Unicorn v. Leviathan: The battle between Airbnb and San Francisco rages on

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“Brian Chesky’s audacity is fabulous..his obsession with detail and practicality doesn’t confine or compromise his dreaming but rather makes what could so easily be noble but abstract ideas functional and real.” – Jonathan Ive, Time 100

Last week, as Time Magazine’s ‘100 Most Influential People of 2015′ issue was slotted onto magazine racks across the nation’s groceries and airports, I got to see the some of that global influence in action. The place was San Francisco City Hall, and the influencer in question was Airbnb co-founder and CEO Brian Chesky.

At issue was a law passed last fall in San Francisco, seeking to regulate Airbnb’s operations in its home town — a law that has been in effect since February, was years in the making and even then was amended heavily before passage. Airbnb was initially supportive of the legislation. As recently as February, it paid $ 25 million in back taxes without objections. But in the past two months the City has decided the law is a mess, and its relationship with Airbnb has soured.

In theory, the law creates a legal designation for short term rentals, establishing a registration process which hosts must initiate, and provides some protections to those hosts as well as establishing a process for handling complaints of abuse.

In fact, the new registration process is pure Kafka on the Pacific shore. Airbnb hosts must file paperwork with the Tax Collector and submit applications for registration with both the Planning and Building Inspection departments, all in person, during business hours. Alternately, hosts can opt, as most have, to do nothing at all.

Of the 4,000 to 5,000 Airbnb units available in San Francisco, only 455 have been applied for registration, and only 170 have been approved, according to the most recent numbers from the Planning Department. The remainder continue to operate outside of government oversight and definition.

Every party to last year’s bill — erstwhile supporters and sustaining detractors alike — now agree it is a boondoggle requiring swift remediation. Of course, their opinions as to why this is and what is to be done vary widely. As do their reasons for dissent.

Three proposed packages of amendments have been introduced at the Board of Supervisors. One of them, authored by Supervisors Jane Kim and Board President London Breed, is fairly straightforward. It would set explicit and onerous penalties on anyone using the Ellis Act to evict tenants from their homes and subsequently listing the unit on Airbnb (or VRBO or Craiglist, for what it’s worth). That one is a safe bet for passage.

The other two are more contentious. They have been presented by political adversaries and, for its part, Airbnb has been openly critical of both. One was introduced by Mayor Ed Lee and Supervisor Mark Farrell (the “moderates”), the other by Supervisors David Campos, John Avalos and Eric Mar (the “progressives”).

The strongest threat to the law, however, comes from Airbnb itself. Make no mistake: despite its warmfuzzy, and vaguely yonic, branding, Airbnb can and will throw its weight around the political arena with the best of Silicon Valley’s stable of thoroughbred unicorns.

In recent weeks the company has sent a number of letters to its San Francisco hosts describing its efforts to overwhelm the backwards nature of San Francisco government, with a call to action for the Airbnb community to join in the struggle.

In one letter, Airbnb assures hosts that there’s nothing the government can do to stop apartment sharing in the Bay Area:

“We want to be clear: it’s still fair to share in San Francisco. And we are going to make sure it stays that way.”

Kindergarten “fair to share” ethics with mafioso determination.

The letters tell of Airbnb’s determined efforts to ensure that “sharing is fair”, in the process lumping both moderates and progressives together as overreaching “bureaucrats”. One was published by Business Insider here, another obtained by Pando is embedded below.

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The company has also set up websites to facilitate its hosts intervention on its part and told its side of the story breathlessly on its blog.

A tale of two amendment packages

The amendments proposed by the Mayor and Mark Farrell have two main points. They would create a blanket limit of 120 rented days per year, per Airbnb unit. Airbnb does not like this. Under current law, ‘hosted’ rentals — where permanent residents let out a room on Airbnb for less than 28 days at a time — are unlimited. Rentals with absent hosts are capped at 90 days per year. The Planning Department has said it lacks the ability to differentiate between hosted and un-hosted rentals.

The Mayor’s amendments would also create a new governmental entity: The Office of Short Term Residential Rental Registration and Enforcement, staffed jointly by the Planning Department, the Department of Building Inspections, and the Office of the Treasurer and Tax Collector.

