CITY COUNCIL PUBLIC HEARING DECEMBER 18, 2017 SUBJECT: PREPARED BY: AMENDMENTS TO THE CITY'S MUNICIPAL CODE TO CREATE A HOSTED HOME SHARING PROGRAM AND AN AMENDMENT TO THE FEE RESOLUTION FOR FY2017-18 TO ADD A NEW BUSINESS LICENSE FEE. DEPARTMENT OF PUBLIC WORKS C1CJ-- (Oscar Delgado, Public Works Director~~ (Jeffery Aubel, Code Compliance Manager, (Daniel Mick, Code Compliance Superviso ""c (Trevor Rusin, Deputy City Attorney) COMMUNITY DEVELOPMENT DEPARTMENT. (John Keho, Acting Community De_y~pment Director) OC (Bianca Siegl, Planning Manager)~ 7 / ' (Rachel Dimond, Senior Planner) \Z..Q HUMAN SERVICES & RENT STABILIZATION DEPARTMENT. (David Giugni, Acting Human Services & Rent Stabilization~Uo?t""" Director) _,,. / U (Peter Noonan, Rent Stabilization and Housing Manager)fl1 STATEMENT ON THE SUBJECT: The City Council will consider amendments to the City's Municipal code to.create a Hosted Home Sharing Business License Program, and an amendment to the Fee Resolution for FY2017-18 to add a new business license fee. RECOMMENDATIONS: Staff recommends that the City Council conduct a duly noticed public hearing, consider all pertinent testimony, provide input on the discussion points included in this report, and introduce on first reading: 1) Ordinance No. CC 17- "AN ORDINANCE OF THE CITY OF WEST HOLLYWOOD REQUIRING LICENSURE OF HOME SHARING BY ADDING CHAPTER 5.66 (HOME SHARING) TO TITLE 5 (BUSINESS LICENSES, REGULATIONS AND PERMITS) OF THE WEST HOLLYWOOD MUNICIPAL CODE; AMENDING SECTION 5.08.010 (BUSINESSES REQURED TO BE LICENSED) TO INCLUDE "HOME SHARING"; AMENDING SECTION 17.52.010 (GROUNDS FOR TERMINATION); AMENDING TABLE 2-5 OF SECTION 19.06.030 TO INCLUDE "HOME SHARING PURSUANT TO CHAPTER 5.66"; AND AMENDING SECTION 19.36.331 (SHORT-TERM VACATION RENTALS)." 2) Adopt RESOLUTION NO. 17 - "A RESOLUTION OF THE CITY Page 1 of9 AGENDA ITEM 3.C.
COUNCIL OF THE CITY OF WEST HOLLYWOOD AMENDING THE MASTER FEE RESOLUTION (RESOLUTION NO. 17-4952) BY ADDING A NEW BUSINESS LICENSE FEE TO THE SCHEDULE OF FEES AND CHARGES FOR THE CODE COMPLIANCE DIVISION" BACKGROUND/ ANALYSIS: On July 17, 2017, the West Hollywood City Council directed staff to create a Home Sharing Business License, allowing residents to rent a room or part of a room in their primary residence for a period of less than 31 days provided the resident was present, and capping hosted home sharing at 90 days/year. The attached ordinance has been drafted to allow Hosted Home Sharing, balancing the need to address key issues and concerns raised by the community with designing a program that is not overly burdensome to enable residents who wish to home share to participate in the program. The draft Hosted Home Sharing Ordinance addresses a desire voiced by residents in West Hollywood to have the ability to rent out a portion of their home to guests on a short term basis. Although currently prohibited, home sharing and short term rentals are occurring in West Hollywood. In fact, with the rise in popularity of short-term rental websites like AirBnB, Flipkey, and VRBO, the City has seen a proliferation of illegal short term rentals. As of March 2017, there were over 1000 short term rental ads for units in West Hollywood. This equates to over 500 per square mile. West Hollywood is the 5th on LAANE's 2015 list of top revenue-generating neighborhoods in the greater Los Angeles area. 1 Neighborhood impacts from short term rentals are possible however, and the draft Ordinance addresses this by requiring the host to be present while guests are staying in the home. This approach appears to reduce the possibility of neighborhood impacts. A review of complaints received by the City's Code Compliance Division from October, 2015 to present, found no complaints were related to home sharing with the host present. On the other hand, non-hosted short term rentals (rentals with the host not present) have led to noise issues, exacerbated parking problems, and a decline in the quality-of-life and sense of security. Establishing the proposed Hosted Home Sharing Program would require amendments to three titles of the West Hollywood Municipal Code. In preparation, the draft ordinance was provided to each of the three Commissions with purview over each individual Code section: Title 5 "Business Licenses, Regulations and Permits" (Business License Commission) Title 17 "Rent Stabilization" (Rent Stabilization Commission) 1 Samaan, Roy (March 2015). Los Angeles Alliance for a New Economy. AirBnB. Rising Rent. and the Housing Crisis in Los Angeles. (pg. 31). Retrieved from http://www.laane.org/wp-content/uploads/2015/03/airbnb-final.pdf Page 2 of9
