The Los Angeles City Council Tuesday approved two of three revenue-generating proposals with the intention of placing them on the June primary election ballot.
In a 13-1 vote, the City Council approved a legislative package instructing the City Attorney’s Office to draft proposals to increase the transient occupancy tax and to establish a tax on unpermitted cannabis businesses. The proposals are expected to return to City Council for final approval before Feb. 11 — the deadline for council to adopt all resolutions placing measures on the ballot.
Councilwoman Monica Rodriguez opposed the proposals and Councilman Curren Price was absent during the vote.
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.
On Tuesday, council members discussed three proposals and advanced two.
The first proposal would increase the transient occupancy tax, also referred to as TOT, or the “hotel tax.” It is a tax on the right to occupy space for lodging. The tax covers hotel and motel rooms, short-term rentals and hostels.
TOT stands at 14% of the paid total, including all fees and charges that are associated with the occupancy of the space. Malibu, Santa Monica and Beverly Hills have a higher TOT at 15% than Los Angeles.
Szabo and Mangioglu recommended to increase the TOT from 14% to 16%, which would raise a projected $45.3 million in additional annual revenue.
The proposal would establish a temporary 2% supplementary charge, effective from January 2027 to December 2028, which aims to capitalize on the region’s anticipated tourism boom for the 2027 Super Bowl and 2028 Olympics. This additional charge would see the TOT at 18%, generating an additional $89.3 million.
Hotels with 50 rooms or more would be assessed an additional 2% by the Los Angeles Tourism Marketing District, which would place a 20% TOT on these hotels.
The proposal would also serve to codify the taxability of online travel companies’ markups, among other changes.
Councilman Tim McOsker, however, suggested the city establish an initial 4% TOT increase that would reduce to 2% after the 2028 Olympic Games, and or to establish a 2% TOT increase that would reduce to 1% after the Games.
The City Council approved McOsker’s amendment. The City Attorney’s Office is expected to draft two proposals based on the councilman’s suggestion — and council members will vote to approve one of two, or neither if they choose.
Szabo and Mangioglu also proposed a so-called cannabis business parity tax measure with the aim of amending 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, said it would focus on collections and taking businesses to court in order to pay the liability.
“In our experience, with the rest of the business community, those efforts are pretty successful. Businesses don’t like being in those situations, so it’s usually cost effective to resolve their tax liability,” Crawford said.
Los Angeles has had issues with enforcement of illegal cannabis businesses. Crawford reiterated the work to find these businesses would be “relatively easy” and then “quite difficult to tie down.”
Crawford added the Office of Finance would track ownership, leases, and a lot of paperwork to sign up illegal cannabis businesses for tax compliance.
Councilman Bob Blumenfield supported the proposal, adding that it would give the city another tool to go after illegal shops.
Rodriguez criticized these tax-generating proposals. She expressed concerns about the Olympic Wage ordinance and how it might lead hotels to raise their prices to cover the anticipated $30-an-hour wage for employees by 2028, as well as how the raising TOT might impact the city as it contracts with hotels for temporary rooms as part of Mayor Karen Bass’ Inside Safe program.
She suggested the TOT increase should be placed on short-term rentals. The councilwoman raised concerns about their ability to address illegal cannabis businesses.
Rodriguez thanked her colleagues and city staff for exploring these measures, but emphasized that they have to look at how to tighten their belts.
“We still haven’t had a conversation about the cost of Inside Safe since the emergency order was lifted, the contracts that are still being awarded and honored,” Rodriguez said. She also noted the federal probe into Abundant Blessings.
Federal prosecutors charged Alexander Soofer, CEO of Abundant Blessings, with wire fraud and alleged he misused $23 million from a contract awarded to him through Inside Safe, and dollars generated from Measure H, the 2017 Los Angeles County sales tax increase for homeless services.
“I really believe that before we can really have a serious conversation and present to the taxpayers this idea that they should be paying more that we do better with the money that they’ve entrusted us with,” Rodriguez said.
A third proposal to increase the parking occupancy tax was referred to the Budget and Finance Committee for further discussion.
The tax is a fee on the usage of space for parking vehicles, which is applied across all paid parking except for parking with a person’s residence and public parking meters. The rate stands at 10% of the total parking charge.
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.
The 15% would be in a range of Burbank’s 12% and Santa Monica’s 18% parking occupancy tax. Pasadena, Glendale and Long Beach are among the cities which do not have a similar tax.
Council members also 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 come in response to “some difficult financial challenges over the past two years.”
Last April, the City 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.
Szabo said the city is projected to have a $91 million gap that is likely to increase. The City Council approved a $30 million proposal to waive rebuilding fees for property owners in Pacific Palisades, as well as approved $25 million in ongoing costs for next year to support additional hiring for the Los Angeles Police Department.
On top of that figure, Szabo said the city faces a backlog for sidewalk repair — approximately 6,328 requests for repairs. The city must address 30,000 access ramps as well, at a cost of $1.5 billion, as mandated by the 2024 voter-approved Measure HLA, which requires the city implement its 2035 Mobility Plan, which includes adding bike lanes, bus lanes, and wider sidewalks whenever at least one-eighth mile of a street is repaved or repaired,
“I know there was some disagreement about my office’s cost estimates, but the fact of the matter is, we do not have the money today to even afford the street improvement that would trigger the additional HLA improvements,” Szabo said.
In the coming months, the City 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 impose tax on 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, in an email to City News Service criticized the city’s attempts to raise taxes.
“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 said in her statement.