A Painful Proposition
Already faced with unprecedented operating challenges throughout 2020 due to a global pandemic and the resulting economic fallout, hoteliers in California now face the prospect of a potentially significant increase in property taxes in the form of Prop 15.
According to Bijal Patel, Chairman 2020, California Hotel & Lodging Association (CH&LA), the group has characterized the proposed legislation as “the biggest threat to the hospitality industry in the state.”
Currently on the ballot for the upcoming November election, Prop 15 would reassess commercial real estate to current market values and effectively eliminate the property tax protection that business owners in California have long received under Prop 13. Passed in 1978, Prop 13 determined that real estate taxes would be equal to 1 percent of the purchase price and annual increases were capped at 2 percent.
The CH&LA is part of a ‘rapid response’ coalition trying to raise $80 million in an effort to educate voters and defeat the proposition. This ‘No On Prop 15’ coalition includes various commercial real estate entities such as office complexes, retail companies, restaurants, and chambers of commerce, plus the NAACP and prominent politicians.
Patel talked about the potential widespread impact of the proposed legislation.
“This hurts the little guys just as much, maybe even more, than the large assets. Usually it’s the large branded hotels that always get effected with collective bargaining agreements and such, but I think Prop 15 is truly something that affects all asset classes,” he said, later adding, “it is actually considered the largest tax increase in California’s history.”
Patel further emphasized the obstacles facing hoteliers at this time. “A lot of them are fighting for survival, running a skeleton staff, and on top of it to throw something like Prop 15 in their face; it has been a little challenging,” he said.
The teachers union—propelled by organized labor—has been the driving force behind Prop 15, which is “deceptively” shown on the ballot as “Tax on Commercial and Industrial Properties for Education and Local Government Funding Initiative,” according to Patel. The initiative promises increased funding for public schools, community colleges and local government services. However, the CH&LA claims that less than 30 percent of the funds raised will actually go to education.
The CH&LA—which has worked with strategic partners AH&LA (American Hotel & Lodging Association) and AAHOA (Asian American Hotel Owners Association) on outreach to fight the legislation—represents close to a quarter million rooms in California. Patel noted the education efforts have started to gain momentum.
“The good news is that we have seen tremendous support starting to come from the industry. We’re getting calls daily with hoteliers asking ‘is it ok for me to talk to my staff about this?’ We say you can tell your staff how Prop 15 can affect their job or your property. You can put signs up at your front desk or in break rooms or wherever, according to your brand standards. This campaign has to be grass roots, we have to get the voter engagement out there,” said Patel.
Patel emphasized that hoteliers already contribute considerably to local communities through transient occupancy taxes, and provide “millions of dollars” for campaigns by various tourism entities to help market the state as a destination.
“This is kind of a double whammy for us. We already tax our guests on average 12 to 15 percent a night throughout the state. Now we’ve got this property tax bill on top of it. It’s a hard pill to swallow,” he said.
As part of its educational outreach, CH&LA has created a special calculator within an excel document to help hoteliers figure out exactly what their new liability will be under Prop 15 if it were passed. However, Patel was quick to point out that every property, both large and small hotels alike, is looking at a five- or six-digit increase beginning in 2022 or 2023.
He noted that the opposition is looking to raising better than $100 million to try and get the initiative passed. As part of its effort to raise $80 million to counter that, the CH&LA has requested that its members contribute $10,000 per select-service property and $20,000 per full-service hotel.
Patel said the hospitality industry is targeting anywhere from $6 million to $10 million of the $80 million. With a total of some 6,000 hotels in the state, Patel noted that just 10 percent of properties contributing would get them to their goal.
Meanwhile, Patel noted the association’s efforts to educate are further challenged because many of the ballots for the election are going to be mailed in early October due in large part to the pandemic giving them only a few weeks to get their message out.
According to Patel, current polling numbers in favor of Prop 15 were in the 48 to 50 percent range, which is not close to having “a clear majority” and bodes well for their efforts.
Patel reinforced the purpose for the ‘No On Prop 15’ initiative while calling for industry support.
“If we don’t do anything there’s probably a likelihood that this will pass. If we do do something, if we are able to unite and organize as an industry and raise those funds we do feel that we have a chance at winning this. This is not a suicide mission by any means,” he said.
