Math matters. Accurate math matters more. Especially when it may be the difference between Los Angeles having hotels and not.
The Los Angeles City Council made the correct decision last week to delay a vote on a substantial increase to the minimum wage for tourism workers because the numbers didn’t add up. The council’s report didn’t consider important information needed for their study; therefore, their report could not predict the proper impacts of the new ordinance on city and future events like the World Cup and the Olympics.
The risk, in the short term, is that the City Council will make an uninformed decision that the entire tourism industry suffers from, including small business owners and employees. The risk, in the long term, is LA overburdens its struggling hotels – many of whom are small, family-owned businesses, cratering the already teetering tourism sector.
This isn’t hyperbole. Or to paraphrase one council member, “We could have the best-paid unemployed hotel workers in the nation.”
If the economists at Berkeley Economic Advising and Research had done their job, they would have found:
Since the pandemic, most LA hotels operating costs have increased 40% while their cash flows decreased nearly 40%. No business can survive long with that math.
Through July, LA hotels’ operating cash flows have declined 20% since 2023 as occupancy and average daily rate dropped 2.8% compared to 1.1% increase nationally.
As a result, many hotels are being foreclosed on or are in default on mortgages in downtown and West LA and another 11 LA hotels with 3,159 rooms are at risk of loan default.
Hotel property values have declined between 30% and 50% due to these operating declines and the continued view of Los Angeles as a volatile and hostile business environment.
There are NO new hotels being built and NO hotels being renovated, denying significant jobs and profits to the construction industry and its workers, many of whom are union members.
So, where do we go on Dec. 11 when the City Council resumes this discussion?
First, it’s imperative that the council is informed of the precarious economic situation LA hotels are in and their projected business forecast or, better said, lack of business forecast.
Second, the council should align any acceptance of or implementation of a minimum wage with the hotel economic conditions.
Third, we recommend that hotels reach pre-pandemic levels, before there is any implementation of an increased minimum wage.
Without these steps, Los Angeles truly risks losing its hotels and its hotel workers and continuing the decline in visitors and city and county tax revenues generated from the hospitality industry.
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We’ve had to increase the price of our rooms to accommodate increased costs. The number of scheduled conventions in coming years continues to decline. The anticipated World Cup and Olympic spikes will be diluted by short-term rentals, which lack the high labor costs and safety requirements, and sometimes lack permits as the city struggles to keep up with enforcement. And, candidly, LA’s reputation as a high-crime and unsafe experience has deepened, particularly among international travelers.
These are the facts – as unfortunate as they are. We are making an effort to be honest about LA hotels’ economic conditions and forecast and, importantly, the significant and detrimental impact the Council’s minimum wage proposal would have at this time.
On behalf of LA’s hotels and their employees, I implore the City Council to act for the long term security of its hotels – the livelihood of LA tourism depends on it.
Lynn S. Mohrfeld is president and CEO of California Hotel & Lodging Association.