.
.
.
Dr. Jose Moreno speaks against $500,000,000.00 hotel subsidy to Disney and Chinese entities
Here’s a simplified explanation of how government incentives to private interests are supposed to work — to the extent they work at all — if, like Jordan Brandman and Kris Murray, you seem to have forgotten.
First, a government can offer a subsidy: essentially, priming the pump to put money into a business with the expectation that the city will recoup that “investment” and more over time.
Second, a government can offer a tax abatement: promise that if a business does something the government wants to see done, it will have to pay less (or even no, or maybe even negative) taxes on future income from that venture.
At first blush, it may seem that a subsidy is worse — after all, you’re giving up the public’s money! That may be, but a subsidy is also obvious. An abatement may not be as jarring — but that’s part of the problem. An abatement is more insidious. Instead of a punch in the gut that empties out someone’s lungs, it’s like slowly poisoning them with caustic fumes so that they lose their lung capacity and can’t breathe in as much air. It’s much less “cinematic” (as The Sopranos once put it), but equally deadly — if not more so.
The worst thing about an abatement compared to a subsidy is that a subsidy creates pain NOW, when it has to be dealt with by the very politicians authorizing it. An abatement creates pain LATER — when those public officials may have moved on and other ones have to pay the price for the foolish policies in the past.
That “foolish past” that future Anaheim governments is the currently Anaheim’s foolish present. On July 12, the City will vote on giving tax abatements to three entities — two Chinese developers and some local company called the Disney Resort — to get them to build four-diamond hotels in the Resort District. A government might want to see these hotels built to bring in future tax money. But here’s the irony (or what would be irony if it weren’t intentional): that tax money won’t come in. That’s the deal. Disney and the Chinese Entities –yes, I know; that would be a good name for a band — will be holding onto their untaxed (at least by the City of Anaheim) profits for decades.
And the worst thing — the thing that really raises the possibility of serious wrongdoing — is that these hotels would likely be built anyway! They pencil out even without the tax abatement! It’s just giving away a half-billion dollars — money that Anaheim not only could use now, but that it will desperately need in the future — for no good public purpose. It may be for good private purposes, yes — it will certainly get job applications or campaign contribution requests from Jordan Brandman and Kris Murray a closer look in the future — but that’s not what the job of a City Council member is supposed to be. There even used to be laws against it — although after this week’s Supreme Court decision on bribery of public officials, it’s not clear that many of those laws still have much effect.
The alternative to jailing bad politicians — to paraphrase the Supreme Court — is to “let the political process work”: vote them out of office. Problem is: Disney and its devoted SOAR-head followers are willing to spend as much money as necessary to keep their lackeys in office. This year’s lackey up for election is Jordan Brandman. And his primary challenger — along with 385 or so Latino-surnamed candidates aiming to split the Latino vote — is Dr. Jose Moreno. Dr. Moreno has just come out with a message that he’d like you to hear.
This is your Holiday Weekend Open Thread. Talk about that, or anything else you’d like, within reasonable bounds of discretion and decorum. And hey — let’s not burn down any hillsides (or frighten any pets) out there!
We don’t know whether they would “pencil out.”
And that’s the problem. A four diamond (who the hell cooked up this lingo? I don’t know but I know there’s a reason the kleptos started using the phrase) hotel would have been built a long time ago if anybody really wanted one. But they don’t. The kindly folks from Keokuk and Dubuque and Racine are perfectly happy to stay at the existing middling corporate option that fits their budget and their tastes.
So why the drive for the subsidy? They do it because they have three votes – for now.
I got a SOAR flyer on my doorstep today that proclaimed a curious benefit from the 4 diamond hotels: namely, that the lower echelons would be able to charge more after there were even more expensive options, thus driving up the TOT.
What a twisted perversion of logic and truth. The fact is that subsidized 4 diamond hotels will have to charge LESS to fill up rooms, thus competing with existing hotels who are likely dues paying members of SOAR.
Why are these people so goddamn stupid?
Actually, we do. We got a study from the GardenWalk project.
The returns were excellent, but the consultant determined a subsidy was needed to support the developers 8% loan.
