Council approves short-term rental tax, with 25 percent cut going to tourism marketing agency
By Michael Isaac Stein
Source: The Lens
August 6, 2020
At the request of Mayor LaToya Cantrell, the New Orleans City Council on Thursday gave final approval to a long-anticipated 6.75 percent tax on short-term rental bookings. Thursday’s ordinance codifying the new tax into city law comes more than a year after the Louisiana Legislature first authorized it and nearly nine months after New Orleans voters approved it.
The tax was a key component of Cantrell’s “fair share” deal, intended to send more tourism tax revenue to fund city services and infrastructure.
But not all of the money generated by the tax will flow to the city. Twenty-five percent of the revenue will go to New Orleans and Company, a private nonprofit marketing agency for the city’s tourism industry, formerly called the New Orleans Convention and Visitors Bureau.
The rest of the money will go to the city’s Infrastructure Maintenance Fund. The tax goes into effect on Sept. 1. Prior to the COVID-19 pandemic — which has crumbled the city’s tourism industry — the Cantrell administration projected the tax would bring in a total of $10.5 million per year.
After a bill authorizing the city to call for the tax passed the legislature during its 2019 session, New Orleans voters approved it by a wide margin in the November 2019 election.
In spite of that support at the polls, a number of people who commented at Thursday’s council meeting said that while they wanted higher taxes on short-term rentals, they were much less interested in sending more public money to New Orleans and Company, which already receives $21 million a year in public funds, according to a 2019 report from the Bureau of Governmental Research.
“Now yall want to add more money to the pockets of tourism agencies while forcing service industry folks to work unsafe jobs or starve,” Conway Labeau said in their public comment. “Our jobs are either closed permanently or they aren’t hiring full staff back. We are facing mass evictions, partially due to the city’s refusal to close the court and offer rental assistance, and partially due to the fact that even pre-COVID we had a housing shortage due to the amount of short-term rentals taking over our city. Why does the city council and mayor continue to value tourism and money over the lives of our workers?”
The council, however, can’t take New Orleans and Company out of the deal. The legislative bill authorizing the tax and the ballot proposition that voters approved both contain language calling for the marketing agency to create a 25 percent share.
The tax was a central component of Cantrell’s fair share deal — a 2018 attempt to reallocate hotel tax revenue towards the city’s infrastructure needs, particularly at the Sewerage and Water Board.
A report from the Bureau of Governmental Research last year found that out of $200 million in hotel tax revenue in 2019, just 9.5 percent, or $18.9 million, went to the city for general services. Roughly $150 million was routed to tourism industry groups, including New Orleans and Company, the Ernest N. Morial Convention Center and the Louisiana Stadium and Exposition District, which contains the Superdome and Smoothie King Center.
Negotiations with tourism leaders and Gov. John Bel Edwards in 2019 resulted in a wide-ranging deal that Cantrell claimed would bring in $50 million of one time funding for infrastructure projects, and millions more on an annual basis.
New revenue stream for tourism promotion
The new short-term rental tax works towards Cantrell’s stated goal by collecting more hotel tax revenue for the city. At the same time, it creates a new annual funding stream for the tourism industry.
“This council was also not involved in the negotiation of the fair share deal when this was broken down,” Councilwoman Kristin Palmer, one of the council’s most vocal opponents of short-term rental expansion, said on Thursday. “The ballot language was what was passed by the voters, we have to adhere to that ballot language, and that’s why we’re here today. And i’m referring, of course, to the 25 percent of the tax that is to be given to New Orleans and Company.”
The ballot initiative approved by voters last year gave the Council the ability to levy a new short-term rental tax. But it didn’t require them to. And while the City Council couldn’t create the new tax unilaterally, it can create new fees for city permits and licenses, like short-term rental licenses. Prior to the fair share deal, council members had floated a fee structure on short-term rentals that would have raised an estimated $20 million for affordable housing projects.
Last year Palmer told The Lens that the new tax will stymie the council’s ability to add those fees. Before the new short-term rental tax, hotels were taxed at a much higher rate — 15.2 versus 8.45 percent. For years, the council has eyed this gap as a potential source of revenue. But the new tax puts the two tax rates inline with each other, filling in that revenue gap and making it more difficult to tack on additional fees.
The City Council, and Palmer in particular, has also voiced concerns about sending more public dollars to a New Orleans and Company — private nonprofit with little public control.
The city used to have two marketing agencies for the city’s tourism industry: New Orleans and Company and New Orleans Tourism Marketing Corporation, or NOTMC. NOTMC was a public body with a board made up of four council members and mayoral appointees.
“I’m very concerned about the transparency issue with New Orleans and Company and receiving this 25 percent,” Palmer said on Thursday. “We had great accountability with [New Orleans Tourism Marketing Corporation].”
A merger between the two was years in the making. A proposed merger under former-Mayor Mitch Landrieu in 2010 fell apart due to disagreements on whether to dissolve New Orleans and Company or NOTMC. The city wanted the new organization to fall under NOTMC for greater public control, while tourism industry leaders wanted it to fall under New Orleans and Company.
The merger was finally achieved in 2019 as part of the fair share deal. NOTMC transferred the majority of its funding and staff to New Orleans and Company, adding roughly $8 million of new annual revenue to the marketing agency. And now, with the new short-term rental tax, New Orleans and Company’s budget could get even bigger.
However, the deal isn’t quite done yet. The city will collect all the taxes and will pass on the 25 percent through a cooperative endeavor agreement, or CEA. But that agreement hasn’t been written yet.
In the meantime, those funds will go into an escrow fund that New Orleans and Company can’t touch. In the past, council members have said they will simply continue to withhold the funds until New Orleans and Company agrees to a CEA that guarantees transparency and a degree of public control over the money.
“That is where we have our say regarding the transparency piece,” Councilwoman Helena Moreno said at a meeting last year. “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.”
Advocates have also expressed concerns that linking short-term rentals and infrastructure funding could de-incentivize short-term rental enforcement. Cantrell’s 2019 revenue projections of $10.5 million per year assumed that the short-term rental market would at least remain steady, if not expand, even as the City Council was working on proposals to tighten STR licensing regulations.
And the Cantrell administration has not always appeared to prioritize robust enforcement of the rules. Over the course of 2019, the administration went from suggesting 16 new employees dedicated to short-term rental legal enforcement to as few as three.
And recently, the city has hired Peter Bowen, a former short-term rental company executive, to lead an office in charge of land use regulation, which members of the public brought up during Thursday’s meeting.
“When I heard that Peter Bowen was appointed to deputy chief administrative officer, this tax concerned me,” Renee Leash said to council members. “Bowen has a proven record of blitzing the city for profit without any regard for the city’s well-being. I’m afraid that [Bowen’s] position will be used to further commodify neighborhoods while we’re on the brink of mass evictions and unprecedented unhoused populations.”
In his position, Bowen oversees several key city departments, including Safety and Permits, which oversees short-term rental regulation. He’s also been tasked with creating a brand new office — the Office of Business and External Services — with the goal of merging land use regulation with the city’s economic development goals. Land use departments within Bowen’s purview will also be physically moved from City Hall to private offices on Poydras street.
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