Title 19 "Zoning Ordinance" (Planning Commission) Each Commission reviewed the ordinance at a noticed public meeting, deliberated, and provided feedback. Minutes from each Commission meeting are provided in Attachment C. Amendments proposed in the Ordinance and Commissions' feedback are provided in Attachment D. The feedback received has been incorporated in the draft Ordinance. Establishing the proposed Hosted Home Sharing Program also requires the addition of the Home Sharing Business License Fee and an amendment to the City's Master Fee Resolution to add the new fee. The maximum fee that could be charged for the Home Sharing Business License Fee is $175, which is based on staff's estimate of the amount of time it will take to process each license application. However, staff is recommending that the Home Sharing Business License Fee be set at $50 per license to encourage compliance with the program. (See Attachments B and F) No requirements are currently being suggested for the short term rental platforms. As the League of California Cities states, "there is inherent tension between the state law that cities use to regulate short-term rentals, and the federal laws that Online Platforms rely upon to shield themselves from certain liabilities. How courts will resolve this tension is to be determined. Until there is published appellate case law providing clear guidance, cities should be mindful of short-term regulations that may apply to Online Platforms." 2 Staff has been engaging in discussion with AirBnB on how they and their competitors are able to assist the City with gaining compliance with this chapter. Staff anticipates returning to the City Council with recommended amendments to the code that will clearly define the duties and responsibilities of the various platforms. To finalize the proposed Hosted Home Sharing Ordinance, staff requests direction on the following three aspects of the business license: Should the number of hosted home sharing days be increased from the initial direction of 90 days per year? Multiple public speakers and commissioners have expressed a desire to see this number increased or eliminated. Staff recommends increasing or eliminating the cap. Beyond being extremely difficult to enforce, the benefits of a 90 day cap would be negligible. Hosted home sharing, by definition, does not take housing off of the long term rental market and should not lead to any community disturbances. If a host is found to be conducting home sharing in a manner that does impact the community-at-large, there are procedures in place to revoke, modify, or suspend the license. There is also the issue of hosted home sharing allowing residents to age in place. Several speakers spoke about how 2 Viveshwara, Andrea S. and Heneghan, Kevin R. (May 2017), League of California Cities. 2017 Spring Conference. Residential Rental Regulation Issues. (page 11 ). Retrieved from https://www.cacities.org/resources-documents/member-engagement/professional-departments/city Attorneys/Library/2017 /Spring-Conf-2017 /Heneghan-ResidentialRentalRegulation Issues Page 3 of9
conducting hosted home sharing has allowed them to supplement their fixed incomes and continue to live in their long-time units in the City, while having the freedom to choose with whom and when they will share their residence. Should liability insurance be required? A few landlords have asked the City to require licensees carry liability insurance so the landlord is not financially responsible for the actions of their tenants, and their tenants' guests. AirBnB automatically covers its hosts with a $1,000,000.00 property-liability policy. If a licensee only operates through AirBnB, this would not be a burden on licensees and should not be viewed as an obstacle to licensing. Other platforms, however, do not offer this same benefit to their hosts. As such, any host that operates from platforms other than AirBnB would have to provide proof of the insurance policy at the time of application. There are companies in existence that offer home sharing insurance for a nominal fee. One such company offers $550,000.00 coverage for $7.25 a night. Licensees would have the option to pass the cost of insurance on to guests. If the City Council wishes to add this requirement, the following language will be included in the amendments to WHMC 5.66.060: Hosts shall maintain liability insurance in the amount of $500.000, unless the host exclusively uses a Short Term Rental Platform that provides equal or greater coverage. What is the City Council's desired policy regarding taxation of short term rentals? WHMC 3.32 (Transient Occupancy Tax (TOTs)) requires hotel operators to collect transient occupancy taxes at the same time as rent is collected and remit it to the City each month. "Hotels" shall mean any structure, or any portion of any structure, which is occupied or intended or designed for occupancy by transients for dwelling, including tourist homes or,houses, apartment houses, or other similar structure or portion thereof. Under the proposed ordinance, home sharing licensees are required to remit TOTs to the City, on a monthly basis, for their home sharing activities. This is consistent with the requirements placed on hotels. The Host Compliance application suite includes a portal for licensees to remit payment to the City. Currently, the City does not accept TOT payments from any short term rental host as all STRs are prohibited. The issue that should be decided by the City Council is whether to continue this policy or require all STRs to pay TOTs as required by WHMC 3.32. There are pros and cons to either course of action. Continuing the existing policy of only accepting payments from legal listings is safe and poses low risk to the City. Current policy takes away legal arguments Page 4 of 9
