Anaheim Might Steer $320 Million in Tax Subsidies to Hoteliers

A boutique hotel in Anaheim, where the city council approved another tax subsidy for builders of luxury hotels. (Photo credit: Expedia.com)

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The city of Anaheim could soon be awarding hundreds of millions of dollars in tax subsidies to several proposed luxury hotel projects.

The revelation came during Tuesday night’s City Council meeting, when City Manager Paul Emery confirmed three to four hotel projects could be eligible for the huge subsidies by summertime.

Tait estimated each subsidy would equal approximately $80 million over 20 years, meaning the city could be awarding up to $320 million in tax subsidies if the council would approve it all. He also predicted the sheer amount of taxpayer money going to hoteliers would be catastrophic to the city’s financial picture.

“Three or four more [subsidies] I think will have a devastating effect on the finances of our city,” Tait said. “This will be a check written out of a general fund to each of these hoteliers.”

The subsidy issue came up again because Tait tried to bring back the “Let The People Vote” initiative which would require a citywide vote to approve any hotel room-tax subsidy. The initiative failed to make the 2012 general election ballot after the Orange County Employees Association cut off funding for signature gathering.

The council’s business establishment-friendly majority shot down Tait’s request to put the initiative on the November ballot, but not before a heated debate that included members of the audience.

The council’s years-long division can be traced to a vote in January 2012, when council members were sharply split over whether to grant a $158 million room tax rebate to developer Bill O’Connell in order to subsidize construction of two four-diamond hotels.

Back then, council members favoring the subsidy argued it was a necessary incentive to kick-start construction during a sluggish economic recovery from the Great Recession. They said it would generate thousands of jobs and was an example of the “public-private partnerships” that have driven the city’s growth.

But Tait and other critics said the subsidy was a massive giveaway to a politically connected hotelier that would be a hit to the city’s finances. They also said it would grant an unfair competitive advantage to the hotelier who gets the subsidy.

Under the subsidy deal for O’Connell, 70 percent of the hotel’s generated room tax revenue is rebated back to the developer over 20 years. The city then gets only 10 percent of the room tax because 20 percent of all room tax revenue is dedicated to paying off resort area improvement bonds. The hotels have yet to be built.

The debate Tuesday night largely echoed past arguments. Tait said he brought the initiative to a vote again because Councilwoman Lucille Kring had said during her council campaign in 2012 that she would support the ballot initiative. However, when the issue came up in 2013, Kring refused to support it after receiving thousands of dollars in campaign contributions. Her justification for changing her mind is that she feared the initiative would shut out luxury hotel development altogether.

Nonetheless, Tait decided to give it another try because he thought he had the support of Councilman James Vanderbilt, who was elected in 2014, and he hoped Kring might go back to her original position on the issue.

But Vanderbilt ultimately voted against the initiative after the council majority rejected his offer to amend the “Let The People Vote” ballot description, which he thought was biased. And Kring also voted no along with the other council majority members, leaving Tait with a 4-1 defeat.

During the argument before the vote, Kring said the city has a shortage of high-end hotels, and wealthier guests end up staying at more luxurious hotels in the coastal cities like Laguna Beach. It takes the big subsidies to get luxury hotel developments in Anaheim, she said.

“Why should Anaheim lose the revenue when the big celebrities come here?” Kring said.

Meanwhile, other members of the council majority grew increasingly irritated as the debate went on. Councilwoman Kris Murray mock-laughed at audience members who chuckled at her arguments – “I’m laughing at you too,” she said — and Councilman Jordan Brandman loudly and repeatedly pushed his request-to-speak button. Someone in the audience shouted that Brandman’s behavior was “disrespectful.”

Murray pushed back against the mayor’s claim that the subsidies are a drain on city coffers, arguing that because the hotels only receive tax rebates they themselves generate, there’s no real impact to city finances. At worst, the city gets 10 percent of the new tax streams, she said.

“How are we worse off?” Murray asked Tait.

Tait replied that subsidized luxury hotels cannibalize other hotels that pay their full share of room-taxes. Murray dismissed that argument, claiming that guests who stay at four-diamond hotels are a whole different group. “We’re not robbing Peter to pay Paul,” she said.

Tait also said the hotel market is “red hot” and the subsidies aren’t a necessary incentive. Other independent hotel finance experts have agreed with that argument.

