Robbins: Let’s Talk Hotel Subsidies in Anaheim

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Over the past few years, hotel subsidies have become a point of political contention in Anaheim. Of course, this is the only reaction that can be anticipated when a municipality is effectively deciding to return 70% of the taxes it collects from a business entity. It becomes even more contentious when the aforementioned form of taxation (transient occupancy tax), is the primary source of revenue that comprises Anaheim’s general fund.

Realistically, this debate boils down to two opposing sides: one that feels subsidies are necessary to attract four diamond hotel developers, and one that feels the current market conditions make subsidies unnecessary. At least, that’s what it SHOULD be about. It shouldn’t be about returning money to hotels, or about the benefits that the hotels will bring in 20+ years. It SHOULD be about whether or not the subsidies are necessary to attract hotel developers.

The goal in this piece will be to examine market conditions and delve into the arguments being made by the opposing sides.

Just as a warning, as someone with a degree in economics, I am opposed to hotel subsidies based solely on the current market conditions.

The hospitality industry has come a long way in the past 40 years. In the words of Mark Woodworth, a key figure in the hospitality research industry, “this is probably the best time that the industry has seen, in terms of fundamentals being solid, going back to the mid-1970s.”

In fact, there is not single research paper, news article, or even a quote suggesting that the hospitality industry is in need of government assistance. It would appear that the only individuals advocating for subsidies hotel are those involved with local government. Occupancy rates are at all time highs, average daily rates are at all time highs, and revenue per room is at an all time high. In addition to those facts, annual demand growth is current outpacing supply growth by a significant 1.7%.

In the words of STR’s president (STR in this case is the nation’s leading organization for research on the hospitality industry), “The next couple years will be great unless there’s an unknown factor we can anticipate.” This quote was given during an interview in 2014 and, as of yet, that “unknown factor” has yet to come into play.

Turning to a macroeconomic approach, FDI’s  in the United States are at all time highs. In fact, FDIs are currently higher than at any point in the past two decades. For those unfamiliar with macroeconomic principles, FDIs are foreign direct investments. Essentially, this figure represents foreign firms investing in the United States, instead of their home countries.

Domestic investment is currently rising, and domestic savings are dropping. Not only are firms investing heavily in the United States, consumers are also showing a willingness to once again increase their consumption. This reaction is to be expected during periods of economic stimulus, especially after a recession. Higher consumption amongst the general public has a direct correlation to tourism expenditures. This potentially indicates that investment in hotel development is likely, given that demand for hotel accommodations will continue to experience growth. Basic economic principles, quite literally as basic as it gets, dictate that suppliers will always work to meet newly generated demand. Given that leading experts in hospitality have also predicted such, it is a fair bet to say that I’m correct in the above assumption.

Turning to a more tourist oriented approach:

International travel to the United States is predicted to increase at a rate of 3.1% annually through 2020. So while the United States is experiencing relatively unprecedented investment from abroad, the United States is also experiencing a boom in the exportation of goods and services (represented by tourists from abroad spending money to travel here, and therein purchasing goods while they are here). In fact, tourism has long been acknowledged as America’s largest service export. In addition to the influx of international tourists, overall tourist expenditures are at all time highs.

With all of that being said, I am left with the general feeling that the council members in favor of subsidies are either terrible at doing their own research, or have simply been brainwashed into doing whatever they’re told to do by outside interests. They are effectively proposing subsidies for an industry in which there is literally not a single shred of evidence indicating that government assistance is needed to guarantee success.

One of the more common arguments I have heard from those in favor of utilizing subsidies to attract four diamond hotel developers has been reliant on the fact that no four diamond hotels have been constructed in Anaheim in 15 years (the most recent being the Grand Californian which was finished in 2001).

For that reason, I am left with no choice but to bring up the past 15 years of U.S. History, and why developers would not have been interested during that period of time.

Trouble in the hospitality industry really started on September 11th, 2001. Needless to say, the general public was not keen on air travel following the worst terror attack in U.S. History. In fact, it took until early 2004 for tourism to reach levels that once again matched the pre-9/11 days.

With that being said, the industry experienced three’ish’ good years before everything once again returned to shit during, and following, the financial collapse of 2007/2008.

However, as was discussed earlier, the industry, now, has succeeded in not only surpassing pre-Great Recession levels, they have been able to reach a level of growth greater than that which has been experienced over the past 40 years!

Which begs the question: why the hell would anyone think that now is the time to start providing government assistance to the hospitality industry? Do they fail to realize that the industry, as a whole, is doing better than it has over the entirety of modern American history?

