A sharply divided Anaheim City Council Tuesday night approved an extension for a tax subsidy worth up to $44 million to the developer of a hotel in the city's resort district, generating some of the same controversy as a similar but larger tax break granted earlier this year.
The subsidy extension allows Lake Development-Anaheim, headed by hotel developer Larry Lake, to collect up to $44 million in room tax revenue over 15 years. A city-hired consultant estimated the developer will actually collect $19.4 million, according to a city staff report. The subsidy, first granted in 2009, required an extension to remain valid.
Council members voted 3-2 as they did earlier in the year on another hotelier subsidy, with Kris Murray, Gail Eastman and Harry Sidhu voting for the subsidy and Tom Tait and Lorri Galloway voting against it.
The extension gives the developer of the nine-story hotel at the southeast corner of Katella and Harbor a two-year extension on a requirement to submit construction drawings and a two-year extension to begin construction, bringing the new proposed groundbreaking date to March 30, 2015.
Lake's subsidy deal is smaller than one granted to a partnership led by Bill O'Connell for hotels in the resort district's GardenWalk center. That deal allows O'Connell's group to collect 80 percent of the project's room tax revenue over 15 years, an amount projected to be as much as $158 million.
The city would not realize any room tax revenue to its general fund during that period, because the remaining 20 percent would be dedicated to paying off resort district bonds.
The GardenWalk subsidy ignited a heated debate in the community and created the current 3-2 split among council members on such issues.
Many of the same community members who were against the GardenWalk subsidy showed up Tuesday to speak out against the Lake Development deal. Also at the meeting were representatives from the Anaheim Chamber of Commerce and Support Our Anaheim Resort, which support the subsidy.
Among the speakers was Brian Chuchua, a member of a residents' coalition that is trying to get a measure on the November ballot that would require a citywide vote on all room tax subsidies.
"To give away tax dollars in a time of need is wrong," Chuchua said.
The Lake project subsidy deal would share some room-tax revenue with the city. For example, in the first year of the hotel's opening, the city would receive up to $1.4 million in room tax revenue, while Lake's hotel would receive up to $1.9 million, a city document states.
Supporters of both hotel subsidies said that they were needed to jump-start development of the hotels and generate thousands of desperately needed jobs. Those against the deals said they were negotiated without any community benefits in return and give an unfair competitive advantage to the hotels' developers.
Some of the debate between council members Tuesday night focused on the accuracy of facts that have been disseminated on the issue. For example, Murray argued that it is inaccurate to say that O'Connell's subsidy is worth up to $158 million, because its not being counted in today's dollars. If you count the GardenWalk subsidy in its “present value,” the subsidy cap is $75 million.
The Lake project subsidy in present value terms is worth up to $24 million, according to a staff report. Murray also argued that the subsidy has no impact on the city's general fund and that the city has spent nothing on the Lake Development project so far.
“It has not cost our city a thing to date, and it won't cost our city a dollar” in the future, Murray said.
Responding to comments from Galloway that the subsidy deal was bad business for taxpayers because nothing was negotiated in return, Sidhu said that only a businessman like himself could understand economic development. Sidhu owns a chain of El Pollo Loco restaurants.
“It's very easy to make a point when you have never run a for-profit business,” Sidhu said in a veiled reference to Galloway, who runs a nonprofit charity. “If he [the Lake Project developer] earns it, [room-tax revenue], we earn it. That's great business.”
Tait took issue with arguments from Murray and Sidhu that the subsidy wouldn't cost the taxpayers. He said that the subsidy deals require the city to write millions of dollars in tax-rebate checks back to the developers every quarter for 15 years. He said that the city-issued checks gave the subsidy holders an unfair competitive advantage.
“It's not theoretical. It's hard general-fund money,” Tait said. “I know a little bit about economic development. The way you get economic development is to have a level playing field.”
Tait also said that the site of Lake's hotel project is next to Disneyland's California Adventure, which just opened a new park area called Cars Land, making it valuable real estate. There's no reason for the city to give millions of dollars to the developer on one of the most valuable sites in the city, he argued. “If there's a Main Street in Orange County it's this corner.”
To see what campaign contributions were given by the Lake project developer to council members click here.