Will LA voters support new taxes on hotels and unlicensed cannabis businesses?

By JOSE HERRERA

The Los Angeles City Council on Tuesday approved resolutions to place three tax-related measures on the June 2 primary ballot, aimed at changing the transient occupancy tax and establishing a tax on unpermitted cannabis businesses.

In a 13-2 vote, the council advanced a measure to increase the transient occupancy tax, or the “hotel tax,” which covers hotel and motel rooms, short-term rentals and hostels.

Council members Monica Rodriguez and John Lee voted no.

If approved by voters, the measure would increase the tax by 2% through 2028, then decrease it by 1% in the following years.

The TOT stands at 14% of the paid total, including all fees and charges that are associated with occupancy of the space. Malibu, Santa Monica and Beverly Hills have a higher TOT at 15%.

In a separate unanimous vote, the council approved a related measure that would go before city voters to alter TOT with the goal of applying the tax to online travel and booking companies.

Finally, in a 14-1 vote, council members agreed to place a measure on the ballot to enact a tax on unlicensed cannabis businesses. Rodriguez, again, opposed the matter.

Council members have said these proposed tax measures are not intended to impact city residents, but rather tourists and other outside visitors, who are expected to travel to the region for mega events such as the 2026 World Cup, 2027 Super Bowl and the 2028 Olympic and Paralympic Games.

Rodriguez emphasized that she is leading an effort to apply the TOT to short-term rentals as a way to encourage tourists to use hotels for their stays. She argued it would also discourage some property owners from using their housing units for short-term rentals and place those units back on the market for long-term use.

The City Council made changes to its short-term rental ordinance in previous years, which Rodriguez said only created “extra hurdles” and “instability” for the hotel industry.

“Now we’re going to tack on more added costs. I think it creates a situation where, frankly, even if you’re talking about a couple of percent differences, people have options in Burbank and other neighboring cities for their hotel nights,” Rodriguez said.

Rodriguez said that she couldn’t support the proposed TOT increase without having more conversations about how officials would identify cost savings in homelessness spending.

“You can’t ask people to pay more when you haven’t even done the work to claw back on the expenses that have had clearly, repeatedly, demonstrated misappropriation and misuse of public funds,” Rodriguez said.

Meanwhile, Councilman Tim McOsker expressed his support for the TOT increase.

“I do think there is a logic that we can explain to the electorate and to ourselves that the Olympics create an opportunity, and that opportunity is going to add some jet fuel to our visitor-serving community,” McOsker said. “And then bring it back down to 1% because, in fact, 2% is a pretty significant jump, but it’s a jump that’s justified by the Olympics.”

McOsker previously called for a 4% jump in the TOT when mega events occur, followed by a reduction of 2% after the 2028 Games. He also proposed a 2% increase and a reduction to 1% after the 2028 Games.

Councilwoman Eunisses Hernandez suggested increasing the TOT by a flat 2%. Her motion received an 8-7 vote and failed.

“When you put a ballot initiative that has changes in it, where you’re starting at 2% and going down … it could cause confusion with voters, making it something that is not as digestible,” Hernandez said.

She further argued that the tourism level could drastically change in the future — whether it further stagnates or elevates.

Council members noted that they could reduce the TOT in the future without having to ask voters. They only need to ask voters to raise taxes, Hernandez added.

For over a year, City Administrative Officer Matt Szabo and Diana Mangioglu, the city treasurer and director of finance, have explored ways to increase general fund revenue. The two officials produced a report detailing seven potential ways to achieve that goal.

These top financial advisors said the so-called cannabis business parity tax measure would amend the tax code to ensure unlicensed marijuana businesses are subject to the same liability as licensed operators.

The Office of Finance projected the tax would generate $60 million to $80 million annually, though revenue would likely diminish over time as enforcement and closure of illegal businesses occur.

While further details would need to be hashed out on how the city would enforce the tax, Matt Crawford, assistant director of finance, previously said the focus would be on collections and taking businesses to court to pay the liability.

Crawford added that the Office of Finance would track ownership, leases, and a lot of paperwork to sign up illegal cannabis businesses for tax compliance.

Szabo and Mangioglu proposed increasing the parking tax by 5% and said it would generate $67.3 million. Officials argued this increase would incentivize more people to use public transportation or other transportations options.

Increasing LA’s parking tax to 15% would be in the range of Burbank’s 12% and Santa Monica’s 18% parking occupancy tax. Pasadena, Glendale and Long Beach are among the cities that do not have a similar tax.

Council members previously referred a proposed vacation rental ordinance to the Budget and Finance Committee, as well as the Planning and Land Use Management Committee. The proposed ordinance would provide options to increase the citywide cap on vacation rentals, and detail other regulations.

Szabo emphasized that exploring tax-generating revenues comes in response to “some difficult financial challenges over the past two years.”

Last April, the council and Mayor Karen Bass closed a nearly $1 billion deficit due to overspending, rising liability payouts, recovery from the Palisades Fire and other issues.

The council may also look to explore four other tax measures — major events, shared ride, vacancy and retail delivery — in the coming months to place on the November ballot.

The major event tax would impose a 6% tax on tickets for events with 5,000 or more attendees.

The shared ride tax would place an additional fee on Uber, Lyft and taxi fares.

A vacancy tax would apply to vacant properties with the intent to encourage owners to rent or sell.

The retail delivery fee would impose a $1 flat fee on delivered goods to offset road wear-and-tear, according to a report from Szabo.

Susan Shelley, vice president of communications for the Howard Jarvis Taxpayers Association, criticized the city’s attempts to raise taxes in an email to City News Service.

“The city government is guilty of reckless overspending. Before considering tax increases, the City Council and the mayor should take a hard look at their priorities. Why did they approve a Convention Center renovation plan that is so unaffordable even the controller wondered where the city would find the money to pay the financing costs?” Shelley said in her email.

“Why has the controller not been allowed to audit the mayor’s homelessness program, Inside Safe? Why is the fire department so dangerously underfunded that the firefighters’ union is sponsoring an initiative to raise the city’s sales tax from 9.75% to 10.25%? What has the city negotiated with LA28, if anything, to protect city taxpayers from being stuck with the bill for Olympics-related costs?”

“Raising hotel and parking taxes will likely lead to reduced city revenue as tourism and retail sales are hurt by escalating costs that burden visitors and lead them to visit nearby cities where costs are not as high,” Shelley added.