Given the fact that Disney expanded the Grand California Resort a few years after 9/11 due to unprecedented growth in demand, the argument can easily be made that demand for four-diamond accommodations does, indeed, exist in Anaheim.

If anything, the Hotel Incentive Program is simply a grab-bag for unneeded financial assistance. Anaheim is supporting an industry that does not need support, and they’re handing residents the short end of the stick in their desire to do so.

Lastly, when a developer sees an opportunity to take advantage of a financial kickbacks, of course they’re going to request them, and then pretend they wouldn’t build a hotel without them. Given that the first subsidy for the Gardenwalk Hotel entered negotiations in 2012, no one, I repeat NO ONE, even knows if developers would be interested in constructing a hotel without a subsidy. Prior to 2012, the recession would have prevented any such investment. Post-2012, the industry entered a period of boom but, of course, that’s when our council decided it was time to start subsidizing. Anaheim’s council majority seems to lack not only common sense, but also any sense of the basics of supply and demand.

I will end by repeating this: local government officials are the ONLY people saying that the industry needs subsidies. Those in the industry readily admit that it is stronger than it has been in the past 40 years. If that doesn’t set off alarms, then I don’t know what does.

Daniel Robbins is a 22 year resident of Anaheim and a recent graduate of CSUF with a degree in Economics.

Opinions expressed in editorials belong to the authors and not Voice of OC.

Voice of OC is interested in hearing different perspectives and voices. If you want to weigh in on this issue or others please contact Voice of OC Involvement Editor Theresa Sears at TSears@voiceofoc.org

  • Judy Allen

    If WE the taxpayers can afford to give away more than $500 million in
    Disneyland hotel subsidies for LUXURY, vacation housing, can we not
    afford $270 thousand to pay for safety concerns for SUBSISTENCE housing
    for low-income families, the elderly, and the disabled?

  • Paul Lucas

    Maybe a statewide ban or cap on these sort of agreements is i order. No more cronie capitalism ballot measure.

  • Jacki Livingston

    I am going to repost what I said on the article, and add to it…

    I have had the great misfortune to stay in a number of hotels in
    Anaheim, from one to five stars, and I don’t think any taxpayer owes
    these people a nickel. They…in a word…suck. They are dirty,
    overpriced, rude, small and without any sense of hospitality. I wish I
    could say that in the last thirty years, they have gotten better, but
    the sad truth is, they are worse. The hotel lobby got rid of homes that
    could be rented by families, so that there could be no alternative to
    the shotgun hotel prison forced stay, so why should they get any
    freebies? They hire illegals, they pay lousy wages, they treat their
    guests like dirt, they overcharge for everything from parking to movies.
    Enough, already! Even Disney resorts are substandard cattle pens.
    Anaheim hotels and attractions have lost their magic, and the citizens
    of the state and country know it. Sure, they can cram in the Japanese
    tourists. But they don’t care about California families. Why should
    any California resident give a dime of their hard earned tax money to an
    industry that is mired in mediocrity, and that are there for
    attractions that no family living in the area can afford to visit? If
    they want hotel subsidies, then maybe they should get the Southern
    California resident prices back. All in all, Anaheim hotels and
    attractions suck, and pouring good money into a sinking ship that is too
    arrogant to see the iceberg is poor policy.

    And, now, to add:
    Anaheim politicians seem to be operating either in Fantasyland or on some kind of drugs. The very idea of Anaheim residents giving one penny to an industry largely controlled by Herr Mouse and his band of calculating execs is ludicrous. I have to ask the old Janet song title…”What have you done for them lately?”. Jobs? Puhleeze. Disney used to be a vibrant part of the community, and they showed their regard for the community that provided them with so much. Now? They cannot be bothered. Anaheim hotels are horrible. Truly, really awful! Why should the taxpayers of Anaheim help them? The House of Herr Mouse is priced completely out of reach for families. Money given to the lazy and lax hotel moguls could go to things that actually benefit the community, things like schools. It doesn’t matter if it is the most hooker infested fleabag motel on Harbor, or the on-site Disney hotels, they all suffer from the same malady…laziness. It didn’t used to be that way. Now, if I have to stay in any hotel in Anaheim, I strip the bedspread and blankets off the beds, bring my own pillows, spray every surface with Lysol and not even think about eating the food on site. It really is that bad. Disney’s contempt for the residents of Anaheim is clear, in their policy and pricing. The taxpayers should show the tourist industry the same dismissive contempt that they have gifted the residents of Anaheim with. Fair is fair.

  • Cynthia Ward

    BTW-The argument that the hotels won’t be built without the subsidy is not only debunked nicely by Mr. Robbins here, it is debunked by the City of Anaheim’s own records!

