cities.
“Platforms have demonstrated that they are willing to aggressively pursue litigation against major cities — most recently New York and Miami — and have spared no expense in doing so,” the memo said.
On January 25, Montaño received another memo from Chad Brown, his chief of staff, and Innovation Manager Courtney Story outlining some of those same points. It also includes 10 positions — slightly different from the ones in the earlier memo — plus six new employees in the Department of Finance. The memo appears to recommend that all 16 employees be new positions rather than reassignments. It also calls for a $1 million platform accountability fund. The total cost is listed as $2.2 million per year.
In early March — as the City Planning Commission was working on a proposal to tighten short-term rental laws — City Economist Deborah Vivien was asked to weigh in on the recommendations.
“If I’m interpreting correctly, they are asking for 16 full time employees plus $1M in reserve for contingencies,” she wrote in an email. “If I didn’t know better, I would think this spending estimate is an effort to 1) kill the bill or 2) get more general fund resources … directed to these agencies.”
Less than a week later, Montaño sent an memo outlining the 16-position plan to Councilwoman Kristin Palmer.
“In order to ensure the city is adequately staffed to handle Short Term Rental Enforcement, the following positions are needed,” the memo says.
Five months later, in August, the council voted to pass the new laws.
A couple weeks after the rules were approved, Cecil sent another memo that recommended a significantly lower number of new hires. The memo said the city only needed two new attorneys and one adjudication coordinator — a total of three new hires. It also said the $1 million accountability fund was no longer necessary because they expected the platforms to be cooperative.
The memo noted, however, that “it still seems likely that we will need to remain open to a second phase of implementation” and make additional hires.
The memo did not discuss the six proposed hires at the Department of Revenue. But on Monday, Chief Financial Officer Norman White told The Lens that his office isn’t hiring new employees wholly dedicated to short-term rental enforcement, but that it plans to hire five new employees for sales tax collections in 2020, which will include short-term rental enforcement.
Mayor Cantrell released her draft 2020 budget last week. It indicates only two new hires in the Safety and Permits short-term rental administration office.
It’s unclear if additional staff from other offices or departments will take on additional short-term rental work next year. Cantrell’s office did not respond to repeated requests for comment on this story.
‘Cash cow’
Emails obtained by The Lens indicate that between the January memo and the August memo, top-ranking city officials became increasingly worried that the new regulations would lose money for the city. Mostly, the concern centered on the loss of illegal short-term rentals that were nonetheless being booked through Airbnb and remitting sales taxes to the city.
According to meeting notes from July, Montaño called short-term rentals a “huge cash cow for the city.”
In a July 17 email, the city’s innovation manager Courtney Story wrote an email to top officials from the Department and Safety and Permits, describing “where the CAO’s office currently stands on STR enforcement.”
“In summary, it’s agreed that we need a full picture analysis of the budgetary impact before any final decisions can be made,” the email said.
And apparently, there was at least some discussion about Cantrell vetoing the new regulations passed by the City Council. In August, Cantrell’s Director of Policy and Research Joshua Zuckerman sent out a memo about “what happens” if she opted to veto. The Lens requested the memo itself, which was an attachment, but the city has yet to provide it. It’s not clear that Cantrell was seriously considering a veto, however. She signed the ordinances and sent them back to the council about a week after the council vote.
Not all of this consternation was going on behind closed doors. At a July 25 council meeting, council members pressed Montaño on upcoming enforcement plans.
“There’s been a lot of work and heavy lifting on this,” said Palmer, who took the lead on designing the new regulations. “But we can pass legislation on this and it can be thoughtful and inclusive and wonderful, but if we don’t have enforcement it’s all for naught.”
“If we enforce more, our revenue may actually drop simply because people are no longer paying taxes on the platform necessarily,” Montaño said. “It’s just I’d like to almost dip a toe in the water at first.”
But the concerns about lost revenue don’t appear to have materialized. After a meeting of the City’s Revenue Estimating Conference earlier this month, Montaño told The Lens that the city would lose roughly $500,000 in sales tax revenue because of the regulations. However, he said the city would gain $800,000 due to higher permit fees created by the new regulations.
And that doesn’t take into account a proposed 6.75 percent short-term rental tax that residents will vote on during the Nov. 16 election. The administration expects that to bring in $10.5 million a year for infrastructure projects. That prediction, however, was based on the assumption that the short term rental market will remain steady, or even expand, even as the city predicted the market would shrink when estimating sales tax revenue.
The tax was a major component of Cantrell’s “fair share deal,” a compromise brokered between the city, Governor John Bel Edwards and the tourism industry to send more tourism taxes to the city for use in infrastructure projects. The revenue from the potential new 6.75 percent tax would be divided, with 75 percent going to the city and 25 percent going to New Orleans and Co. (formerly known as the New Orleans Convention & Visitors Bureau).
Quality of Life Fund
Though Cantrell administration officials were concerned about how beefed up enforcement would affect the city’s bottom line going forward, members of the City Council have also questioned whether the administration is properly spending funds that are already earmarked for short-term rental enforcement.
In 2017, the state legislature passed a bill — sponsored by then-State Rep. Helena Moreno — creating the New Orleans Quality of Life Fund, a state-controlled fund that the city can tap into specifically for costs related to short-term rental enforcement. The fund is generated from state hotel taxes collected on short-term rentals in New Orleans.
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. But this year, the short-term rental administration, which is housed within the Department of Safety and Permits, had a budget of only $544,451.
At a July Governmental Affairs Committee meeting, Moreno asked Montaño to explain how the money was spent.
“I think what we’re trying to do is just ensure that all the money is actually going toward specific STR enforcement,” she said. “And I’m not saying this is the case, but I think there’s a perception that this money is just being drawn down and being put into all of these departments and being used for all these general uses.”
Montaño returned to the council in August to break down how the money was spent. Off the bat, he admitted that their method of tracking spending was imperfect.
“Although it’s a simplistic methodology, this is honestly some of the best we have frankly,” he said.
In his presentation, Montaño explained 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 assigns 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 presentation 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.”
“You’re probably going to have people scratching their heads saying, ‘Wait a minute how does that really correlate … with what people would like to see as enforcement?’ “ Moreno said.
“That’s a legitimate question,” Vivien, the city economist, responded. “And it might be something that could be used to explore methodology for future submissions.”
Before that meeting, there appeared to be concerns within the administration about how they would explain where all the money from the Quality of Life Fund went. Nine days before that meeting, Vivien sent a memo to Montaño explaining the risks of having to publicly explain the expenditure of the quality of life fund dollars.
“[The city] has drawn down money from the State that should not be jeopardized by public statements that could be interpreted as the City of falsifying records to the State,” the memo said. “It is possible that the State Treasurer, who is running for reelection this Fall and does not appear to need New Orleans’ vote, could decide to use a disparity over what is considered an eligible cost to claw back the Quality of Life Fund money for the State.”
This week, the City Council begins budget hearings for 2020. Departments will come in to explain their proposed budgets and advocate for more funds if they believe they are needed. The Department of Safety and Permits will come before the city council on Monday, Nov. 11.
