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)

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