that could be made further in the enforcement process. One of the problems with this policy is that not requiring all listings to remit TOTs allows the illegal listings to continue to undercut the prices of our hotels as they do not have to collect the 12.5% TOT. According to information provided to staff by AirBnB, between August 2016 and August 2017, $17 Million dollars of revenue was generated by AirBnB listings. If taxes were collected for all of these listings, the City would have collected over $2 million in TOTs. This does not include any taxes paid for listings from other platforms. The ordinance, as currently proposed, is expected to generate approximately $70,000 in TOTs annually. According to the City Attorney's Office, while the City may have the legal ability to collect the taxes, there are issues with the optics of doing so. There is a concern that accepting tax payments for illegal activity could be construed as the City condoning the activity. There is also the concern that residents may levy the claim that the City is not vigorously enforcing the short term rental ordinance because it does not want to cut off its supply of tax revenue. Staff has spoken to other cities on this issue and they have made it clear that they address this concern by keeping the collection of taxes and the enforcement of municipal codes as separate functions, and that information is not shared between departments. Although some hosts of short-term rentals are accustomed to collecting and remitting TOTs, hosts who offer short-term rentals through short term rental platforms without the use of a professional property manager may struggle with remitting TOTs. It can be difficult for cities to collect TOT from these hosts. In an attempt to address this challenge, some cities have entered into Voluntary Collection Agreements (VCA), to ensure that TOTs are collected and remitted while relieving hosts of tax filings and cities of the burden of collection and enforcement. When a city signs a VCA with Airbnb, Airbnb collects appropriate local taxes from guests as part of their booking transactions and remits the tax revenue directly to the city on behalf of the short-term rental hosts. A VCA is a legally binding agreement between Airbnb and a taxing authority for the former to contractually assume the tax collection and remittance obligations of hosts for booking transactions completed on the Airbnb platform. Under the VCA, Airbnb registers as a taxpayer, remits the collected tax, and files a single tax return. 3 AirBnB would collect TOTs for all short term rentals in the City, not just the licensed listings. There are several concerns with entering into VCAs that the City Council should be aware of. 3 Ibid. pg. 10 Page 5 of 9
o There is a lack of transparency associated with Airbnb's voluntary collection agreements that make it difficult for cities to ensure accurate payments. According to a March 2017 report by the American Hotel and Lodging Association, VCAs "do not guarantee the proper collection of taxes due" and "block tax agencies from verifying the accuracy of Airbnb payments." 4 Without proper data, the City will have a limited picture of Airbnb's operations, and will not be able to properly evaluate the company's tax bill. Additionally, if the City is unable to access and review all relevant records associated with Airbnb and its users, how can authorities collect and audit all of the taxes they are due? A common provision of the VCA requires cities to agree that it will only audit Airbnb once per any consecutive 48-month period (four years), and that the audit, and any subsequent assessment based on the audit, will be limited to a consecutive 12-month period. The city also agrees that it will not seek personally identifiable information relating to a host or a guest until the city has conducted an audit of Airbnb. The practical effect of these two provisions is to discourage seeking information related to specific hosts from Airbnb. 5 o VCAs may give the perception that AirBnB receives special treatment when it comes to taxation in cities where they operate. VCAs often require cities to agree "to audit Airbnb on an anonymous numbered account basis for Taxable Booking Transactions... Airbnb shall not be required to produce any personally identifiable information relating to any Host or Guest or relating to any Booking Transaction without binding legal process served by the [Finance Department] on Airbnb with respect to such users." 6 No other hotel or lodging business is permitted to decide which information to share with the city. These businesses abide by the rules established by the City that they choose to operate in. 7 o VCAs limit the ability to collect TOTs owed prior to its enactment. 4 Bucks, Dan R. (March 2017). American Hotel and Lodging Association. Airbnb Agreements with State and Local Tax Agencies: A Formula for Undermining Tax Fairness, Transparency and the Rule of Law. tpg. 8). Retrieved from https://www.ahla.com/sites/defaulufiles/ Airbnb _Tax_ Agreement_ Report_ 0.pdf Viveshwara, Pg. 11 6 Santana, Miguel A. (July 18, 2016). Office of the Los Angeles City Administrative Officer. Implementation of the 2016-2017 Revenue Budget (Item H) - Revenue Enhancement and Department Fee Annual Revenues. (Pg. 8) Retrieved from https://cityclerk.lacity.org/lacityclerkconnecuindex.cfm?fa=ccfi. viewrecord&cfnum ber=16-0600 7 AirBnBWatch. (July 19, 2016) Short-Term Rental Companies & Occupancy Taxes: Why AirBnB's "Voluntary Collection Agreements" Deserve Careful Scrutiny. Retrieved from https://airbnbwatch.org/wpcontenuuploads/2014/08noluntary-collection-agreements-7.19.16-. pdf Page 6 of 9
