Airbnb warns that L.A.’s budget could suffer from restricting short-term rentals

Airbnb is warning Los Angeles leaders that the city could face a budgetary blow if it restricts how many days Angelenos can rent out rooms or whole homes for short stays.

Such rentals are currently illegal in many residential areas of Los Angeles, according to the planning department, but the rules are rarely enforced. The phenomenon has exploded with the rise of Airbnb and other online platforms that link hosts to travelers, stirring up worries about how those night-to-night rentals affect local neighborhoods.

As the debate over legalizing and regulating such rentals has dragged on, Los Angeles has already started taxing them, generating millions through a deal reached with the company last year. City officials estimate the agreement has already brought in more than $20 million in lodging taxes this budget year.

Now Airbnb is telling city leaders that proposed regulations could cut back on that flow of money. The warning comes days before Mayor Eric Garcetti is slated to release his budget plan and weeks after financial officials cautioned that Los Angeles could face a deficit of $224 million for the upcoming fiscal year.

In a letter to city officials, Airbnb estimated that over a full year, its hosts would hand over $37 million in lodging taxes for Los Angeles. If L.A. caps those rentals at 180 days annually and allows hosts to rent out only their primary residence — as currently proposed at City Hall — the city would lose $15 million of that possible revenue, the company estimated.

Airbnb added that if the city imposed an even stiffer cap favored by its critics, limiting short-term rentals to 60 days each year, Los Angeles could lose out on $24 million in possible revenue annually. The company said that could make it harder for the city to fund critically needed programs such as housing for the homeless.

Taxes from Airbnb rentals “can play an important role in maintaining a balanced budget,” its Southern California policy manager, John Choi, wrote.

Airbnb released its estimates shortly after City Controller Ron Galperin highlighted the tax revenues in a letter urging Garcetti and other city officials to be “forward-thinking” about the budget. Galperin said Tuesday it is up to lawmakers to decide what rental regulations make sense, but “I would be remiss as city controller if I didn’t point out the revenue implications.”

“The more regulation the city puts in place, the more potentially problematic that could be for revenues,” Galperin said.

The company says its rentals have provided an economic lifeline for thousands of Angelenos and injected tourist spending into new parts of the city. But critics have countered that in the absence of easily enforceable rules, some commercial operators have started renting out homes constantly like hotels, disrupting neighborhoods and exacerbating the housing crisis.

Neighborhood and housing activists concerned about “commercialized” rentals were suspicious of the tax deal when it was first struck, arguing that it would legitimize an illegal activity. Now they say their fears were justified.

Judith Goldman, co-founder of the advocacy group Keep Neighborhoods First, said Airbnb was essentially “holding the city hostage” for the tax money.

“We are hopeful that the city will be smart enough to see through this extortion and create policy based on protecting our neighborhoods and not protecting their own pocket book,” Goldman said in an email statement.

The hotel industry, which has joined forces with neighborhood activists to push for stiffer regulation of such rentals, has also argued that the tax money is not newfound revenue. The California Hotel and Lodging Assn. contends that some of the same travelers who stay in Airbnb rentals would have previously stayed in hotels that collect the same kind of taxes.

“Tourists and travelers come to Los Angeles for a number of reasons, but I don’t believe that they are coming to the city to stay in an Airbnb,” said Roy Samaan, research and policy analyst for the Los Angeles Alliance for a New Economy, an advocacy group allied with labor unions.

Airbnb deputy policy manager Connie Llanos disputed those arguments, saying that Airbnb has allowed many travelers the opportunity to visit places they otherwise wouldn’t. In reaction to the accusations of “extortion,” Llanos fired back that “the hotel cartel will stop at nothing to protect their record profits and ability to price gouge.”

“Airbnb and our community of hosts want to be regulated and we will continue to work with lawmakers in Los Angeles to develop rules that create economic opportunity and protect quality of life in our neighborhoods,” Llanos said in a statement.

Critics have also challenged whether the Airbnb tax agreements are fair and transparent. In a March report underwritten by the hotel industry, Dan Bucks, the former director of the Montana Department of Revenue, argued that agreements between Airbnb and many cities across the country “do not guarantee accountability for the proper payment of lodging taxes.”

That report did not include an analysis of the Los Angeles agreement, but Bucks said its deal suffers from the same problem. “It’s limited to anonymous data,” Bucks said in an interview. “To have a true, independent audit, you have to have access to the books and records of the company.”

Airbnb countered that host names and addresses are not needed to confirm that taxes are being paid. Each month, “we provide the city with the anonymized data they need to verify every transaction on our platform,” Llanos said. City finance officials say the treasurer can also issue an administrative subpoena to obtain more information.

Despite the budget pressure, some lawmakers have vowed not to let the tax money decide how L.A. regulates such rentals. Councilman Paul Koretz said Tuesday that the city should focus on hammering out rules to discourage the rise of “mini hotels” that take housing off the rental market, not on the revenue it could receive.

His words were echoed by Councilman Mike Bonin. “We need to let our regulations dictate how much revenue we receive, and not let potential revenue dictate what sort of regulations we craft,” Bonin said in an email.

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