Illegal short-term rentals not only fail to pay their fair share of city hotel taxes but also peel off customers from those that do
Visitors to New Orleans in late March can rent a room with a balcony view of St. Philip Street, or one overlooking one of the French Quarter's historic courtyards, for about $200 plus tax, according to a clerk who answered a call to the number listed at the property's website.
View full sizeBrian Furness is a licensed French Quarter bed and breakfast owner who is trying to get the city to enforce its rules against short-term rentals. The man abruptly halted his description of the accommodations, however, when asked Wednesday why the guesthouse doesn't appear on a City Hall list of "legal short-term rentals." The line went dead.
The property is among scores of rooms and apartments across New Orleans that aren't registered with City Hall as hotels or motels but turn up as weekend rentals in tourist guide books, travel magazines and on websites such as Craigslist, FlipKey and Vacations Rentals by Owner.
Not surprisingly, listings multiply during peak tourism periods, including the waning days of Carnival, said Meg Lousteau, executive director of Vieux Carre Property Owners, Residents and Associates.
"At Mardi Gras, French Quarter Fest, Jazz Fest, it just explodes," she said.
Besides skirting the tax and safety requirements legitimate businesses must meet, rogue rentals impede the quality of life and character of neighborhoods in a city known for its unique enclaves, according to community advocates who want Mayor Mitch Landrieu's administration to step up enforcement efforts.
"The residential value contributes so much to New Orleans and to the perception by visitors that this is a real place, that it's authentic, that it's not Disney World," said Brian Furness, who owns a legal bed-and-breakfast on St. Ann Street and heads the community group French Quarter Citizens.
Harming neighborhoods
Illegal short-term rentals "might contribute to the owner's pocketbook," he said, "but they don't contribute to a neighborhood."
They also don't generate a dime for the city, which receives about a third of the 13 percent tax on hotel and motel rooms in New Orleans. The city's share of revenues this year is expected to be about $30 million.
The city also collects a per-room hotel occupancy tax that goes to the New Orleans Tourism Marketing Corp. That tax generates about $10 million annually.
Mavis Early, executive director of the Greater New Orleans Hotel & Lodging Association, said businesses that operate in the shadows not only fail to pay their fair share but also peel off customers from those that do.
"If you're operating a business, pay your taxes," she said. "It is unfair competition. But primarily, it's illegal."
Under city law, owners of properties not on the "approved list" of licensed and permitted short-term rentals can get slapped with a $500 fine and at least 30 days in jail if they "offer to rent ... any living accommodation" to anyone for less than 60 days in the French Quarter or for less than 30 days elsewhere in New Orleans.
The list is posted at the city's website, www.nola.gov. It was last updated during the second quarter of 2010, mayoral spokesman Ryan Berni said.
Penalties can be assessed based on informal solicitations, as well as on ads posted in newspapers and magazines. The ordinance, which last was updated in 2004, does not mention Internet advertising.
Under the measure, the mayoral administration must report to the council and post online semiannually the number of complaints made relative to the ordinance; the number of complaints referred to the city attorney for prosecution; the outcome of those cases; the names of violators; and any administrative action taken by the city on the issue.
City officials this week said there's no evidence that former Mayor Ray Nagin's team ever produced such a report, and the Landrieu administration has not done so either.
The chief administrative officer is charged with assigning enforcement duties.
The French Quarter community leaders said that since Landrieu took office in May, they've appealed to his intergovernmental affairs director, Mike Sherman, and others for increased discipline against illegal short-term rental owners but haven't gotten a substantive response.
"There has been an assiduous effort to get the city to do what it's supposed to do, and we've never seen any action," Lousteau said. "And the rentals have just mushroomed."
City plans to act
Chief Administrative Officer Andy Kopplin acknowledged that community leaders raised the issue early in the new mayor's term, but "we had a lot of pressing priorities that we were focusing on, and we didn't want to focus on this one just yet."
The administration now is prepared to "do a deeper dive," Kopplin said, though he said officials are unlikely to devote significant resources to cracking down on ordinary residents who rent out their homes during major tourist events, such as Jazz Fest.
By contrast, officials are keen on rooting out unregistered proprietors who regularly rent rooms or apartments under the guise of legitimate hotels, he said.
"That's a competitiveness issue with the bed-and-breakfasts that are registered," Kopplin said. "It's a fairness issue. ... If there are lists of those (violators), we're going to look at that after Mardi Gras.
"I think the question is repeat, consistent violators," he said. "If they want to operate a bed-and-breakfast, they have to do it within the law."
Enforcement falls to the city's Safety and Permits Department, as well as the Bureau of Revenue, he said, adding that while the city aims to set its sights on operators who lease illegal units year-round, anyone who rents to a tenant that bothers neighbors could end up facing fines.
Furness also sent a letter in August to Inspector General Ed Quatrevaux, who last year issued a report that found that government likely is losing millions every year from legal hotels that fail to pay sales taxes or under-report revenue.
Quatrevaux on Wednesday said he hopes to launch an inquiry by year's end into illegal short-term rentals.
"We're aware of the problem. We're trying to figure out what to do on that score," Quatrevaux said, adding that he's also "interested in what action the city might take."
Money is an issue
City Councilwoman Kristin Gisleson Palmer, who represents the French Quarter, said it's critical for the city to collect all the revenue it's due, particularly in light of property tax and sanitation fee increases in the 2011 budget.
"Here we are at a time when we've asked the public to pay their share to get this city back on track, and they're willing to do that, a) if they see progress, and b) if everyone else is paying their fair share, too," she said.
While Palmer vowed to support any measure aimed at making life tougher for rental violators, possibly including boosting fines, she stressed that enforcement is key.
"It doesn't take a rocket scientist; anybody can pull up Google and find these. The city should find them, fine them and shut them down," she said. "I can keep passing legislation, but if there's no enforcement ... It has to be a team effort."
Landrieu has taken some steps to improve revenue collection, including allocating $1.2 million this year for extra field agents and tax auditors to make sure hotels and other businesses are paying proper taxes.
Pointing to lax enforcement and poor advertising of the rules, Furness said proprietors of illegal rentals may not realize they're breaking the law. He cited a notice his organization sent in November to the owner of a 7 1/2-bedroom home on Gov. Nicholls Street that was advertised as short-term lodging.
Shortly after the letter arrived, the property's website added the requirement of a "minimum 60 days" for any rental, and follow-up calls suggest the owners aren't inclined to relax the policy, he said.
The case indicates that enforcement -- even by residents -- can be effective, Furness said, adding that "it has to be investigated on a case-by-case basis."
Michelle Krupa can be reached at mkrupa@timespicayune.com or 504.826.3312.