A Passage Buried in L.A.’s Budget Hints at an Unusual Airbnb Gambit

THERE IS A PASSAGE BURIED AT THE BOTTOM of page 38 of Mayor Karen Bass’ proposed budget that, to the untrained eye, reads like another speck of bureaucratic jargon in a 524-page sea of it: 

The budget is a Talmud-like text, abstruse and virtually inscrutable to someone not trained to read it. But there is great — potentially even explosive — meaning to be derived for those who know how to correctly decode some of its terse declarations. 

The operative word here is “pre-payment” and the unseen meaning is that the mayor appears to be suggesting that home-sharing companies like Airbnb could make an advance payment on the bed tax they might collect ahead of the Olympics. 

There doesn’t appear to be much of a precedent for a private company making a “pre-payment” to the city to settle a tax bill on revenue it hasn’t earned yet. 

Here’s where things get even more interesting: Home-sharing rentals in the city have been strictly regulated. But Airbnb has long lobbied for a more permissive policy — one that critics argue might cut into the city’s agonizingly limited housing supply, if landlords were to convert their units into short-term rentals. And the pre-payment proposal is seemingly tied to the city approving a more lenient policy for home-sharing platforms. 

This particular line of budget-ese is in a section called Exhibit H, where the mayor deviates from the nuts and bolts of department funding to illustrate what policy actions she thinks must be taken by her and the council to “effectuate” the budget in question — a quasi to-do list. 

And the item directly above the passage in question is a direction to the City Planning Department to develop a policy that would allow home-sharing rentals in second homes or investment properties through the Olympics — something Airbnb has been pushing for for years. (Under current regulations, Angelenos can only host rentals in their “primary residence” on home-sharing platforms — meaning they can’t convert secondary properties into full-time Airbnbs, or rentals on other home-sharing platforms.)

To be clear, the passage in question does not directly mention Airbnb. But Jackie Filla, the president and CEO of the Hotel Association of Los Angeles, told L.A. Material that hotels had not been engaged by the city about pre-paying bed taxes, and they learned of the concept when they saw it in the budget. Which leaves home-sharing, the other big driver of bed taxes in the city. 

“Airbnb is a committed partner to the city, and we're doubling down on our efforts to support L.A.'s resilience and provide critical tax revenue that helps fund essential city services,” Airbnb Public Policy Senior Manager Justin Wesson said in a statement. 

The mayor’s office did not respond to a question about the terms of the proposed pre-payment.

Municipal budget expert Rick Cole, a longtime city insider who has also been a frequent City Hall critic, seemed gobsmacked by the idea.

“Creative, public-private partnerships are not unknown in California although they’re relatively rare. But I have never encountered pre-payment of taxes by a private party,” Cole said.

He previously spent 20 years as a city manager of three California cities and also served as deputy mayor for budget and innovation under Mayor Eric Garcetti and chief deputy controller under Controller Kenneth Mejia. 

Some quick background: There has been a yearslong, knockout brawl at City Hall over rules for short-term home-sharing rentals like Airbnb. It’s a fight that has made unlikely allies of some usual enemies, like hotel owners and the politically powerful union representing hotel workers.

The city’s current restrictive home-sharing rules were passed in 2018. On the same day those rules were passed, then-City Council President Herb Wesson introduced a separate proposal to allow short-term rentals in non-primary residences — meaning a second home or apartment could be used exclusively as a vacation rental. (Wesson is no longer on the council; his son Justin Wesson now works for Airbnb.) That 2018 proposal ultimately withered on the vine, though the council revived the matter for further consideration last year. 

Airbnb was also behind the “Save our Services” campaign last year, which plastered flyers and yard signs around town decrying L.A.’s budget crisis and cuts to services. Airbnb’s proposed solution: Allow more short-term rentals to drive tax revenue. 

Opponents of the city’s existing home-sharing rules have characterized them as too stringent, and say they limit the potential bed-tax revenue the city could be collecting. Advocates argue that the rules are necessary to keep rental units from vaporizing into vacation abodes amid a broader housing and affordability crisis. 

Last week, in the days leading up to the mayor’s budget release, rumors about a possible agreement with Airbnb to offer the city a “pre-payment” ran rampant around City Hall. The mayor’s office did not comment on the rumors.

There’s another twist to the story. Back in early April, the Department of City Planning put out a report on the proposed vacation rental ordinance (which would allow hosts to use properties exclusively for short-term rentals) that didn’t mince words: The department recommended against the proposed law. They cited overall impacts on the city’s housing stock, what it would cost to enforce the program and not enough new revenue relative to costs.

But then the 18-page report seemingly vanished into thin air. It ceased to exist in the council file (where such things are digitally stored), if it had ever been there to begin with. The disappearing report — and the reasons it went bye, and at whose behest —was also the topic of much City Hall gossip last week, until a new report was uploaded to a new council file on Thursday. 

The new, much shorter report said that the first report (which was now public) had only been analyzing the feasibility of a permanent program and that actually, a temporary version of the program (say, through the Olympics) wouldn’t have the same negative impacts on housing supply, and could raise more revenue. In short: The planning department wasn’t against the proposed rules after all, so long as they were temporary. 

The mayor’s office did not respond when asked if the new report came at the office’s instruction.