    Disney is ALREADY OBLIGATED to build another hotel “sometime after 2010” for Phase 3 of the 1996 Development Agreement, Finance Agreement, as well as the Specific Plan approved in 1993. Note there is no approval needed Tuesday for the actual hotel, only the subsidy, because Disney has been cleared for that hotel for 20 years. In fact I think at some point they get in trouble if they DON’T build it. Since Disney owns the ONLY 4 star rooms in Anaheim so far, and their full capacity was the impetus for the gardenwalk disaster to pick up overflow 4 star guests unable to get into Disney rooms, AND Disney anticipates MORE visitors for the new Star Wars land, it takes a mind-boggling leap of faith to believe they would NOT build a 4 star hotel without subsidy. Indeed, it appears the hotel construction in Phase 3 was already committed for the LAST round of subsidy taxpayers provided, sucking 27% of our General Fund off to pay off the improvements that enabled the Disney DCA era expansion. Wait! If Disney was already committed to MORE improvements post 2010, then the $1B in promised new construction we gave them a gate tax rebate for last year was ALSO not really a “new consideration” was it? Well staff would have KNOWN that had they conducted basic due diligence by READING the agreements binding Disney and Anaheim in the actual deal that produced the gate tax rebate they were extending. And I KNOW they could not have done that, because I had to pay about $40 to get the docs out of storage AFTER the agreements were extended, so the City Manager could NOT have read them. How much confidence do you have now in staff promoting THIS new spiff for Disney, based largely on documents we know they did not read?

    On the two other hotels, owned by the same Chinese investors, they DO have to get approvals for the hotels, as Council must approve the Variance and CUP already cleared by Planning Commission (who did NOT consider the subsidy as it is not a PC function) So despite the subsidy being a POLICY the land use decision makes a Quasi-Judicial decision by Council, and conflict of interest, duty to act in “disinterested zeal” (yes it is a “thing” and found in Political Reform Act) and disclosure of ex parte communication regarding the item, must be disclosed for the two non-Disney hotels. We finally don’t have to look for the usual former-Mayor-turned-lobbyist, as this one is the work of Jeff Flint. I know, two sides of the same bad coin, but a refreshing change in the line up to keep the relationship charged up, right? Interestingly, we can ALSO show THEIR sudden interest in 4 star hotels isn’t really the creation of the Incentive, but that the Incentive seems to have been designed to enable what they wanted. The US rep for the Chinese investor is Paul Sanford, also of SOAR, also of VisitAnaheim, and Chamber, so Mr. Sanford is a ninja level string puller. And Mr. Sanford was meeting with City staff specifically to discuss HOTEL INCENTIVE POLICY for ANABELLA HOTEL as early as 2013, two years BEFORE there was a POLICY to incentivize the hotel rehab. Cart? Horse? Chicken? Egg?

    So now let’s look at the Policy and the two hotels Mr. Sanford proposes to redo. While the Disney improvement is “net new” even though it is already obligated, the hotels at Anabella and Anaheim Plaza are EXISTING UNITS, not vacant parcels. if NEW hotels are built, the hotels get 70% kickback of TOT. Existing hotels that REHAB to 4 star get 50% of TOT. Now the argument may be made that the existing hotels are going to be demo’ed and not simply redone. But since the base for the subsidy is to encourage STEEL CONSTRUCTION then ANY wood frame hotel has to come down, therefore the definition of “rehab” MUST by nature involve removal of wood frame construction on site for the steel frame construction desired by Council. ALSO, since the City of Anaheim had the nerve to keep a straight face while telling a bunch of Grand Jurers during Citizen Oversight for ARTIC funding that a BRAND NEW train station, in a BRAND NEW LOCATION, that DOES NOT accommodate high speed rail (and frankly makes it harder to get on a Metrolink) is a REHAB of an existing Metrolink station to accommodate high speed rail, then surely the replacement of one building for another on the same site for the same land use would ALSO be considered a REHAB and not NET NEW units. Thus are Anabella and Anaheim Plaza entitled to 70% for new units, or limited to the 50% for rehab? Not that I want to give them a thin dime….but fair is fair. Let’s compare apples to apples, even the ones with worms in them.

  • RyanCantor

    “With all of that being said, I am left with the general feeling that the council members in favor of subsidies are either terrible at doing their own research, or have simply been brainwashed into doing whatever they’re told to do by outside interests. They are effectively proposing subsidies for an industry in which there is literally not a single shred of evidence indicating that government assistance is needed to guarantee success.”

    Thank you, thank you, thank you.

    Ungodly stupid.

