The Anaheim Hotel is getting an upgrade to luxury level, thanks to new tax subsidies granted by Anaheim taxpayers, who have become partners of sorts with developer Good Hope International to remake the hotel on the corner of Harbor Boulevard, near Katella Avenue.
The deal has revived the decades-old debate in Anaheim about whether it’s the role of local taxpayers to stake local luxury hotel developments.
Anaheim’s City Council majority argues the hotel tax subsidy, which gives luxury hoteliers 70 percent of hotel tax back for 20 years, is needed to spawn a luxury hotel market in the city. Anaheim’s hotel room tax rate is 15 percent of the overnight rate.
Last month, City Council members voted on a five year extension to a development agreement and kept the subsidy agreement for developer Good Hope International. The Council will consider it a required second time at its upcoming Tuesday meeting.
“We voted for four diamond hotels a number of years ago and the reason we said they needed the subsidy is because they could not get construction loans. The real reason these hotels are getting subsidies is because the banks will lend on that promise of future income,” said Councilwoman Lucille Kring during the Dec. 17 meeting.
She also said the luxury hotels are needed to draw in big bucks from the Los Angeles Angels baseball players and the Anaheim Ducks hockey team when they play home games because they stay outside of the city.
Kring also said luxury hotels would drum up tax dollars for the convention area and attract wealthier clients.
“We have big conventions coming in,” Kring said. “Those people, those high-end business people are not staying in those hotels.”
Councilman Jose Moreno, the only dissenting vote against the move, countered Kring, arguing the economy is doing better than back in 2016 — when the development agreement with Good Hope was first authorized — and there’s already a demand for luxury hotels that could be built without subsidies.
“There’s clearly a market, there’s a market for these hotels. I’m convinced of that, based on the testimony given to us this evening. So when there’s a market, you don’t need to incentivize that,” said Moreno during Council deliberations.
Moreno’s questions prompted a heated exchange with Chamber of Commerce chairman Ross McCune, who is also president of Caisteal Builders, a construction company.
After numerous building trades union representatives and workers advocated for the Anaheim Hotel, Moreno called McCune back to the podium to answer some questions.
“So why wouldn’t you yourself use the same union labor that we are hearing are so important in these projects?” Moreno asked McCune.
“Look here, buddy. I spent 18 years with a union shop, I put a lot of union people to work,” McCune shot back.
“We got to the point where we were the only union shop,” McCune said. So that’s when I started my own firm. We were non-union. We were non-union so we could build the right project for the customer.”
Moreno asked if McCune uses union labor in some of his projects. McCune said he does, based on the project size. He said he would hire union workers for a project like a four-story building, but not installing bathroom frames.
“There is that thing called business. You know, profit/cost. That’s just how things work,” McCune said.
“When you ask us to give away $180 million, that’s our business, right?” Moreno asked.
“No, it’s not. because you haven’t given away anything. You have to generate dollars to be able to have a return and right now, as far as I can see, you haven’t generated anything,” McCune said.
The argument was eventually stopped when Mayor Harry Sidhu and Councilman Trevor O’Neil stepped in.
Failed referenda against two hotel developments, including The Anaheim Hotel upgrade, and 2018’s Measure L slowed down construction, according to the staff report. Resort businesses are trying to figure out how to deal with 2018’s Measure L, which has slowed progress down, according to the report.
The measure mandates a $16 an hour minimum wage from employers in the resort district who receive a city subsidy, like the 70 percent hotel tax rebate over 20 years for luxury hotels. The minimum wage reaches $18 in 2022 and will be adjusted on cost of living increases after that.
The hotel tax subsidy policy was discontinued December 2016 after the city thought it secured the number of luxury hotel rooms it wanted.
Disney cancelled the proposed 700-room luxury hotel near Downtown Disney October 2018, after it asked the city to cancel the subsidies when questions about Measure L began to swirl and hotel tax subsidy debates resurfaced.
The Anaheim Hotel was originally named The Charter House Hotel, which opened in the early 1960s. Nearly all of the original buildings still stand.
The Wincome Group bought the property in 2014 and successfully secured the luxury hotel tax subsidy in 2015. Although no construction has started at the Anaheim Hotel, Wincome’s other property, The Westin luxury hotel, is slated to open this summer.
Others on the City Council said the city was just extending timelines.
“For me this is simply about extending the timeline on a previously approved project,” O’Neil said. “Should any component not be approved, we would essentially be changing the rules of the game on this project.”
Councilwoman Denise Barnes and Moreno failed to get the Council to vote separately on the development agreement and operating agreement, which lays out the hotel tax subsidies.
Although Barnes ended up voting for the Anaheim Hotel development extension and subsidy, she criticized the subsidy portion of it.
“I was not on the Council when this was approved, but I would not have voted for this subsidy had I been there. Even if I supported a subsidy that returned 70 percent of the [hotel tax] back to the hotelier, I have concerns about delaying construction with an extension,” Barnes said. “That is why there are time deadlines for performance built into the agreement.”
Leading up to the vote, some Anaheim First members advocated for the Anaheim Hotel development.
Anaheim First is a private advisory group that’s slated to make $250 million in spending recommendations to the City Council over the next 10 years. The money is supposed to come from new revenue, but city leaders still aren’t sure where the money will come from.
The group, first conceived by the Chamber of Commerce, has been backed by Sidhu and the Council majority. Some of its top members are also connected to the Chamber of Commerce or the political action committee, Support Our Anaheim Resort (SOAR).
“Part of that mission includes our input to the City Council on how and where the city’s resources are directed. The successful development of another four diamond resort hotel will be a key factor in how Anaheim will address funding those priorities,” said Amelia Castro, a Chamber ambassador and Anaheim First board director.
“As a member of Anaheim First, I see the benefits that we are going to gain for our neighborhoods and our communities,” said Gloria Ma’ae, an Anaheim First district leader and SOAR member.
And former City Council candidate Sergio Gonzalez, who’s also an Anaheim First district leader, advocated for the luxury hotel.
“More tourist dollars eventually translates into increased residential services such as community programs, parks,” Gonzalez said. “By not doing so it may also convey a message to future developers and contractors to avoid dealing with the city of Anaheim.”
The City Council gave Anaheim First $250,000 to begin studying neighborhoods last year. The Chamber was slated to pitch in another $250,000 for the group’s study and outreach program.
Last year, Sidhu convinced the Council majority to give a no-bid $425,000 contract to the Chamber to help promote local businesses. Although the Chamber contract didn’t have many specifics, it promised to advertise Anaheim at its own baseball stadium.
The Chamber and some Anaheim First members also backed the Angel Stadium land sale last month, when the City Council agreed to sell the stadium at a $325 million starting price, which will inevitably be reduced by ensuing development and community benefit agreements slated for negotiations later this year.
Spencer Custodio is a Voice of OC staff reporter. You can reach him at scustodio@voiceofoc.org. Follow him on Twitter @SpencerCustodio.