“What we have proposed is basically a one-stop shop for both registration and complaints,” Sup. Farrell told me by phone. “Currently, a working family that wants to register a spare bedroom for short-term rentals has to go to City Hall and get a business license, then go to the Planning Department to get a license there. We’ve heard lots of horror stories of people getting the runaround. It’s basically a screwing by the system on both sides.”

There are a number of other changes as well. Neighbors of Airbnb rentals would become ‘Interested Parties’ who can register formal complaints. Criteria for bringing civil actions against tenants, homeowners or platforms offering short-term rentals would be finessed. The Planning Department would be required to provide information about pending and resolved complaints on its website.

Airbnb, however, would not be forced to provide any information to the City. (Except for the Tax Collector, everybody has to provide at least some information to the Tax Collector.) In fact, the Lee/Farrell amendments remove the law’s provision that hosts must provide information to the Planning Department about the number of days their unit has been rented.

Farrell –who voted in favor of the legislation last fall — doesn’t blame the law or its authors for the shortcomings.

“The law is focused at an emerging trend in the tech community, and it’s a new area for residents and for the government,” he said on Thursday by phone. “It was a great starting point, but we knew we would have to revisit it. A number of flaws have become apparent already, which is why we have proposed amendments to strengthen and streamline it.”

This forgiving language towards the inept regulations is echoed by Assemblymember Chiu’s office, which shared the following prepared statement with me:

“We’re the first California city to regulate and tax this new industry, so it’s no surprise to see challenges as the law gets going, or to see both recycled and new ideas on how to tweak it. Clearly more resources are needed to get more hosts registered more quickly and to better enforce the law, and those resources should be available with so much new tax money coming in.”

Airbnb remains unmoved. When I reached out to the company to discuss the proposed amendments, they sent me a copy of an April 14 letter from Regional Head of Public Policy David Owen, addressed to the SF Board of Supervisors. In it, Owen deals with Farrell’s amendments like the seasoned political pro he is — he was Chief of Staff to Board of Supervisors presidents Matt Gonzalez (2003-2005) and Aaron Peskin (2005-2009). He writes:

“This kind of proposal would adversely impact San Franciscans like Kevin and Esther, who share their guest room and use the money they earn to pay medical bills associated with Kevin’s Parkinson’s disease.”

Remember, that’s the company’s response to the moderates.

* * * *

Enter the progressives.

On Thursday I sat with Chiu’s vanquished Assembly seat opponent, Supervisor David Campos, to discuss the Airbnb law (or, more technically, ‘the Short Term Rental Legislation’ because apparently VRBO and Craigslist are suddenly a problem too.) Campos has felt the full brunt of Airbnb’s stature. Last fall, as he led opposition to the original Airbnb bill in City Hall, he was the target of a $ 550,000 negative ad campaign underwritten by Airbnb investors Ron Conway and (Time’s 100 2015 influencer) Reid Hoffman. [Disclosure: Ron Conway is a Pando investor]

Campos’ primary gripe with the current law and the Mayor’s proposed amendments is that, for all the finely-tuned regulatory provisions, there is little hope of enforcement.

“Airbnb is basically saying: ‘Trust us. The City only needs to be involved if a complaint is filed.’ But unless data is shared with the City, how will we ever know if there is a violation, so that we can file a complaint? At some point you have to make a choice about whether there should be enforcement. And if there is no data, there is no enforcement, it’s that simple.”

Campos’ proposed amendments would require ‘Hosting Platforms’ to provide the City with this information, would restrict listings only to registered units, and would limit the number of days per year that any unit can be Airbnb’d to 90. As regards the provenance of information, this proposal is the most closely aligned to the suggestions of the Tax Collector and of the Planning Department. Yet as leader of the Board’s minority progressive faction, Campos is under little illusion when it comes to the fate of his proposals.

“It’s not going to be resolved in this building. Airbnb has too much political power. This issue will be decided at the ballot box,” he said.

* * * *

David Chiu and company took nearly three years to draft legislation — with Airbnb’s input — that in the end was tremendously unfit to regulate the company. The crux of the unfitness is that the law stops short of compelling the company to provide the City with the information it would need to monitor and enforce the very rules it establishes. A year later, the Mayor and his fellow free-market moderates are proposing new rules, and a new office to oversee them, but remain mute on the subject of this data. And still Airbnb has said, in a letter to its hosts, that the Mayor’s amendments “raise significant concerns.”

