CommentsLA WATCHDOG--Even though the City is looking at a deficit of more than $250 million this year and a Structural Deficit of $4 billion over the following four years, the City Council is considering tax breaks of more than $100 million for two hotels that are not within walking distance of the Convention Center.
(Photo above: Los Angeles councilmembers Curren Price and Herb Wesson.)
The City’s current “economic development incentive” is designed to make the Convention Center a more appealing venue for large, city wide trade shows by eliminating the perceived shortage of hotel rooms that are within a mile of this money losing facility. To date, the City has approved $930 million in subsidies for seven DTLA hotels.
However, other than the Convention Center Headquarters Hotel Project that was an integral part of AEG’s multibillion dollar pioneering investment in LA Live and the surrounding area, none of these other giveaways were warranted as their rates of return without the subsidy were more than adequate as they were “free riding” off of the success of LA Live.
As a result, real estate developers and hotel operators know that the City is a pushover, a soft touch, especially when the local council member will have bragging rights to the new development and will be the beneficiary of campaign contributions and a slush fund for pet projects.
The smaller, 160 room hotel, is located at 3240 Wilshire Boulevard, the site of the iconic I. Magnin department store, in the heart of Koreatown, one block west of Wilshire and Vermont and about 500 feet from the controversial homeless shelter at 682 South Vermont. It is part of a larger Harridge Development project that will have a 35-story high rise with 555 luxury apartments.
The amount of this Herb Wesson sponsored giveaway to the deep pocketed Harridge (they are also behind the massive development at Crossroads of the World in Hollywood) is estimated to be in the range of $30 to $40 million.
The 298-room hotel at 3900 Figueroa is located across from Exposition Park, the Coliseum, and the proposed Lucas Museum, two miles south of the Convention Center. It is also part of a larger development that will contain over 400 units of student (USC) and residential housing on a 4.4-acre site.
The amount of this Curren Pricesponsored giveaway is estimated to be in the range of $60 to $70 million.
The exact amount of the giveaway will be determined by a consultant’s report retained by the City that is paid for by the developer. These reports are designed to support the “economic development incentive” because the consultants rely on valuation parameters that place a low value on completed project compared to its cost which, in turn, justifies the giveaway. The City will justify the subsidy by saying it is limited to less than 50% of the City’s revenue over the next 25 years, although the payments to the developer tend to be front end loaded. The City will also tout all the other economic benefits of these projects, including all the construction and permanent jobs created.
Our problem is that the developers do not need a tax break because these deals are already a home run. They just want to turn a solo shot into a grand slam by using potential tax revenue that could be used to aid the homeless, develop affordable housing, or repair our streets.
These giveaways are a waste of taxpayer money. But if the City Council and Mayor Garcetti insist on subsidizing deep pocketed developers, then the City should participate in the profits by requiring the developer to repay the subsidy plus interest plus an equity kicker based on the level of profitability.
This is a reasonable solution that protects our cash strapped City from developers and the City Council.
(Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council. He is a Neighborhood Council Budget Advocate. He can be reached at: [email protected].)
-cw
