Proposed Hotel Licensing Law Could Cause $150 Million Decrease in NYC Property Tax Revenue

by | Oct 11, 2024 | NYC Property Tax

The New York City Council recently held a hearing on Proposed Introduction Number 991-B (Prop. Int. 991-B), a local law intended to amend the administrative code in relation to licensing hotels. The legislation aims to enhance consumer and worker protections within the hotel industry by introducing new licensing requirements and operational standards for hotel operators.

Key Provisions of Prop. Int. 991-B

  • Direct Employment Requirement: Hotels would be required to directly employ all core staff, limiting the use of third-party contractors.
  • Worker Protections: Measures such as providing panic buttons for employees and ensuring daily room cleaning services.
  • Safety Standards: Enhanced regulations to improve guest safety and operational compliance.

Industry Insights on Potential Economic Impacts

During the hearing, industry professionals shared their perspectives on how the proposed legislation might affect the hospitality sector and, by extension, property tax revenues in New York City. Bradley Burwell, Executive Vice President and leader of the Hospitality Investment Sales Group at Colliers, provided testimony highlighting potential implications.

Impact on Hotel Unionization and Cash Flows

Burwell noted that the direct employment requirement could likely result in the unionization of many of the city’s approximately 40,000 non-union hotel rooms. While acknowledging the important role that unions play in the industry, he pointed out that unionization can lead to increased operational costs for hotels.

  • Reduced Cash Flows: Unionization may reduce hotels’ cash flows by an estimated 30% to 40%, according to Burwell. This reduction is due to factors such as higher wages, benefits, and other labor-related expenses associated with union agreements.
  • Property Valuations: A decrease in cash flow can affect a hotel’s profitability, which is a key determinant of its market value. Lower profitability may lead to decreased property valuations.

Potential Consequences for Property Values and Foreclosures

As property values are closely tied to a hotel’s financial performance, a reduction in cash flows could have broader implications:

  • Decline in Property Values: If hotels become less profitable due to increased operational costs, their market values may decrease accordingly.
  • Risk of Foreclosures: Burwell suggested that falling property values might lead some hotels to be worth less than their outstanding debts. This situation could result in a wave of foreclosures within the hospitality sector.

Estimated Impact on Property Tax Revenue

Property taxes are a significant source of revenue for New York City, funding essential services such as education, public safety, and infrastructure maintenance. Changes in hotel property values could affect this revenue stream.

  • Current Contributions: Non-union hotels currently generate approximately $400 million in property taxes annually.
  • Projected Reduction: Burwell estimated that a decline in property values associated with the proposed legislation could result in a $150 million reduction in property tax revenue each year.