I’ve railed in the past against the Groton Town Council’s penchant for granting tax breaks to hotels. In the most recent case, they granted a tax abatement to a hotel developer who had forgotten to ask for an incentive before he built his hotel. Not to worry, the Council voted to give him his incentive after the building was complete. I’m generally opposed to these special tax breaks, but in the case of hotels they seem doubly objectionable. Hotels are built where they people are; a developer can’t threaten to take a hotel proposed for Mystic and build it in South Carolina. One would think that logic would apply in spades to a hotel planned for the Disneyland environs.
The Anaheim City Council voted Tuesday to extend a $76.3-million tax break to a developer to build two Disney-operated luxury hotels, despite strong opposition from a council member, community activists and union members who called the deal a corporate handout.
The council voted 3 to 1 to make up to 15 years of assistance payments to GardenWalk Hotel I, LLC, the developer planning to build two, 12-story hotels with 866 rooms for $242.4 million. The payments would begin once the hotels began operation.
So this is not just a tax break, in essence the City is becoming an investor:
Keyser Marston Associates, a real estate consultant hired by the city, concluded in a report that “the proposed hotel cannot be constructed or operated without economic assistance, and that the assistance is warranted because the costs are estimated to exceed the owners’ ability to finance the project.”
If one accepts free market principles, the owner’s inability to finance the project means either that the project is not feasible, or the owner is too big a risk. Even if neither is true, note that this is not just a tax break, the town will be making payments to this developer, meaning it is favoring one hotel over the others that clutter up Anaheim.
Sounds like the dreaded socialism, doesn’t it? But, that’s not the case, according to the head of the Orange County Visitor and Convention Center; this is just business as usual:
Charles Ahlers, president of the Orange County Visitor and Convention Bureau, told the council that the incentive was needed to bring more first-class hotel rooms, and supported the subsidy.
“A subsidy is the normal course of doing business,” he said.
Apparently, socialism is bad only when it helps normal people. Now, it’s true that Anaheim derives a lot of revenue from hotel taxes, but in this case it is not clear that the revenue will match the outgo. In any event, if the developer (which expects to have Disney operate the hotels) had to scale its plans back to something for which it could get financing, Anaheim would get tax revenue without a countervailing expense.
This reminds me somewhat of a developer who, during my tenure, came to the Groton Council seeking an abatement, telling us he wanted us to “share the risk”. He never offered to share the profits. Our sole incentive was that somewhere down the road he would pay taxes at the same rate as everyone else.
It looks like the Anaheim City council has basically agreed to “share the risk” but not the rewards. If things go well, they get only the taxes to which they would be entitled in any event; if things go poorly they have no recourse. In the normal world of finance, an investor shares both the risks and rewards, but in the topsy turvy world of corporate socialism, the taxpayer shoulders the risks, and the corporations reap all the rewards.
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