So Anaheim cut a nine figure check to support what amounts to bad credit. Nice, right?
Instead of telling everyone in Anaheim the Hotel program works, these folks should be screaming HOLY HELL, WE SCREWED UP!
Why?
Well, four years, five hotels, and a thousand rooms later . . . It should be crystal clear there’s plenty of organic demand for this product. Not only was 70% overkill, a rate of 0% is more likely adequate than inadequate. After all, we have that data from GardenWalk.
But, instead, we get loud celebration from the Chamber folks who have neither a basic understanding of economics nor shame.
Five four diamond hotel projects and hundreds of millions of tax dollars wasted for absolutely no freaking reason.
http://www.orangejuiceblog.com/2013/05/tripling-down-on-stupid-the-gardenwalk-giveaway1/
Yes, of course. The loan was 8% because the investment was risky to the bank. Nobody wanted a 4 diamond hotel and the money lenders knew, and know it.
if you could afford to stay in a $300-$400 per night hotel would you be going to Anaheim in the first place, or somewhere nearer the Pacific Ocean. Or any other ocean for that matter.
The bank and the “hotelier” (alright, I’ve got another most hated word) are leveraging their uncertainty on us residents of Anaheim.
I don’t agree.
I’ll qualify that.
I don’t agree the market doesn’t support four diamond hotels.
Well … apparently we’ll never find out!
“Well … apparently we’ll never find out!”
Unfortunately that is true.
But from a commonsensical perspective I think it’s reasonable to conclude that since 60 years of Disneyland hasn’t produced a single one of these creatures there really is a serious demand problem.
It produced two in Anaheim.
Lately market conditions have changed. The Resort area has more hotel construction happening now than in the last thirty years.
These subsidies are not necessary. Period.
Okay. Then maybe the market won’t support any more – that’s what we will never know.
I think we do. Five proposals since 2012?
The city screwed up big time. All five of these were getting built.
In four years? Maybe but. But certainly 12. Probably 8. Giving up $750,000,000 in ToT for an acceleration of a few years.
Ungodly stupid.
Oh, I can think of a few rea$on$.
“Four Diamond” is a AAA term, though I don’t know that they originated it, and has some reasonably well-defined critetia. “Four-Star” is more generic and applies to all sorts of categoried, most notably restaurants.
The kleptos are obviously using it either to bait me or to honor me — unless perhaps it’s because it’s a term used to rate the quality of hotels. (I myself prefer the term “four-Zenger” hotels, but the graphic isn’t an ASCII character.)
I am stuck between Ryan and Zenger, which is a very difficult place to be.
On the one hand, the market has not previously supported 4 diamond hotels to the point of anyone wanting to build one with their own money. But today we are entering an age of international business that blurs the lines of cultural divides and draws people from all over the world together. The emerging nations in the hospitality industry are places like India and China, where even the more business rate hotels offer an air of sophistication and elegance.
So when a Chinese investor owns 2 hotels and wants to pump more money into the former Anaheim Plaza hotel, catty-corner from Convention Center and across from Disney, I’m guessing he will draw other high end Chiense business travelers to pull the freight. The Annabella (formerly Magic Carpet and Magic Lamp I think) is an iffy proposition: tucked a half block down in a non prime location, it fights for attention and is unlikely to rise to the top as the top drawer icon of luxury it is claimed to become for that subsidy.
As far as Disney, the idea they won’t build to a 4 diamond level is ludicrous when we consider they have not built anything OTHER than 4 diamond. And by “4 diamond” I mean expensive room rate — because I do not consider the Disney offerings to be true “luxury” in the sense of service level that I would identify as 4 diamond. Disney builds Howard Johnson family style rooms with a nice veneer and a huge price tag, but you are paying for the novelty of being “on property.” Sorry — but, having developed a love for Fairmont Gold Level, Disney does not rate.
One thing makes the entire premise utterly insane. No, I do not refer to the argument that these would or would not be built without free money kicked back from room taxes. (In my mind this is way more outlandish than a mere tax credit. We aren’t forgiving something the hotelier should pay; instead we are giving them free money provided by others and diverted from its intended goal of providing the city services those 20 something million visitors a year expect).