As for Campos’ proposal, Airbnb says in that same letter: “Supervisor Campos introduced a Trojan Horse proposal that would effectively ban home sharing.”

They got the metaphor right, at least. Someone is building a hollow horse full of marauders, but at whose gate will it be left, and who will suffer the consequences?

Airbnb currently has at least two website-based campaigns dedicated to enlisting its hosts to fight regulatory efforts in the region by writing to their elected representatives.(Here’s one for San Francisco and one aimed at a bill in the California State Senate  which would force Airbnb to disclose the same information to city and county governments.)

The”Get the Facts” section of sf.fairtoshare.org says: “We want to work with everyone who cares about San Francisco’s future to ensure that these connections continue and that our community of hosts can continue to share their homes and afford to live in this vibrant city.” Everyone, that is, except the Planning Department and the Office of the Treasurer and Tax Collector.

So why doesn’t Airbnb want to share information about its operations with the relevant authorities? Because it is a champion of consumer privacy? Could it be that the company, which rocketed to a $ 10 billion valuation before ever asking permission, is a little worried about the consequences for its shareholders should it begin to acquiesce? Leases, for example, are legally binding contracts, and how many lease holders in San Francisco who rent a room or an entire unit on Airbnb have actually gone to the trouble of asking their landlords for permission to do so? And since it is currently so simple, due to years of constructive lobbying, to avoid the regulations entirely by listing unregistered units, why not just press on, and wait for the government to come around?

Fortunately there are some pieces of the current law that will remain in effect no matter what happens in the coming months. For instance, thanks to the contributions of Ted Gullicksen, tenants caught out Airbnb’ing by their landlords cannot be immediately evicted, as was legally defensible before. Instead, they get a warning, and subsequent violations carry a schedule of penalties.

The rest of law is up for grabs.

The Senate Bill will be heard in committee on Tuesday in Sacramento, and on Thursday in San Francisco the Planning Commission will assay the three amendment packages. Airbnb, representing $ 475 million of Silicon Valley’s smartest money, is sure to stay on the offensive. The company and its investors have proven time and again that they can strike a deal in the halls of government.

It’s a long shot, but if the derided bureaucrats can play dopes on the ropes long enough to absorb all the best punches, they just might be able to pull off a late knockout: a voter initiative is in the works and is expected to be on the ballot this fall.

 * * * *

All the City’s Short Term Rentals regulation is led by the Planning Department, and it’s the objections from Planning that have triggered the current raft of amendments.

Planning Department Communications Manager Gina Simi told me by email that:

“At this time we receive no data from hosting platforms. For the current legislation, we would need addresses for all listings, number of days rented and details on the rental unit, both hosted and non-hosted. Under the three proposed versions, the need for such specific data is reduced, but the number of days a unit is rented would still be beneficial. If platforms were required to only list registered users, we would only need host’s registration number and number of days to verify compliance.”

In the eerie quiet of the Office of the Treasurer and Tax Collector on the day after tax day, under its high, peeling ceilings, I sat down with Policy and Legislative Manager Amanda Fried. She provided a lone voice of surety among the confusion.

“Our law is rock solid and we have all the tools we need to collect tax,” Fried said.

The Transient Occupancy Tax, commonly called the Hotel Tax, is a 14% tax toll on all accommodations provided for fewer than 28 days. In 2012, the Office of the Treasurer and Tax Collector issued a clarification that Airbnb and its ilk fell under the terms of the TOT. In his recent letter to the Board of Supervisors, Airbnb’s David Owen writes:

“In October Airbnb also began collecting and remitting the same taxes as hotels on behalf of our hosts and guests in San Francisco. We were under no obligations to take this action and the overwhelming majority of other short term rental platforms still refuse to follow our lead.”

It is technically true that Airbnb was under no obligation to pay the TOT — but somebody certainly was, and if not Airbnb that responsibility falls on the shoulders of its hosts. Even now that Airbnb is paying a hefty tax bill, the Treasurer and Tax Collector cannot verify whether the company is paying is full liability.