Regardless of the policy arguments, Brandman said the people already had a chance to vote – the $158 million hotel subsidy in 2012 was the biggest issue of that election, he said – and residents chose Brandman and a council majority in favor of the subsidies.

Murray also accused the mayor of orchestrating “political theater” in the run-up to election season. She said the mayor had supported hotel tax subsidies during his council stint in the 1990s. Tait conceded that he voted for one $7 million hotel tax subsidy, and it’s a position he now says was a mistake.

“I can only assume its about creating a political bludgeon to harm the incumbents,” Murray said.

Tait said the initiative isn’t to “pummel you” during campaign season. But he also implied that the subsidy policy was unpopular and would have political consequences.

“If it pummels you during a campaign, maybe you should think about it,” Tait said.

Please contact Adam Elmahrek directly at aelmahrek@voiceofoc.org and follow him on Twitter: @adamelmahrek

  • AJMintheOC

    If I were a non-luxury hotel in Anaheim, I would wonder about this discriminatory practice. Why should the Big Guys get a tax break?! As a Anaheim resident, I see it simply for what it is: corporate welfare! I’m with Mayor Tait on this one.

  • Ltpar

    Looks like Anaheim voters need to wake up, smell the java and identify which of their elected representatives are working for them or are in the pockets of the developers. Government (taxpayers) should not be subsidizing any private sector development.

    • Mazzola Mazzola

      It is not only big business but big labor. All the PAC Funds they donate to the cause of bilking taxpayers.

  • RyanCantor

    Who shouldn’t get a tax subsidy in Anaheim?

    Oh. Right. Residents. Pay your property taxes and be quiet.

    • Mazzola Mazzola

      It is call STFUTaxes.

      All the bonds on my tax bill and they still have to pay off.
      UNIONS MEAN MAFIA!!!

      • cynthia curran

        Really, I can see cutting down some of the pensions of government unions but OC needs more unions in the private sector. Anaheim for years created its problem by keeping the wages low. This is why many of the workers are Latino immigrants rather than a cross section of the population because the wages in the hotels are low. Instead of a Walmart model more of a Costco model would help.

  • David Zenger

    “It takes the big subsidies to get luxury hotel developments in Anaheim, she said.”

    Wow. That’s a self-fulfilling prophecy. So much for free enterprise and letting markets determine investment.

    • Mazzola Mazzola

      plus she gets her payola, trips etc. she is fighting for her perks!

  • Paul Lucas

    Is there even anything left to give away to corporate welfare?

    • Cynthia Ward

      Not much, Paul. Seriously. Anaheim is in trouble, and these idiots refuse to see it, because then they would be FORCED to tell their friends NO, you can’t get into my Dad’s liquor cabinet anymore, and then they would have to face the truth that their popularity is linked solely to what they give their friends. It is high school all over again in that building.

      A full 25% of our General Fund now goes right back out the door to fund the Mickey and Friends parking structure that we will sign over to Disney when it is paid for (around 2037) until then Disney pockets ALL the revenue for that, and ONE HUNDRED PERCENT of every nickel in tax generated on Disney property over a baseline set in 1995 goes to those payments. That’s right, we froze taxes in the Clinton Administration and we are NO BETTER OFF TODAY than when Aqua Net was on sale at Thrifty alongside the perfectly cylindrical ice cream cone. Yet we shoulder all the expenses of increased visitors drawn by the expansion we funded. As Star Wars land etc generates more money, the increment coming in and going BACK OUT will GROW, showing the stark contrast against what the Council majority stupidly believes is our economic engine and what is becoming a DRAIN as we flip our economy from manufacturing that once offered career track jobs to service sector jobs that require public subsidy to survive, therefore hitting the taxpayer TWICE. But hey, let’s create MORE poverty wage jobs so we can keep up with the race to the bottom with other badly run municipalities!

      The consolation prize agreed to in 1996 was that we don’t see benefit from DISNEY but the surrounding hotels will draw more client base and taxpayers may have THAT money to back fill the losses, but hey, let’s give THAT away too! (Much like the Stadium deal ALSO with Disney in the same year offered taxpayer development of the Stadium District to backfill the losses of forking over the revenues from the Stadium, also conveniently ignored by the 3 amigos who see Anaheim as a giant money pot. But let’s give THAT away too.) Every time we begin to pay off those old debts, they refinance the numbers, keeping us under water. The last time they borrowed extra so they could show constituents “neighborhood improvements” not bothering to mention they lack the money to pave roads without borrowing it anymore!

