Are Tax Dollars Still Needed for Anaheim GardenWalk Hotels?

From The Voice of OC:

Two planned four-star hotels near Anaheim’s GardenWalk mall could be built without taxpayer subsidies in one to two years, according to hotel financing experts, calling into question subsidy supporters’ central argument that the hotels can’t be built without the controversial incentives.

Council members in a 3-2 vote last year approved a room-tax subsidy, which caused a contentious split on the City Council and within the community. For 15 years, the subsidy would have diverted 80 percent of the hotel's room-tax revenue back to a development partnership involving Bill O’Connell, a politically connected hotelier and frequent City Council campaign contributor. The room tax is the city's largest source of revenue.


The developer could have collected up to $158 million in diverted tax revenue under the agreement. It allowed the project’s investor to receive a 16 percent rate of return on the hotels, according to a city staff report.

City Council members favoring the deal said the subsidy would have kick-started construction of the hotels and generated thousands of much needed jobs.

Last month, an Orange County Superior Court judge voided the subsidy on grounds that it violated the state's open meetings law, known as the Ralph M. Brown Act. Judge Steven L. Perk ruled that the subsidy approval was not adequately described as a possibility on the council meeting agenda.

For O'Connell to get his subsidy, City Council members must approve it again. He requested that the subsidy be placed on the Jan. 29 council meeting agenda, but that didn’t happen.

Supporters often argue that the subsidy costs nothing to taxpayers because the money for the subsidy can’t be generated unless the hotels are built and trigger new revenues.

But that argument now has a major flaw, argue experts.

The hotel market is rapidly improving, and a subsidy soon won’t be necessary to secure investment for the project, said one of Orange County’s top hotel real estate consultants and a professor at the country’s top hotel financing school.

“The hotel market has recovered, and revenues are continuing to climb. Lenders have already stepped back into the market and with values of existing older hotels rising rapidly,” wrote Alan Reay, president of Atlas Hospitality Group, in an email to Voice of OC.

Jack Corgell, professor at Cornell University of Hotel Administration, said that subsidies don’t make sense when they won’t be necessary to begin construction.

By waiting an additional year, $158 million in potential room-tax revenue would go to the city’s general fund, Corgell argued.

“The value of waiting an extra year could be substantial to the city,” he said. “Why would you do this now? What’s the urgency?”

Anaheim Chamber of Commerce President Todd Ament, a strong supporter of the subsidy, did not return a phone call seeking comment.

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