Anaheim Breaks Ground on a Subsidized High-End Hotel That'll Cost the City Millions
Anaheim resort rubble
Gabriel San Román
Across the street from Disneyland and the Anaheim Convention Center, piles of debris litter a lot once occupied by the Anabella Hotel. Just last month, Anaheim City Council members dug shovels into the soil of the future Westin Anaheim Resort site during a groundbreaking ceremony. Business leaders and trade-union bosses also gathered to celebrate the first Westin built in Southern California in a quarter-century, a $245 million, 613-room project that everyone involved insists will change the hospitality game in the city once it opens in 2021.
But the wreckage at the construction site is an omen of sorts. The Westin got a massive tax break courtesy of Anaheim's Four Diamond Hotel Incentive Program, which gave away $550 million in developer welfare for it and two other proposed high-end hotels. Councilwoman Kris Murray hailed the now-defunct program during the groundbreaking ceremony to KABC-TV Channel 7 (owned by Walt Disney Co.), claiming its long-term benefits will bring in "hundreds of millions and, in [more than] 30 years, more than $1 billion to the city's general-fund revenues."
She was part of a council majority that in 2016 granted the Westin and others 70 percent in future bed-tax for its first 20 years. And when the subsidies end in 2041, the deal will resemble all the concrete and pipes strewn around the future Westin right now.
The councilwoman didn't say anything to Channel 7 about the short-term benefits, perhaps for good reason. An economic analysis done by the city and obtained by the Weekly shows that Anaheim expects to lose $2.8 million in general fund revenues—money that pays for city services such as parks, libraries and police—on the project when the subsidy ends. Keyser Marston Associates, a consulting firm hired by Anaheim, painted a robust picture when it reported the city stood to gain $19.8 million in net incremental revenue from the deal during that same time period. But that didn't account for Lease Payment Measurement Revenues (LPMR), bond payments the city's on the hook for until 2037 after pledging $546 million in resort-area improvements as part of a 1996 Disneyland expansion deal.
Taking that deal (recently the subject of a lengthy Los Angeles Times investigation that was just a rehash of previous coverage by the Voice of OC and the Weekly) into account, the Westin deal's net revenue isn't expected to surpass debt payments for 16 years straight. The freefall hits its lowest point in 2037, as the city analysis projects $8.7 million in losses up to that point. Four years of robust revenue follow, but even that can't save a total $2.8 million loss for the lifetime of the subsidy.
"Why would anyone do this deal?" Anaheim Mayor Tom Tait now asks. "This doesn't make any financial sense for the city, and that's why I opposed it vigorously when it came up."
The mayor calls the Keyser Marston projections "rosy" because they don't account for a number of other variables, including the "cannibalization" of hotel guests. And if tourists choose to stay at the new subsidized luxury hotels, there's an inevitable impact to the general fund that's unaccounted for when hotels with city-standard 15 percent bed taxes lose out to them. "Even as bad as these numbers are, they're still very optimistic," Tait says.
Murray is correct in stating that the Westin deal does eventually pay out. After a 30-year period, when Anaheim will have collected 100 percent of the hotel bed taxes for a decade, the Westin is expected to have contributed $121 million to the city's general fund, a number that balloons to nearly $500 million after 50 years in 2071. But the mayor contends things could've been much different and more beneficial for Anaheim residents. "If we did nothing and just left the Anabella Hotel, we would make substantially more money than we would have in the first 20 years," Tait says. The mayor notes that the projections assume Wincome Group, the Westin's developer, wouldn't have built a three-diamond hotel without a subsidy. "You're not going to tell me that the property right next door to the convention center and across the street from Disneyland needs a massive subsidy to be built."
Anaheim spokesman Mike Lyster summarized the consulting firm's findings, again not accounting for the impact of bond payments. Instead, net revenue figures after 20 years for the three hotels blessed by the Four Diamond Hotel Incentive Program were generously added to the 30-year projection. The final tally comes in at $903.7 million. Murray declined to comment in follow-up requests.
With the expansion of the Anaheim Convention Center and construction of Star Wars: Galaxy's Edge at Disneyland, a staff report during the July 2016 council meeting stressed the need for subsidies to bring in a trio of luxury hotels they stated would add 1,914 guest rooms and $190.6 million in tax revenues over 20 years. Talks of bond payments dragging down the Westin's revenues never arose during the marathon meeting.
"Cities have to account for revenue, incentive payments and jobs," Lyster wrote to the Weekly, citing the staff report as within the law. "They are not required to break down how the money coming to the city will be spent. At the time, we were very clear about what would remain in the general fund and how much would go to pay down debt, which is also a positive for Anaheim."
Tait says the city's spreadsheet analysis showing general fund deficits after 20 years of Westin's subsidies and bond payments is the first time he has seen anything like it on paper, but he doesn't think the information would've swayed the council vote last year. After Tait gained a council majority in the November elections, the group ended the Four Diamond Hotel Incentive Program the following month, albeit in a unanimous and largely symbolic vote since the program already benefited the luxury hotels it intended to.
Will the Tait turnaround be short-lived? "These giveaways are fundamental issues in Anaheim," the mayor says.
In the upcoming 2018 mayor election, Tait doesn't appear to have a dog in the race. Republican mayoral candidate and former councilman Harry Sidhu is pro-subsidy, as is his main Democrat challenger, Ashleigh Aitken. The political newcomer told Voice of OC (where Aitken's father, Wylie, chairs the board and donates big bucks) that subsidies can be important incentives for growth so long as they lead to union hotel-worker jobs. The other two luxury hotels under the program only negotiated Project Labor Agreements (PLA) to use union construction labor. "Whether there's a union contract associated or not is really crumbs off the table and doesn't make subsidies okay," Tait says.
He asks Anaheim to imagine an 8-year-old on Anna Drive, a poverty-plagued barrio that recently received free furniture from the demolished Anabella, who'll be an adult before the Westin hotel begins generating general fund revenues surpassing the city's bond-payment obligations. "This whole generation of children will see no benefit," Tait says. "In fact, they're worse off by this deal. We need the money for Anaheim kids now, not 30 years from now."
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