The city of Santa Ana has approved spending $5 million to help expand a Honda dealership at the Santa Ana Auto Mall and demolish a closed strip club that long annoyed city officials.
Now, a divided City Council today will consider whether to allocate an additional $1 million for the dealer's legal fees incurred in a fight with the landlord of the strip club, which was known as Mr. J's.
The council majority thinks expanding the dealership is "beneficial to the entire auto mall," said City Manager David N. Ream. "Honda will expand, bring in more tax revenue, and there will be more jobs." But two council members and several other dealerships in the mall say that for the city to help one dealership to such an extent smacks of favoritism.
Demolishing the club will also be asset, said Councilman Jose Solorio. "Mr. J's was more than an eyesore," he said. "It was not the best use of the land." Numerous city officials have said the club gave a negative impression at an entry point to the city and was a magnet for crime.
As for the complaint of favoritism, Solorio said, it was important to help Honda -- and Crevier BMW in a similar arrangement a year ago -- because, unlike other dealerships, it is at the foot of the auto mall next to land where it could expand.
Santa Ana and cities across California offer incentives to attract auto malls to generate more tax money. They "are a great revenue stream. I think many cities work to help a partner as they get a portion of the sales tax revenue," said John Sackrison, executive director of the Orange County Automobile Dealers Assn. "Cities often look at what will be best for their own budgets."
The Santa Ana Auto Mall, at East Edinger Avenue and the Costa Mesa Freeway, is home to 10 dealerships that generated $3.9 million for the city in the fiscal year ending June 2005.
Developed by the city in 1985, the mall will now be undergoing a second expansion. A year ago, the city provided about $10 million to buy land and relocate businesses to quadruple the size of Crevier BMW. For three years, it was the nation's largest dealership based on sales volume, and it remains the largest in the West.
The Crevier and Honda dealerships lie at the gateway of the mall, along with the nearby Mr. J's, now closed.
"A strip club and a high-end auto mall do not mix," said Councilman Carlos Bustamante.
The club occupied an older building that once had a sign reading, "exotic dancers," said Bustamante, and police responded to 55 incidents there in 2004-05, including assault, theft and drug complaints.
On Jan. 5, the council, sitting as the board of the city redevelopment agency, voted 5 to 2 to pay $5 million to take over the 42-year lease of the strip club -- a lease Honda had acquired -- pay for the club's demolition and sublet the land to Honda.
Within two years after Honda expands, Solorio said, the city will gain 200 jobs and $675,000 more annual sales tax revenue.
Despite this, Councilwomen Claudia Alvarez and Lisa Bist opposed the $5-million expenditure.
"Why are we doing so much to push through this transaction?" said Alvarez, who opposes the expenditure of public funds for a private business.
Alvarez questioned buying the strip club lease from Honda and then subleasing it back. She also questioned the need to pay the dealership's legal fees.
Some dealers in the auto mall also object. "I keep asking myself, 'Why don't they give me $5 million to expand my business?' " said Adolph Ohmann, owner of Commonwealth Audi.
Mike Stout, vice president of Saturn of Santa Ana, said the decision is "grossly unfair. If they want to spend millions of dollars, it shouldn't be to help one dealer."
Honda Santa Ana attorney Michael Vivoli counters that Honda Santa Ana was the only dealership next to a strip club, for decades. "That has caused problems for that business," he said.
The Honda expansion plan may face a roadblock at tonight's meeting. There may not be enough votes to approve the $1 million in legal fees. Rules of the seven-member redevelopment board say a five-vote majority is needed to approve expenditures.
Councilwoman Alberta Christy is poised to abstain on the vote, saying her employer, Citibank, is involved in bonds for the deal. Along with opposition from Bist and Alvarez, there are not the required five votes.
As a result, city staff and Ream have proposed that the council vote on changing the rules to require only four votes of approval for the action.
Alvarez has questioned why the city should change its rules so that fewer votes of approval are needed to give Honda more money.
The deal came together after Honda Santa Ana tried to buy the lease directly from the strip club owners, Sahar and Mohammed Johar.
The owners agreed, then pulled out, and a major court fight and bankruptcy filing followed. In the end, the parties settled, and Honda Santa Ana paid $2.1 million for lease.
Under terms of the agreement with the city, approved Jan. 5, the city will take over the lease from the landowner, Erickson Properties, and sublease it to Honda, said Pat Whitaker, executive director of Santa Ana's Community Development Agency.