OC Register real estate columnist Jonathan Lansner penned this column last week. Lansner’s trenchant common sense cuts through the council majority’s bunkum and blindness like a hot knife through butter:
What city would walk away from a $100 million business windfall?
By Jonathan Lansner
Anaheim has essentially rejected a no-money-down, debt-free deal that would have put $100 million in city coffers, risk-free, for two decades … then had its take more than double into perpetuity.
You know the regional economy is humming when city leaders can proudly walk away from a public-private partnership — with a sense of pride, no less — claiming they probably could’ve gotten a better deal. Meanwhile, these civic leaders seem annoyed that in a supposedly “win-win” deal their partner gets to make money, too.
Look, I’m no fan of many government-incentivized real estate developments or similar enticements no matter which municipality or what corporation is involved. That’s especially true when cash to build or start new ventures is available to much of Corporate America.
But real-world economics aren’t conducted in a vacuum. Last time I checked, it’s still a competitive world out there.
Other municipalities will gladly roll over to gain an economic advantage. That’s not defending the practice, just acknowledging common business-attraction tactics. Plus, companies get to choose the bets they make, and it’s a big world of opportunity, incentivized or not.
So, I see a deal that calls for a city to skip collecting future taxes in return for the promise of shiny new buildings and/or job opportunities — vs. giving businesses cash or land — as the lesser of most dealmaking evils.
Now you may be thinking, “Jon, I didn’t hear about this failed Anaheim hotel project.” Yes, you did.
What I’m talking about is the bottom line of Walt Disney Co.’s aborted attempt to build a luxury resort at the gates of Disneyland. Remember, when it comes to government spending or incentives, one person’s “pork” is another person’s “filet” as financial beauty is often very subjective.
Let’s summarize. Anaheim wanted more luxury hotels. These are risky businesses that can generate hugely more taxable cash flow than typical lodging properties. Resorts are pricey to build — Disney would have spent upward of $500 million on construction — and costly to operate. And yes, if done right, profits can be hefty.
So Anaheim offered an incentive — a tax break on its future reward. It would reap only 30 percent of the city’s 15 percent tax on hotel room rates for 20 years to any developer that would help boost the city’s luxury lodging business. The hotel operator would get the other 70 percent for 20 years.
Opponents of the 30/70 partnership spun the deal as a $267 million “gift” to Disney, the estimated sum of hotel taxes rebated to Disney over two decades.
Of course, left out in that math was the massive construction investment Disney would make — spending that would create lucrative construction jobs. And the fact the city would not have to spend or borrow to get their roughly $100 million in hotel taxes in those 20 years.
Critics seemed troubled that a corporate fat cat like Disney wanted financial help to build anything. (I hope nobody expected a small-time construction startup to pull off a luxury-resort project.) And, these doubters said Disney would build it with or without incentives — thus, the tax break wasn’t needed.
So, the deal-busters found a bureaucratic glitch in the process to question the tax incentive. Disney walked away.
Now, I’m not saying Disney is a princess or that businesses are always right and government always wrong. Also, I know Disney wasn’t doing this deal for societal good. Companies make profits and play hardball to earn them.
Nor am I defending every “partnership” Disney has negotiated over the years when the city council was more favorable to “the Mouse.” Those who think Disney previously got sweet deals probably cannot remember three decades ago when Anaheim’s “resort district” was a seedy neighborhood with budget hotels and low-end eateries.
More worrisome to me is that certain city leaders today say their budgets will become so cash-strapped that Anaheim must rethink its dealings with Disney. Note, I’m taking the high road and will not assume this was just political theater to raise an anti-Disney flag.
If I was an Anaheim council member, I would let Disney build their fourth hotel in town and take the $100 million-plus in taxes. I might have publicly promised “never again” to city incentives for developers. And I’d privately curse a world where you must beg folks to do business in your city.
Perhaps, pragmatism is a vote killer in Anaheim. Possible motivations aside, one thing is certain: Anaheim’s bet looks to be a loser.
Getting 100 percent of a tax that won’t be collected is roughly worth zero dollars … allowing for the common occurrence of government accounting being spun for political advantage.