Hotel industry targets upstart Airbnb in statehouse battles

Introduction

July 21, 2015: This story has been corrected.

One Airbnb host allegedly tripled the price of his condo without warning, nearly ruining a family’s trip to Austin to see a Formula One race. Another, in Cleveland, is accused of badgering his guests with sexist commentary. Other hosts reportedly misled prospective Airbnb guests with false promises of wheelchair accessibility in their New York City apartments.

These horror stories may be real, but the organization that is highlighting them on its website is not what it seems. Neighbors for Overnight Oversight — the purported “coalition of concerned neighbors” that provides talking points and a tool for writing letters to the editor — is in fact a creation of the American Hotel & Lodging Association, a century-old trade group that represents giant hotel chains such as Hilton and Marriott.

“When businesses face major threats that could potentially harm their whole industry, these kinds of ‘grassroots’ campaigns start to happen in a pretty serious way,” said Edward Walker, a University of California, Los Angeles sociology professor who studies corporate influence over the political process.

This public relations tactic is but one symptom of the new rough-and-tumble politics afflicting the traditional hospitality industry, which has been threatened by the explosive growth of short-term rental sites such as Airbnb, HomeAway and Flipkey. Many of these short-term rentals are operating in an unregulated limbo of questionable legality. They often aren’t required to pay occupancy taxes and surcharges or follow the safety and sanitary regulations that apply to hotels. The industry wants them to play by the same rules.

Now the dueling industries are jumping into the politics of cities and states: flooding elections with cash, lobbying and, at times, even manufacturing what looks like grassroots support.

At least 60 bills have been introduced in 23 states this year that would determine whether homeowners seeking to rent out spare rooms or unoccupied homes are hotels in disguise — and should be taxed and regulated as such. Dozens more are being contemplated at the city or county level.

Neighbors for Overnight Oversight is just one part of the hotel industry’s strategy to convince lawmakers that they should regulate Airbnb and its counterparts with the same tax, safety and zoning regulations required of traditional hotels and inns. The American Hotel & Lodging Association has affiliates registered to lobby legislatures in 42 states this year, and the hotel industry together contributed at least $11 million to 2014 state political races, according to a Center for Public Integrity review of state and Internal Revenue Service records.

To be sure, leveling the regulatory playing field with Airbnb is just one of the hotel industry’s varied policy goals. Hotels regularly lobby federal and state governments on immigration reform, labor laws, tax incentives and even U.S.-Cuba travel restrictions.

Airbnb, which has been leading the charge for short-term rental firms, has countered the hospitality industry’s old-order political power with its own arsenal. The Airbnb of 2008 — when two of its young co-founders helped pay the rent by charging convention-goers for air mattress accommodations in their San Francisco apartment — has swelled to a $24 billion valuation with tech-savvy investors such as actor Ashton Kutcher, according to company reports. It collects a service fee of 6 to 12 percent each time a traveler books one of the 1.2 million properties listed in nearly every state and 34,000 cities in 190 countries worldwide.

Airbnb, its executives and venture capital funders gave at least $920,000 to campaigns and political groups active in 2014 state elections, according to IRS records and data collected by the National Institute on Money in State Politics. It has been lobbying in at least four states but has also relied on the lobbyists for The Travel Technology Association, a trade group based in Washington, D.C., whose members include Airbnb, Priceline and Trip Advisor. The group has lobbyists in at least 20 states.

The challenge for both sides is that lodging and sales taxes, permit requirements and zoning rules vary widely across municipalities and states, according to David Hantman, Airbnb’s head of global public policy. He said the company is focused on changing laws it believes are unfair.

“You can’t do it in all 34,000 cities at once,” Hantman said.

There’s more at stake than dueling business models. Cities, states and counties say they’re losing out on hotel-tax revenue when Airbnb hosts don’t pay. And they worry some low-income housing may be lost to out-of-town visitors. Small innkeepers have seen their profits fall as they lose business to Airbnb. Yet many homeowners and renters are happy to be able to supplement their incomes by hosting overnight guests for a fee.

Influencing campaigns

David Chiu’s City Hall office was a seven-minute ride from Airbnb headquarters in downtown San Francisco. According to city lobbying records, it was a well-worn path.

Chiu was president of San Francisco’s Board of Supervisors, the governing body tasked with crafting legislation to bring Airbnb and other home-sharing services into compliance with city codes. According to city ethics commission records, Airbnb lobbyists visited Chiu’s office more than 50 times between February 2012 and October 2014.

In that same period, a consultant working on Chiu’s Democratic campaign to represent the city in California’s General Assembly had been hired by Airbnb to launch an online campaign to ensure new short-term rental regulations weren’t too harsh.

Meanwhile, Chiu’s legislative bid was receiving indirect support from top Airbnb investors Reid Hoffman and Ron Conway, who contributed $685,000 to a political group that attacked Chiu’s opponent David Campos, a fellow Democrat on the city board.

