BALDWIN PARK — After losing more than $2.5 million, city officials have backed out of their promise to cover losses incurred by the Baldwin Park Hilton Hotel, a 196-room tower that opened to great civic fanfare in 1989.
The city's Redevelopment Agency, in an effort to lure the international hotel franchise to Baldwin Park, had agreed to cover 100% of any losses in the hotel's first 10 years and 33% forever after.
But the city's lawyers now contend that it was illegal for Baldwin Park to enter into such a business venture. As a result, the city in December stopped paying the $120,000 to $125,000 being lost every month by the half-vacant hotel, City Manager Donald Penman said.
"It was certainly a very bad business deal for the city," Mayor Bette Lowes said. "I truthfully don't think the city could make the payments much longer anyway."
In a letter to a subsidiary of First Interstate Bank Corp., which manages the financing on the project, Baldwin Park's lawyers also asked the bank to give back any money in the account established by the city to pay for the hotel's losses. Penman, who estimated the balance at $625,000, said last week that no money had been returned.
No representative of First Interstate would comment on what might be the consequences of Baldwin Park's failure to make payments. The bank presumably needs the money because it is responsible for making payments to the bondholders who financed the project, Penman said.
"If we're correct and the deal is not legal, then I don't think it will affect us whatsoever," Penman said. "But if we're not correct, it could have implications in terms of credit or whatever . . . that I'd really rather not speculate on."
Representatives of Vista Hosts, a Houston-based firm that manages the hotel, reacted angrily to the city's decision to back out.
"We find it highly irregular and unusual," said Paul Brushwood, senior vice president. "We're not in the business of entering into agreements with people and have them dissolve them and just walk away."
A spokesman for the Southern California Assn. of Governments said he had never heard of a deal in which a redevelopment agency made such an open-ended financial commitment. But Fernando del Rio, the association's communications manager, added that cities seem to be making increasingly lucrative offers in order to attract revenue-producing businesses.
"That seems to be the trend," Del Rio said. "But I can't believe the city of Baldwin Park would allow a complete giveaway like that. Hell, I'd like to have that kind of deal."
The deal was negotiated more than three years ago by a team of officials no longer with the city, which since 1989 has lost a mayor, a councilman, the city manager, the city attorney, the police chief and four department heads.
In exchange for underwriting the losses, the city was to get a 50% cut of the profits generated by the Hilton. The other half was to be split equally between an Orange County developer and Vista Hosts, Penman said.
Jack White, a former mayor, said the council was aware that there could be temporary losses but believed that the project was in the long-term interests of Baldwin Park.
"If we were going to move this city into the future," White said, "this was the kind of thing we were going to have to do."