Real Estate: Another real problem
By Paul Oster
We cannot solve our problems with the same level of thinking that created them.” -Albert Einstein
I’m reminded all the time that I’m “no Einstein.” I only wish to be half as smart. Einstein also had a great quote about insanity. These days the problems and insanity appear to be all about money for the Town of Mammoth Lakes. Or the lack thereof. Mammoth is bustling with visitors and few even know the Town is on the verge of chaos; budget cuts are decimating Town personnel and morale. The causes are far greater than the impact of the Airport/Hot Creek settlement. The TBID (tourism-based business improvement district) vote is scheduled for later in the month and I can only assume that it will pass and is essentially a done deal. That new tax will impact almost every visitor and local resident. But the new tax will only modestly alleviate the Town’s current financial problems.
All of the players appear to be on the brink. I hope they smile at the parade. They have been through extensive budget reviews and cost-cutting both as part of the pseudo-bankruptcy, the settlement and subsequent budget negotiations. Blame is being cast about like snowflakes in a blizzard. The local citizenry is disgusted. But what happened? The Town of Mammoth Lakes has been a very solvent entity for many years. The settlement is only a small part of the picture. But I see a bigger problem, and many of us are to blame. And it is founded in real estate and our new way of life.
Money solves many problems. The Town simply isn’t generating enough revenue. What many outsiders don’t see is the cost of doing business in this environment. It is one of the reasons many potential real estate buyers balk at the high condominium fees in Mammoth — they aren’t educated about the high cost of snow removal, maintenance costs in a high altitude/severe weather environment, the higher cost of doing just about everything (notice gasoline is higher?), and the constant seasonal turnover from snowstakes to pretty flowers. It all costs BIG bucks. It is simply the cost of entry to enjoy any season in Mammoth Lakes. The cost of keeping the roads cleared of snow, the asphalt patched, and minimizing resort mayhem is substantial.
The time-honored method for any resort community to pay for all of that is through bed tax, or here in Mammoth, transient occupancy tax or TOT (13%). No taxes are completely “fair” but TOT is fair enough. The new taxes imposed by TBID are arguably just as fair. But here is one of the real problems, and the roots are in the local real estate ownership and industry. The Internet has radically changed the transient or nightly rental business in Mammoth Lakes in the past few years. Historically, the motels and reservation companies dutifully collected the TOT and remitted the monies to the Town. That also used to give us valuable occupancy figures. But the landscape has changed and there is now a tidal wave of change happening right before our eyes. More and more owners of condominiums and single family residences are “self-renting.” And this is an ever increasing volume of our transient bed base.
These “self-renters” are utilizing a variety of online resources including custom websites and vacation rental websites. There are all sorts of new “gizmos” that make it easier for an owner to control; from digital and wi-fi front door access to electronic controls on heating, etc. And some owners even have cameras on their properties to monitor their renter’s activities (just wait until the fiber optic lines are in place). The housekeeping and “resort” service industry has blossomed to accommodate these self-renters and their clientele, and becomes more sophisticated all the time. Many are offering an increasing menu of services both for the owner and the renters. It is becoming big business in a town full of hungry local residents. There are even people touting themselves as consultants to help the novice self-renting owners get their properties “dialed in” for self-renting; including preparing the physical property to maximize rentals, creating operating systems, designing websites and search engine optimization.
Meanwhile, the renters are becoming more and more in-tune to the whole environment and the opportunities. And here is why it is working so well; the middle man is being cut out of the traditional financial arrangement. The reservation company or “front desk” that historically receives 30-55 percent of the gross rental for all of the marketing, booking, cleaning, supplies, etc. is going the way of the dinosaur. For decades there has been a small faction of owners who self-rented (firemen were the best). But now the Internet has made it fashionable, and more profitable for the owners (if they’re willing to spend the time). But the renters typically find it more affordable, too. Why? Because one of the middle men being cut out of the deal is the Town. Not collecting TOT has become an owner’s “competitive advantage” and the renter’s “sweet deal.”
Tax assessors call this “escaped taxes” in the property tax world, and they are obsessed with taxes not escaping. Mammoth has become nonchalant about the escaped taxes. Almost every day I come across an owner who is self-renting who thinks it is “funny” that they [the Town] don’t collect TOT. The renters are even more proud that they are avoiding the tax.
The Town says they can’t do anything about it “unless they see the money changing hands.” Editor’s note: The Town made s brief effort to step up enforcement but due to budget cuts and defections, has no one dedicated to enforcement at the moment. It’s hard to observe a PayPal transaction or a check-in-the-mail. Bottom line: this is a serious quandary. I have thought about it for years and the Town has a real pickle on their hands trying to collect TOT on these rental transactions. But it can only go on for so long. The day will come when that non-TOT paying owner or renter will NOT receive the come-to-be-expected service the Town has responsibly provided in the past. That could include effective snow removal. And like with any insurance policy, that event will probably occur at the moment when it is needed the most. Non-payment of TOT will also result in the slow deterioration of physical amenities like roads and trails. More short term thinking by many property owners, and you know what happens in the long run. Many second homeowners are now on their own ship of fools.
So the Town is stuck with the TOT honor system. Maybe the Council is right in letting things “go to shit” so the owners and renters figure out that there are bills to pay if you expect to ski and snowboard and fish the lakes. Or drive your trailer down the road and not get stuck in a pothole. Or make a 911 call and have anybody show up. The alternative is to get the money another way, like the TBID. You can be sure that the less TOT that is generated the higher the TBID will be. Or next we’ll be forced to build a gate at the bottom of Hwy 203 and tax everything people bring into town (like they do at the transfer station). And after all, it’s now the American way.
Seriously, I’m the last guy for bigger government and government waste (God knows that has been my downfall in my 18 years as a local public official), but Mammoth Lakes is an expensive town to manage (snow removal is horrendously expensive and impossible to plan for). Property owners who are not collecting TOT are playing a fool’s game (unless you’re one of those deadbeat squatters who doesn’t care about future values). Renters who chase rentals just to skirt the TOT aren’t helping, but it all starts with the owners, they have far more to lose. And the losses are mounting. It’s time for some long-term thinking.
Paul Oster is Broker/Owner of RE/MAX of Mammoth and a member of the Mono County Tax Appeals board for the past 10 years. You can find his real estate related columns, newsletters and videos at www.MammothRealEstateBlog.com. For legal and accounting advice please consult with the appropriate professional.
