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Some question tax breaks for downtown hotels

Three downtown projects could see the city forfeiting as much as $640 million over three decades as officials struggle to pay for parks, police and firefighters.

May 04, 2011|By David Zahniser, Los Angeles Times
  • Los Angeles Mayor Antonio Villaraigosa and the City Council let developer AEG keep up to $270 million in city taxes through 2035 for the 54-story J.W. Marriott.
Los Angeles Mayor Antonio Villaraigosa and the City Council let developer… (Wally Skalij / Los Angeles…)

The downtown J.W. Marriott has done brisk business since it opened last year, filling up rooms and producing much-needed tax revenue for the cash-strapped city of Los Angeles.

But that revenue will come at a price. To get the 54-story skyscraper built, Mayor Antonio Villaraigosa and the City Council decided to let the developer, Anschutz Entertainment Group, keep as much as $270 million in city taxes through 2035.

Since then, two other similar tax deals have been inked by city officials. One covers the planned Mandarin Oriental Hotel, part of the long-delayed Grand Avenue project near Disney Hall. A second would allow a new 45-story Wilshire Grand to keep nearly half of the new taxes that it would generate between 2015 and 2043.

If all three projects are completed, the city could wind up forfeiting as much as $640 million over roughly three decades, money that otherwise would have helped pay for police officers, firefighters and other basic services, according to documents reviewed by The Times.

Now, with a proposed AEG football stadium expected to lure even more hotels downtown, some business and community leaders are wondering why more subsidies are needed in a stretch of downtown that is already thriving. Wine bars, upscale restaurants and even a high-end rum bar can be found within blocks of AEG's L.A. Live, the entertainment complex that received the subsidy for both the Marriott and the Ritz-Carlton Los Angeles hotels.

Peter Zen, owner of the Westin Bonaventure, said blight has been eliminated along downtown's Figueroa Street corridor, where two of the tax rebates have been approved. After the council OKd the Wilshire Grand giveback two months ago, he warned that the steady flow of tax rebates would slowly erode the city's finances.

"In the future, every time a developer decides to build in the city of Los Angeles, he will go to City Hall and solicit politicians' help to get subsidies from the city, with support from many powerful parties who will benefit from the project," Zen said. "So how can the city ever increase its tax base?"

City officials vigorously defend the tax rebates, saying new luxury hotels create much-needed construction jobs and boost traffic at the downtown Convention Center, a city-owned facility that must make $48.5 million in yearly debt payments. If elected officials refused to cut such deals, the city would not get any money at all, they said.

"The projects that were approved or are in process would not have occurred without public support," said Councilwoman Jan Perry, who represents part of downtown.

Still, the vast majority of businesses that open in Los Angeles do so with the understanding that the sales, property and hotel taxes that they generate will flow into city coffers — not into their own bank accounts. In Hollywood, for example, no such deal was provided to the W Hotel, which opened last year at Hollywood Boulevard and Vine Street, city officials said.

But when a Portland-based developer announced plans last month for a 22-story hotel on Olympic Boulevard across from downtown's L.A. Live, he said he too would look into the possibility of a tax rebate or other city financial assistance.

"We'll ask for some kind of help, but I can't tell you what it is right now," said Homer Williams, chairman of Williams/Dame & Associates, one member of the group planning to build the 377-room Residence Inn and Courtyard by Marriott.

Bruce Baltin, a consultant retained by the city to analyze the three downtown hotel deals, said there is still growing demand for rooms near the Convention Center. And although Baltin agreed that downtown is "making a lot of progress" in becoming revitalized, he said the city should continue offering such agreements — at least for now.

"They'll have to meet two tests: Does the hotel need the subsidy to be [financially] feasible? And two, is it contributing net new revenue to the city? If it doesn't meet those two tests, they're not going to get the subsidy," he said.

Councilman Bill Rosendahl, whose district includes LAX, said hotel owners on Century Boulevard have complained to him that they aren't getting the types of deals offered downtown. "It's going to take a lot of persuading to get me to support" another hotel tax agreement near L.A. Live, he said.

The debate over hotel taxes comes at a time of retrenchment of city services, with fewer dollars for parks, summer job programs, the Fire Department and others. With a $457-million shortfall expected in the coming year, the city's top financial analyst has suggested that Villaraigosa and the council focus on the programs that taxpayers want most.

That list should not include tax rebates for private developers, said Lincoln Heights resident Mike Kolker, a neighborhood activist who has criticized other downtown subsidies. "Right now, in the middle of the worst economic downturn since the Depression, tax money should go toward services, not hotels," he said.

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