The Anaheim City Council Tuesday night approved a $158-million room tax subsidy for local hoteliers despite impassioned pleas and angry condemnations from many who packed the council chambers to protest what they saw as a giveaway of public money to big business.
The subsidy allows developers of two four-star hotels near the resort district’s GardenWalk mall to keep the majority of the project’s room tax revenue.
Emotions during the six-hour meeting were running so high that a working-class Latina stood up to say ignoring the poor and doling out money like the subsidy would bring down the wrath of God.
Another resident compared the scenario to a science-fiction movie.
“It would be one of the worst decisions in local government history,” said Rick Skinner, who says he has operated a hotel in Anaheim for 25 years.
Nonetheless as expected, a 4-1 majority, with Mayor Tom Tait as the lone dissenter, approved a deal whereby developer Bill O’Connell and his partner are permitted to keep 70 percent of the hotels’ generated room tax revenue for up to 20 years, with $158 million being the maximum. Another 20 percent would go to pay off resort district bonds. The city would receive the remaining 10 percent.
Before the vote, Tait sparred with his colleagues over the disputed benefits of the deal. The meeting was also an arena for city leaders to answer core questions about the role of local government, particularly in a town that derives so much of its general fund revenue from tourism.
Some of the residents who came to the meeting spoke in favor of the subsidy, saying it will lead to more jobs. And city staff gave a PowerPoint presentation, which included images of the sun shining through palm trees and estimated that the deal will lead to a $235-million net gain to the city’s general fund between 2016 and 2042.
Rosy projections for the general fund notwithstanding, a representative of the other city hotels, while stating no position, said that it’s not the government’s job to “pick winners and losers” in a free market.
Tuesday’s vote closed the latest chapter in a saga that began more than a year ago and in many ways has become the symbol of an intensifying clash between the business elite that has long had control of Anaheim city government and the city’s increasingly vocal Latino working class.
The City Council first approved the subsidy in January 2012, but a Superior Court judge later voided the vote, ruling that it violated the state’s open meetings law, known as the Ralph M. Brown Act, because the public did not receive proper notice.
There have been rumblings that another legal challenge is in the works, but it is unclear whether a new lawsuit will will be filed.
Councilman Jordan Brandman, who was not on the council when the subsidy was first approved, articulated the majority’s central argument for the subsidy. He said such deals are part of a legacy of city development pioneered by previous councils to ensure the long-term strength of the city’s finances.
“These things have been coming before this council for generations,” Brandman said, adding that the difference with this subsidy is “absolutely ironclad data that a lot of other agreements didn’t have.”
According to city staff, in today’s hotel market a three-star hotel could be built without a subsidy, netting 100 percent of the room tax revenue. But the four-star hotels project is so much more lucrative that even with the subsidy, it would generate $124 million more to the general fund than a three-star hotel project, according to a slide in the staff presentation.
In Tait’s view, the slide artificially skews the numbers upward. He pointed out that it assumes that the $158-million maximum would be reached before 2042. For the remaining years of the agreement, the city would receive all of the room tax revenue.
Tait estimated that if the slide’s time frame included only years the developer would be collecting the subsidy — that is, through the early 2030s — the four-star hotels project would net the city only around $20 million, while a three-star hotel project would generate about $50 million.
Most of the speakers expressed the opposite of Brandman’s conclusions, saying that the subsidy is a robbery of decades worth of city funds that will threaten future city services and further cripple already struggling working-class neighborhoods.
Meanwhile, Tait provided the argument against the subsidy that is rooted in conservative philosophy. He said it distorts the free-market, creating an uneven playing field for other hoteliers in the city to compete.
“If you believe in free markets and limited government, you cannot support this deal,” Tait said. “This is the antithesis of free markets and limited government.”
Council members and city staff argued that cities across the country have been competing to attract businesses, using a menu of tax breaks to win the race. While Anaheim has been successful in creating a world-class resort district, the city has yet to attract high-end conventioneers seeking luxurious accommodations.
According to a New York Times analysis, states and local governments in recent years have granted gigantic tax breaks adding up to $80 billion annually. Critics argue that corporations intimidate over-matched elected officials in negotiations, threatening to leave town or even the country and destroy local economies. But there is often concrete evidence that companies wouldn’t vacate if they didn’t receive the subsidies, according to the Times.
Councilwoman Kris Murray pointed to Garden Grove as Anaheim’s emerging competitor. That city has given free land to a hotel developer, among other benefits, and is aggressively pursuing hotel developments to steer business from Anaheim.
“I believe we need to take bold steps to secure Anaheim’s fiscal health in the long term,” Murray said.
Tait said that, while Garden Grove is granting subsidies, it is unlikely that the city can from more than a mile away steal a hotel development from the GardenWalk site, which is adjacent to Disneyland. He said that several hotels totaling 1,063 rooms have been built in Anaheim in recent years without subsidies.
In the end, council members said they wanted to defuse accusations of favoritism for O’Connell — who is politically connected and a financier of council members’ election campaigns — by approving an ordinance that would open up a similar deal to all city hoteliers.
Under a scenario where all hoteliers received a 70 percent room tax subsidy, Tait said, the city would go broke.