In the case of the Hilton or the Fairmont, hotel guests pay the tax as part of their bill, and the hotel then transfers it to the City on guests’ behalf. With Airbnb, the Tax Collector has taken the firm position that this tax liability is shared between hosts and the platform. It doesn’t matter who pays it, as long as it gets paid. In order to get right with the tax man, Airbnb hosts are required to obtain certificate of authority. When filing a business registration, hosts tick a special box for ‘Short Term Rental’, which activates their TOT liability and requires them to provide a monthly online filing, even if they haven’t rented their unit that month. Failure to do so incurs a penalty.

Every host who had undertaken this process was issued a letter this spring by the Tax Collector, notifying the host of its joint liability. In the case of double payment, the host would be liable for a refund.

Airbnb sent a letter to these same hosts, in which it writes:

“We have been working with the City to resolve this matter without compromising your privacy. But even as we’re trying to solve this problem, the Tax Collector is sending threatening letters to regular San Franciscans and trying to make the Airbnb community pay the same tax twice.”

The allusion to host privacy is the key component of the tiff. Last September, the Office of the Treasurer and Tax Collector created a new TOT category called “Qualified Website Company,” designed specifically for businesses like Airbnb. Such a company is allowed to assume the TOT tax burden of its hosts in full. Hosts can then rest assured that they are off the hook.

“There are zero qualified website companies in San Francisco,” Amanda Fried said.

In order to obtain this qualification, Airbnb would have to provide the Tax Collector with its hosts’ addresses, along with timely information as to the duration of stays and the prices that units were rented at.

Doing so, Airbnb could alleviate the tax worries of its hosts in one fell swoop, and bring an end to those “threatening letters.” Airbnb knows this, and yet hasn’t done so. It does not tell its hosts about its refusal to become a Qualified Website Company. Instead, it obfuscates. In that same letter, “the Airbnb team” writes:

The City of San Francisco wants to know who you are, where you live, who stayed in your house and when they were there. This demand for your personal information is wrong and we’re concerned that it sets a bad precedent for how the city treats other internet platforms.

Let’s be clear: information that is provided on behalf of a tax payer to the Office of the Treasurer and Tax Collector is treated with the utmost confidentiality, by law, and is shared with no other governmental department. Every taxpaying business in the city understands and depends on this. Airbnb prefers to play the part of privacy hero rather than comply.

* * * *

The dream of today’s Silicon Valley often seems to be a government that steps aside and lets technology and business do as it will.

From its inception, Airbnb has been one of technology’s great examples of the computer programming (and gender) pioneer Grace Hopper’s canonical adage, “It is easier to ask forgiveness that it is to get permission.” Airbnb has become a multibillion-dollar global socioeconomic reality precisely because it never asked whether it could. Now that it is a multibillion dollar global socioeconomic reality, it shows no sign of asking forgiveness by getting right with the government.

It is all another prominent example of the latest Hegelian narrative of History, decreeing that “sharing” and “community” will overcome the droll resistance of ossified constructs like local government, as a matter of course.

Jessica Lessin took up the theme last week in the Information, in a piece titled “What Technologists Get Right in Criticizing Government”, writing:

It would be tempting to dismiss these sometimes wacky attempts to “disrupt government” as idealistic banter from Burning Man-loving Libertarians—or tech companies aggravated about tangling with regulators. (Sorry, Google. Your time in the EU hotseat has come.) But technologists are targeting some deep and increasingly apparent flaws about government that shouldn’t be quickly dismissed.

Further beyond the paywall (the Information does not want to be free), Lessin offers an account of her conversation with former Israeli president Shimon Peres and an “interesting remark”he made to her:

[T]he 91-year-old called government a “hangover” from an era when wealth was held in land and governments, backed by armies, were needed to protect it.

Today, he said, it is “science and technology” that are the most valuable assets, assets which defy geographic boundaries. In this world, companies, not governments, increasingly have the upper hand.

Former San Francisco mayor, Lieutenant Governor and gubernatorial candidate Gavin Newsom spells our one possible version of the future in his 2013 book, Citizenville:

So what to do? We obviously don’t have the money, the skilled programmers or the engineering mind-set within government to address our problems in the age of technology. Once again, we don’t have to. We simply have to make it possible for people outside government to help us fix them. We have to think of government as a convener. A concierge, if you will – a customer-service organization.

In San Francisco, Airbnb is one of the city government’s top-spending customers. And now it’s demanding the service it paid for.

[illustration by Brad Jonas]

PandoDaily

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