Just before the election, the Board of Supervisors passed Chiu’s bill, which legalized most Airbnb-style home-sharing in San Francisco and diluted some of the elements that affordable housing advocates had pushed for — such as more stringent zoning provisions and a ban on listing mother-in-law apartments.

A citizens group filed a complaint in October with the San Francisco Ethics Commission saying Chiu failed to disclose the alleged conflict of interest between his legislative campaign and his work on the city board. John St. Croix, the commission’s executive director, declined to comment. But Cynthia Crews, a member of the steering committee for the group that filed the complaint, said the commission chose not to investigate it.

Judson True, Chiu’s chief of staff who also worked for the Democrat as a legislative aide in City Hall, said the complaint was dismissed in December.

“It was filed right before an election,” True said. “The timing speaks for itself.”

Chiu won his state assembly election. He now sits on the assembly’s local government committee, where a bill that would deregulate online short-term rental companies across the state is currently under review.

Airbnb’s contributions went far beyond Chiu. The company, its executives and top funders donated more than $189,000 directly to 2014 candidates for state-level office in California, its home state.

A seat at the table

Building good will among state attorneys general — who can enforce regulations — has also become a standard bit of tradecraft for corporations.

Airbnb founders Brian Chesky and Nathan Blecharczyk, for example, donated $13,700 to the 2014 re-election of California Attorney General Kamala Harris. Chesky was one of 13 tech executives to host a fundraiser for Harris at Airbnb’s luxe downtown San Francisco offices.

Airbnb also donated $15,000 to both the Republican Attorneys General Association and the Democratic Attorneys General Association, two national groups that raise and spend money to put candidates with favorable political ideology in the states’ top law enforcement posts.

Contributing to them ahead of the 2014 elections bought Airbnb a seat at the negotiating table, Hantman, Airbnb’s global public policy chief, told the Center for Public Integrity.

“We can educate attorneys general, policymakers, third parties,” he said. “There’s a lot of misinformation.”

For its part, the hotel industry cumulatively gave at least $134,000 to the attorneys general groups — part of the more than $4.8 million that it contributed to similar national organizations that boost gubernatorial and state legislative candidates in 2014.

In New York City, where Airbnb has faced the strongest opposition from regulators and affordable housing advocates, state Attorney General Eric Schneiderman released a report last fall finding that 72 percent of units rented through Airbnb were functioning like illegal hotels by ignoring zoning laws such as setting up in residential-only buildings. He pledged to crack down on them with local regulators.

In a statement, Schneiderman said New York’s regulatory efforts were aimed to “ensure that, as online marketplaces revolutionize the way we live, laws designed to promote safety and quality-of-life are not forsaken under the pretext of innovation.”

Troy Flanagan, vice president of state and local affairs for the American Hotel & Lodging Association, said most hoteliers and innkeepers do not take issue with single-room listings when the host is present. The “entire place” rentals, which were the focus of Schneiderman’s report, most acutely threaten traditional hotels and create “horror story” conditions when unruly guests go unwatched.

Airbnb called the New York report misleading and countered that its hosts’ income and tourist spending injected $1.15 billion into New York City’s economy. Airbnb encourages its hosts to comply with relevant city, state and federal rental laws and provides them up to $1 million in coverage for household damage. However the onus to follow safety and zoning rules is on the individual hosts, not Airbnb, according to the company’s website.

When Schneiderman released the report, he was running for re-election. The Democrat, who won handily in November, received more than $100,000 from hotel executives and labor unions representing hospitality workers. One of the top donors was Jonathan Tisch, chairman of Loews Hotels, who gave more than $31,000 to Schneiderman’s $10.2 million campaign, according to the National Institute on Money in State Politics.

Schneiderman’s press secretary Matt Mittenthal said the release of the report was not influenced by the hotel industry contributions, nor was it timed to correspond with the election, noting that the attorney general’s investigation of Airbnb began in mid-2013.

“Decisions on which cases we choose to investigate are made solely on the merits of each case,” Mittenthal said.

Meanwhile, a New York Assembly bill pending in the housing committee would require Airbnb hosts in New York City to pay relevant taxes, in addition to $5,500 for a permit from the city. The city could audit, inspect and levy up to $2,000 in fees to any hosts not in compliance with safety and insurance standards.

The Hotel Association of New York City has spent at least $60,000 so far this year to lobby state and city lawmakers and cites the bill as a priority in state lobbying records.

Assemblyman Keith Wright, who first introduced the bill in 2013 and chairs the housing committee where the bill has been pending since January, said the rentals were “quite a concern among certain neighborhoods in our city.”

Tisch, the hotel magnate, was a top donor to Wright’s 2014 campaign, which raised about $328,000 in total, according to the National Institute on Money in State Politics. Tisch gave $4,100 to Wright, though the assemblyman said “there is no nexus, there is no connection” between his sponsored legislation and the campaign support from Tisch.

Wright, a Democrat who represents Harlem, said he has been friends with Tisch for 35 years, since they met as Tufts University students in the mid-1970s.