    • Cynthia Ward

      Government assistance IS needed to guarantee success…of the political careers of the 3 Council members expected to vote for this mess, of the career pencil pushers putting their names on staff reports they will be rewarded for later by pay raises and pension spikes, and never held accountable for when the plans fail to provide return on investment for the taxpayers once again fleeced by the most ambitious shearing team on earth. Government assistance is needed to guarantee success for the lobbyists scoring their 1% registered opportunity payment. And one suspects the Chamber has their “win bonus” plugged in there somewhere, Ryan how can you not consider THEIR success? Someone has to pick up the bar tab over there. It is all in how one defines “success,” and at City Hall the meaning is different from what the real world assigns to that word.

      Ungodly stupid. There is a definition I won’t argue with.

  • Cynthia Ward

    Share your views on this issue with the Mayor/City Council by sending email to LDay@anaheim.net.

    When I last checked there were a reported 60 emails against. Given the Angels giveaway generated about 2 dozen emails, 60 is a deluge. It is also a condemnation of Anaheim’s complacent citizenry that something this outrageous, something garnering such opposition on social media, only gets a few dozen emails. I get someone not wanting to throw themselves into the mosh pit of humanity that the Council meeting is going to be this week (although people who have NEVER attended before have been asking me how to get there and what is the procedure, so I am praying City Council does not just see the same old folks they have grown accustomed to ignoring.) The Building trades already have their message emailed out, to pack the Chambers and prevent access of those Anaheim residents and taxpayers who funded City Hall. If you want to witness the ultimate sick ballet, come early (bring snacks, water, and portable electronics charger as City Hall is woefully lacking in outlets) and watch the Disney-bots in their carefully choreographed dance as they swap out their own executives for the placeholder people who pack the room to save seats. No kidding, they did it last July 7, for the gate tax exemption. Anaheim residents are turned away to sit in the outer lobby with the junk sound system so they can’t hear their names being called to speak (the Clerk’s new system to post names to the screen helps some) yet when Disney execs show up, the professional and polished ushers and their full-hand-point-gestures are all, “Oh, two? Right this way please.” and they pull two kids out of seats to scamper off for whatever compensatory spiff they were offered and the execs have up front prime seating to watch their elected minions give them public funds, It may be legal but it is elitist with a hey-nonny, and the message stinks.

    So if folks don’t want to show up, I get it. But AT LEAST email the Mayor/Council and share your feelings about this critical issue. If you have the stomach for it, showing up is HUGE, especially if you are NOT one of the “usual suspects” that Council easily dismisses because we are on to them.

    Lucille Kring posted an epic rant to FB against the Mayor and his “strange bedfellows,” missing that those are Anaheim residents, and when you have an issue that brings together such disparate individuals and groups in one cohesive opposition movement, it would be wise to pay attention to what is activating them. But then, being wise is not something our Council majority is often accused of.

    The viewpoint of the Tres Amigos is they were elected to a form of representative government, which seems to translate to “shovel enormous buckets of your public funds to our friends while you sit down and shut up because you elected us.” In Lucille’s case she would also prefer that you not even APPLAUD for those speakers you may agree with. Hello, ACLU?

    Whether this makes sense or not is not at issue at City Hall. Whether Anaheim can afford it or not is not at issue at City Hall. All that 3 of our leaders care about is that they LEGALLY CAN get away with it, and Disney’s money will cover their sorry hides in campaign mail come election time to promote them as “job creators,” while the Building Trades will bust out for Jordan Brandman to counter the army that Jose Moreno already has working the front porches of District 3. You and I and the best interests of Anaheim as a whole are not even a FACTOR in the equation when City Hall crunches the numbers on these deals. We are not part of the consideration for 3 of the 5 electeds and ALL of executive staff, who tend to see “the public” as obstacles to get up, over, under, or around in order to push their own agendas, the expansion of their pencil pushing fiefdoms being their own conflict of interest. You thought politicians were the only ones engaged in self dealing? As a Department Head, you are called upon to effect the policy of the Council majority that takes action in Anaheim. Good staff finds a way to word a “recommendation” to either NOT recommend a bad policy or mitigate damage while making others aware. But since you won’t be held accountable for your staff recommendation, and you have seen what happened to Cristina Talley and others who got in their way, keeping your head down, and preferable stuck in the sand, tends to be the career maker right now, If you can push through the nausea of selling out Anaheim taxpayers by commissioning “reports” by “experts” (proven copy and paste work is apparently acceptable at City Hall) then when the predetermined outcome of your leadership has been implemented, and astonishingly YOUR OWN DEPARTMENT now expands for the new “program” or “policy” you helped set up, then hey, with your expanded responsibilities comes expanded compensation! Whaddya know? Provide complete BS numbers on what a great deal a renovation of the Convention Center or the Stadium is, and you too can boost your 6 figure paycheck (and pension) and nobody will EVER hold you responsible for the financial losses of your department, based on the bad project you helped sell in a public meeting. We learned the hard way that what staff says in a Public Hearing is NOT ADMISSIBLE IN COURT. So by all means, come up with a fairy tale using a Ouija Board and Magic Eight Ball, and call it a staff report. Numbers? We don’t need no stinking numbers. Public Works Director Natalie Meeks INVENTED ridership for ARTIC, swiping fictional riders from a high speed rail project including riders who were not coming to Anaheim at all, leaving taxpayers to fund the perpetual white elephant of an empty train station, and she got a PLANNING AWARD for it, just before retiring, pension intact, career a seeming success to all. Unless, of course, you sit in the middle of ARTIC. This is the “new normal” in Anaheim. It has been the quiet way Anaheim has done things for a long time, but now staff does not remotely CARE if they are caught. Those of us who come to Council waving emails and studies and PROOF that the books have been cooked are dismissed and insulted, with Kris Murray mastering the art of, “This person is misinformed and I don’t want their politically motivated inaccuracies deceiving anyone watching this at home so staff please tell everyone how misinformed this person is.” and we are stuck sitting there watching staffers flat out LIE to get themselves off the hook, without any recourse of our own, because while Council and staff are permitted all the time they want for rebuttal of US, we are not afforded any rebuttal of THEM. Welcome to America.

