Mayor Parker’s proposal to increase taxes on hotels and Airbnb collapses amid City Hall budget negotiations

Philadelphia’s top City Council member on Wednesday moved to kill a proposed tax increase on hotels and short-term rentals that had been a key tenet of Mayor Cherelle L. Parker’s budget plan and a means to fund homelessness prevention programs in the city.

On Wednesday morning, Council President Kenyatta Johnson put a bill to increase the city’s hotel tax on hold indefinitely, a move that came just hours after The Inquirer reported that state legislators were unlikely to approve any tax increases associated with Parker’s budget proposal.

» READ MORE: Pa. state lawmakers won’t back Mayor Parker’s tax hikes, jeopardizing key pieces of her budget proposal

The mayor was looking to raise taxes on city hotels by 0.6% and impose a 6% increase on taxes on short-term rentals, like those reserved through services like Airbnb and Vrbo. Increasing that tax requires approval from City Council, as well as authorizing legislation to be passed by the General Assembly and signed by the governor.

However, sources close to budget negotiations in Harrisburg said there was little appetite to raise taxes, even among Democrats, in a year when every state House seat and half of the state Senate seats are up for election.

A spokesperson for Parker did not immediately respond to a request for comment.

The development Wednesday came at the start of what is expected to be a marathon day of negotiations between the Parker administration and Council members who are hammering out a deal to fund the city government. The main point of contention remains Parker’s proposed $1-per-ride tax on rideshare services, which is intended to generate nearly $50 million a year for the School District of Philadelphia as it stares down a $300 million budget deficit.

» READ MORE: Mayor Parker turns to Harrisburg — and GOP allies — to make her budget priorities work

Unlike the hotel proposal, the rideshare tax would not need approval from the state if it is passed by Council. However, members have appeared skeptical of the flat-rate tax, and Uber has lodged an aggressive lobbying campaign in City Hall against it.

Council’s Committee of the Whole, which is composed of all 17 members, must approve a budget plan this week in order for it to be fully passed by the start of the new fiscal year on July 1. The committee briefly met on Wednesday morning and is expected to reconvene at 5 p.m.

It is unclear if Council and the Parker administration will look for another way to generate the $15 million a year that was expected to come from an increase in hotel and short-term rental tax revenue. The money was intended to fund an additional 1,000 beds in the city’s shelter system, as well as an expansion of behavior health and drug recovery options in the city.

Advocates for the homeless said they were disappointed at the potential loss of millions of dollars for programs that would serve residents with mental and behavioral health needs.

Jeannine Lisitski, the CEO of the Philadelphia-based Mental Health Partnerships, said that her organization provides street outreach services, but that there is often not enough shelter space to house the people they engage with.

The proposed new funding, Lisitski said, is “not something that’s just nice to have. This is critical.”

Parker had initially proposed generating millions of dollars in new revenue by increasing the city’s hotel tax by 2 percentage points, to go from 15.5% to 17.5% — one of the highest hotel taxes on the East Coast. That would have applied to hotels and short-term rentals.

But last week, in what amounted to an eleventh-hour revision, Parker announced that she had reached a deal with hotel industry leaders to increase the tax on hotels by just 0.6% but jack up the tax on short-term rentals by 6%.

Airbnb vehemently opposed the proposal, which company officials called a “hotel handout.” About 400 Airbnb operators in Philadelphia signed a letter drafted by the company to express that they were being “singled out” by the administration.

» READ MORE: Philly Mayor Cherelle Parker wants big tech companies to pay up. With the clock ticking, she’s meeting resistance.

The city’s three major tourism agencies — Visit Philadelphia, the Pennsylvania Convention Center Authority, and the Philadelphia Convention and Visitors Bureau — also opposed increasing the tax to divert revenue to basic city services.

Those agencies are partly funded by hotel tax revenue, which last year was nearly $90 million. The tax was enabled decades ago to support tourism promotion, convention business, and other investments that drive visitation.

“Hotel tax revenues have long been intended to support efforts that drive visitation and overnight stays,” the agencies said in a joint statement, “not fund municipal services that already benefit significantly from the economic activity visitors generate.”

This is a developing story and will be updated.

Staff writer Gillian McGoldrick contributed to this article.