Through a spokesman, Tisch declined to comment on his political giving.

‘They all die a quick death’

While state and local officials worry about taxes and regulations, small innkeepers are just trying to stay afloat.

The Inn at the Rostay has been a popular spot for more than 17 years, sitting just a five-mile drive from the Sunday River Ski resort in Bethel, Maine.

Airbnb now lists more than 120 properties in the same tiny town.

The inn’s owner Kathy Thrall has initiated and pushed for three different bills in the Maine Legislature that would require the short-term rentals to follow the same rules that apply to her inn.

“They are running a business,” Thrall said of her new competition. “They’re renting by the day, by the week, the month, so I see no difference between what they do and what I do.”

But all three bills she supported failed. “They all die a quick death,” Thrall said.

The most recent legislation would have required residents who rent their homes for less than a week to collect lodging taxes and obtain the same licenses as Thrall.

The Maine Innkeepers Association, which is affiliated with the American Hotel & Lodging Association, helped Thrall push the bill. But The Travel Technology Association hired Josh Tardy, a former Republican minority leader of the Maine House of Representatives, to lobby against it.

The Maine bill died in April after an aide to Republican Gov. Paul LePage, an outspoken critic of government intervention in business, suggested that the governor would veto any additional regulation of the lodging industry in the state that bears “Vacationland” on its license plates, according to news reports.

For his part, LePage did not appear to receive any donations from Airbnb or its executives but reported receiving $22,500 from the lodging and tourism industry out of more than $2 million raised for his re-election campaign last year, according to the National Institute on Money in State Politics. LePage did not respond to Center for Public Integrity requests for comment.

Targeted persuasion

Unlike their Maine counterparts, the North Carolina legislature did pass a bill that requires Airbnb to collect county occupancy taxes in several parts of the state, including the state capital of Raleigh.

But the legislation passed in May was actually a partial victory for Airbnb — the culmination of a five-month public relations campaign to dissuade Raleigh from banning short-term rentals, which violated zoning restrictions in several neighborhoods.

To “reframe public opinion,” Airbnb hired a public relations and lobbying firm called Targeted Persuasion. Airbnb had used a similar strategy in New York to do on-the-ground canvassing via Peers, a company it launched that works as a hub for sharing economy participants.

In Raleigh, Targeted Persuasion ran an online petition and email campaign, then recruited speakers such as Airbnb host Gregg Stebben to testify at public meetings.

Stebben, a magazine editor who covers the technology sector, and his wife listed the “granny unit” of their Five Points house on Airbnb in September and were surprised by the demand for short-term lodging in their neighborhood. They expected to make a few hundred dollars per month.

“It was really just a lifestyle choice for us,” said Stebben. “It’s now paying our mortgage.”

In January, Targeted Persuasion also hosted what it called a “town hall” discussion related to short-term rental regulation. Within the exposed brick walls of The Architect restaurant in downtown Raleigh, more than 175 Raleigh residents, city council members and Airbnb representatives gathered over craft beer and cocktails to discuss the company’s regulatory challenges.

Firms like Targeted Persuasion are better equipped to launch “grassroots” campaigns than their corporate clients, according to Walker, the UCLA sociology professor.

“They know how to buy the lists of the people they can target. They know who’s most likely to say ‘Yes.’ They know how to do it at scale,” he said. “At the same time, the company has a certain amount of plausible deniability about it, too.”

When the state legislature passed the more friendly law, Targeted Persuasion trumpeted the success it had for Airbnb.

“The grassroots campaign worked as designed,” says the firm’s website.

Though the legislation was meant to level the playing field for traditional lodging, it came too late for some, including Doris Jurkiewicz.

Until recently, her six-bedroom Oakwood Inn in historic Raleigh was quite busy attracting the parents of North Carolina State University students, maintaining a 65 percent occupancy rate at its peak, Jurkiewicz said. (The industry average for hotels is 62.2 percent, according to the hotel industry trade group.)

But now more than 500 private rooms and homes in Raleigh are available to rent through Airbnb, some priced as low as $45 per night. Rooms at Jurkiewicz’s inn cost between $129 and $189, in part to cover the costs of getting a business license, meeting fire codes and obtaining a required special use permit — all things an Airbnb host isn’t required to do.

“I couldn’t lower my prices to compete with them, because I wouldn’t be able to pay my bills,” Jurkiewicz said. “They’ve basically destroyed my dream.”

This spring, after a particularly weak winter, Jurkiewicz and her husband, Gary, decided to close the inn, the last bed and breakfast in Raleigh.

Correction, July 15, 2015, 5:12 p.m.: An earlier version of this story reported incorrect information about Airbnb host Gregg Stebben’s relationship with public relations and lobbying firm Targeted Persuasion. Stebben said he was not trained by the firm before his testimony.

Correction, July 21, 2015, 3:38 p.m.: An earlier version of this story reported the incorrect title for Cynthia Crews. She sits on the steering committee of the San Francisco League of Pissed Off Voters, which has no president.