A provision of Airbnb's VCA requires cities to waive and release "any and all actions, causes of action, indebtedness, suits, damages or claims arising out of or relating to payment of and/or collection of TOT or other tax indebtedness, including but not limited to, penalties, fines, interest or other payments relating to TOT" on any transaction prior to the effective date of the VCA. The statute of limitations for instituting an action to collect TOT is four years. Therefore, the fiscal impact of waiving outstanding TOTs should be considered prior to entering into the VCA. 8 The City Council should consider requiring the collection and remittance of TOTs for all short term rental listings, not just the legal ones. This policy brings parity to the inequality that currently exists between hotels and short term rentals. Additionally, the revenue raised would go into the City's General Fund which can be used as the City Council sees fit., How this policy will be achieved can be explored in the near future. The City may find it best to enter into a VCA or it may decide that the best course of action is to write more specific requirements into the code to enumerate the responsibilities of short term rental operators. Staff will return in the future with specific recommendations if the City Council chooses to adopt this new policy. The draft Ordinance will be modified to reflect the direction received from the City Council on these three points. In conclusion, creating a business license program to administer hosted home sharing allows residents to participate in the shared economy while protecting the communityat-large from the impacts that unhosted home sharing and vacation rentals can create. The proposed ordinance will help protect the City's housing stock from being taken off the long-term rental market in favor of being exclusively used for short-term rental purposes. Additionally, the rights of landlords and home owners associations are enumerated and protected while allowing older residents to supplement their incomes and age in place in the City. CONFORMANCE WITH VISION 2020 AND THE GOALS OF THE WEST HOLLYWOOD GENERAL PLAN: This item is consistent with the Primary Strategic Goal(s) (PSG) and/or Ongoing Strategic Program(s) (OSP) of: PSG-1: Maintain the City's Unique Urban Balance with Emphasis on Residential Neighborhood Livability. OSP-1: Adaptability to Future Change. In addition, this item is compliant with the following goal(s) of the West Hollywood 6 Viveshwara, Pg. 10 Page 7 of9
General Plan: LU-8: Maintain and enhance residential neighborhoods. EVALUATION PROCESSES: The proposed ordinance should not have a significant impact on the community-atlarge. However, staff will provide periodic reports back to the City Council with updates on the actual effects once implementation begins. ENVIRONMENTAL SUSTAINABILITY AND HEALTH: N/A COMMUNITY ENGAGEMENT: This issue was discussed at four public meetings; the July 17, 2017 City Council meeting, the October 3, 2017 Business License Commission meeting, the October 5, 2017 Planning Commission meeting, and the October 12, 2017 Rent Stabilization Commission meeting. Public comments received at the meetings included the following: Of the 44 public speakers, a majority spoke in favor of allowing home sharing but advocated for increasing the number of days allowed per year. Some speakers spoke in favor of requiring additional regulations for home sharers and their guests. OFFICE OF PRIMARY RESPONSIBILITY: DEPARTMENT OF PUBLIC WORKS / CODE COMPLIANCE DIVISION FISCAL IMPACT: Assuming all of the approximately 200 hosted home sharing listings obtain the requisite Home Sharing Business License for $50.00 per year, the City should see an anticipated $10,000.00 in business license fees annually. Additionally, using March 2017 data from Host Compliance, Hosted Home Sharing should generate approximately $70,000.00 in annual Transient Occupancy Tax revenue. We anticipate $35,000 in TOT revenue for FY 17-18. Page 8 of 9
AMOUNT DESCRIPTION This item will generate approximately $10,000 in business license $10,000 application fees for account #100-414001 (Business License Permits) for FY 17-18. This item will generate approximately $35,000 in Transient $35,000 Occupancy Tax for account #100-403001 (Transient Occupancy Tax) for FY 17-18. ATTACHMENTS: Attachment A - Ordinance 17- ---- Attachment B - Fee Resolution 17- --- Attachment C - Business License, Rent Stabilization, and Planning Commissions Meeting Minutes Attachment D - Summary of Amendments and Business License, Rent Stabilization, and Planning Commission Review Attachment E - Planning Commission Resolution 17-1219 Attachment F - New Business License Fee Justification Page 9 of9