    Citizens need to show up Tuesday, and make it painfully clear that if Council does this they have to do it in the full view of as many eyeballs as possible. If you can’t make it, email and tell them you object, and that you will be watching on TV or your computer, (anaheim.net streams live) and you will be watching with your neighbors. In fact, you might invite others for an impromptu “Council watching party” and Live Tweet reactions, make sure to hashtag Disney so they get the credit for this. The Council majority may very well do this despite more opposition than any other issue has generated in the memory of anyone watching City Hall. But it needs to COST THEM. And frankly it should cost the corporate overlords who set up this “policy” for their own use, so they can extract even more funding from taxpayers who already forfeit 27% of General Fund revenues to the subsidies we are still paying off from the 90s. There is a retail value assigned to “good will” for a brand, and i don’t know what it takes to cost someone more than the $200MM in subsidy they are taking from us, but i intend to spend my life finding out.

    When the citizens of Bell discovered how badly they have been had by their own leadership, their rallying cry became, “Basta! Enough!” Have you had enough, Anaheim? Then NOW is the time to speak up!

  • Greg Diamond

    Wonderful article, Daniel. My only disagreement is that while whether a hotel would be built even without subsidies is an important question, it’s not the central question.

    The central question is whether Anaheim can afford to forego this future income — especially given that (1) the city is now putting the vast majority of chips on tourism, which (as on 9/11) is not a sure bet, and (2) with no provision that they can’t lower the hotel room prices at will, these properties are likely to steal business from existing hotels who DO pay full freight TOT — thus potentially REDUCING the net revenue that Anaheim could keep over the next 20 years.

    • David Zenger

      I got a ridiculous piece of SOAR propaganda hung on my doorknob which claimed that because these new rooms would be more expensive IT WOULD RAISE THE ROOM PRICES OF ALL OTHER HOTELS, TOO, THUS FURTHER AUGMENTING TOT REVENUE.

      What’s much more likely is that empty four star rooms will end up competing in the same market as the existing rooms, i.e. not generating additional TOT at all.

  • David Zenger

    Thanks for a thoughtful piece.

    I’ve gotten bogged down in the discussion on whether or not the market would support a new high-end hotel. While this conversation may have relevance in dealing with the pro-giveaway’s ludicrous propaganda it really doesn’t matter.

    What matters is the basic grasp of a simple economic premise: if the hotel can stand on its own it doesn’t need a subsidy/kickback; if it can’t stand on it’s own it’s absolutely foolish to prop it up with government largesse. The 70% is not free money. It has a cost to the citizens of Anaheim.

    The Disney-paid-for agents on the “pro” side are busy pitching their sort-of-makes-sense half-truths. But they really won’t talk about any real numbers, because they really don’t care. The hotel kickbacks are a mortgage that the rest of us have to pay so Brandman, Murray and Kring can try to enrich their friends.

    The existing various tax increments (after the 1996 agreement) on Disney properties are already being used to some extent to pay for the 1996 Civic Center/Improvement bonds, among other things. Is the TOT already oversold? Who knows?

    Studying the City of Anaheim’s financial obligations is like watching a New York City sidewalk shell game. And they are that way for a reason.