      Layer in the pension liability and Anaheim is headed for huge trouble!!

      You want to invite 4 star hotels? Offer a 4-star CITY. But to do that we have to quit spending what we needed to use for the neighborhoods. I am shocked the hoteliers have not screamed about the connection, you can’t sell a 4 star room in a city surrounded by deferred maintenance, these people do not STAY in their ROOMs the whole visit! They no longer stay confined to the protective bubble of Resort for their visit! (keep your arms and hands and wallets inside the Resort at all times, and please watch your step getting into the limo back to the airport.)

      4 star guests don’t want to look at Anaheim’s blight! That is why they go to the beach.

      It is ironic that of the 5 people at that dais, only ONE is running a successful business, yet they treat him like the financial illiterate. Vanderbilt at least knows how to read a balance sheet and understands the harm of shoveling money out the back door, but he got hung up on the NAME of the ballot issue, also known as “correcting the grammar on a ransom note.”

      Brandman’s experience in the private sector consists of working for Daddy, where the company’s clientele was government. Brandman’s ballot title in 2012 “small business owner” or whatever he called himself was attributed to his CONTRACT with the County for a $25K report he appears to have lifted from wikipedia. So being a businessman with ONE client, the government agency he worked for prior to leaving for the “private sector” is not exactly vast mountains of experience making payroll.

      Murray’s background with “public private partnerships” consists of extracting government funds for her business buddies, whether she works for the business sector or government is immaterial, her job function remains the same. Scoring make-work contracts for public funds with minimal oversight or accountability is not background for devising a policy for the hospitality industry.

      Lucille Kring has been in and out of government, other than a failed effort in the hospitality industry (where she is LEAST suited to thrive, although reviews of her wine bar show Ron did a great job, folks just didn’t like it when Lucille showed up for work) she claims to be a real estate lawyer and appears to hold standing with the CA Bar, but famously failed to recognize that offering a specifically enumerated amount (ONE DOLLAR) in a contract for negotiation is indeed more binding than merely the phrase “nominal sum” and while she assumed the gardenwalk would let her wine bar relocate to a better location if the upper floor didn’t do well, she failed to get that in writing. No I don’t trust her to draft a policy for hoteliers worth hundreds of millions of PUBLIC DOLLARS.

      Other than that I have no opinion.

      • Mazzola Mazzola

        The only one who has the “Nuts” is Tait, the rest are freakin’ opportunistic idiots waiting for the handouts from companies who may be from other countries, who have no vested interest in the city except to get the government perks. By allowing Disney to take advantage of the taxpayers has set a precedent for all corporations to have the grab bag out.

        What was so sick, I went to the meeting and they were talking about how we need to Give companies money to build 4 star hotels, THAT IS A CROCK!! There is no way I would pay 300 plus to stay in the city of Anaheim, if i am going to pay that much I will head down to Dana Point, Carlsbad, anywhere but Anaheim!

        Then you got the union cronies with their hands wringing saying “we need jobs here” You boneheads, those are temporay jobs! But permanent taxes on us!! The burden is on us taxpaying citizens, not the union!

        • cynthia curran

          Well, construction work is always temporary it goes by projects. The more projects you have , the more money you make. As for staying in Anaheim, Anaheim is actually better than LA’s crappy areas like the east side and South Central, and people sometimes do stay in LA at well to do Hotels. Just because Anaheim has some gangs and bad schools doesn’t mean that tourist will stay there. People in OC are spoil, Anaheim actually doesn’t have that bad of stats for a large city. Most large cities have large minority populations, crime, bad schools and so forth.

      • cynthia curran

        I don’t agree with the giveaways but I read about new apartment development in the area. I predict that in 10 years Anaheim goes the path of LA. Yeah, some really bad areas but some areas will redeveloped and the demographic will be more mixed like La than looking like Santa Ana.

    • Mazzola Mazzola

      Your grandchildren to work lifetime service jobs their parents have paid for, no taxes on corporations to help pay for their senior housing since all monies will be bonuses and perks for city council.