The UTTERLY insane thing is that the subsidy is not tied to collecting a higher room rate, as intended, but is based simply on the construction of the facility.
Consider the difference between Disney’s upscale offering of faux Craftsman with a water-proof coating to withstand the wet bathing suits of Midwestern tourists versus the iconic turn-of-the-century charm of the Canadian Pacific line absorbed by Fairmont. It is the level of SERVICE that makes me willing to spend 400 a night for the latter and “no thanks. I will stay home” for the former.
So one can build a very, very nice hotel that meets the vague qualifications set by Anaheim, skimp on the service level that would push the 3-1/2 diamond offering to true 4 diamond, and provide guests with the nicest damn 3-1/2 diamond room in Anaheim all while undercutting the competition of surrounding hotels paying the full freight of TOT! Thus, Anaheim loses twice! The subsidy not only fails to prevent that outcome — it nearly guarantees it!
If one is forced to recoup higher construction costs for fixtures and furnishings and finishes with nothing but room rate, one is inclined to provide slightly better service to justify the uptick in rate to repay the higher cost. But — if taxpayers of Anaheim are forced to forego our city’s return on investment by kicking it back to the campaign donors of our elected overlords, then we have already provided that return to them. And that provides them the financial foundation they need to write down the room rates — and thus to cannibalize business from the Hilton and Marriott!
Surrounding hoteliers are furious at this — but cowed into silence by a particularly ugly form of “legalized extortion”. When one books a convention in Anaheim, the VCB, now marketing as VisitAnaheim, with the lamest ad campaign ever, will allocate hotel rooms for your convention, assigning guests to lodging choices that the insiders feel are a good fit for the gatherings.
Of course those running the board of the VCB are the same guys sucking up the kick backs. So they can say “shut up and support my subsidy or you don’t get rooms booked.”
This may not be said out loud, it may not even be implied (cough, sputter) — but the fear in the resort is so pervasive that nobody will go on record objecting, despite plenty of behind-the-scenes outrage at this modern day version of, “gee, that’s some good looking occupancy numbers ya got there; sure would be a shame if somethin’ were to happen to all them guests in yer nice place…”.
But what really pisses me off, as a resident, is the idea that Anaheim is measured by the caliber of our hotel stock. That we have such air-headed twits running city hall as department heads that they get all a-flutter that we are getting a JW Marriott! Just as I am disgusted at his little it takes to buy a politician — really, a 1900 max donation and acrylic award with photo and press release is all it takes to make a leader sell out their own citizens? — I am twice as angry at the city staff sucking up 6 figure salaries while they don’t know Anaheim outside of City Hall. To them, Anaheim is only something to get across on the way from the office to the freeway — windows up, doors locked, don’t make eye contact with the locals.
And those staffers, in their elitist judgement, have declared that Anahiem is “not yet a great city” based not on the caliber of the 350,000 souls that call this 159 year old place HOME — just because we lack someone in a doorman uniform ensuring the brass is polished on the front door!
When John Woodhead, whose job as Director of Community Decelopment is supposed to be promoting Anaheim as a great place to invest and do business, told the world in a May 2015 workshop that Anaheim has to be marked down in the clearance rack, I wanted to go up and over the divider wall and throw his arrogant ass out of the building. In essence, these people have declared that a much-loved child is ugly, fat, and frankly not too bright, and the only way they are going to prom is if mom and dad supply the limo, tickets, dinner, hotel room for after party, alcohol, and maybe some cash for the trouble taken by the unfortunate soul stuck as our child’s hired date.
No, I am not a fan of this mentality. I expect my leaders, both salaried and elected, to see the greatness of Anaheim (or at least our potential for greatness) and get out there and promote the Hell out of it. Create tax money to fix the place up so well-heeled patrons want to be here; provide the real service level desired by someone spending 300 a night and up.
We have expanded the Convention Center 7 freaking times — but not once have we put in the acoustics to use it as a performing arts center that would draw the upscale patrons we want.
Shopping? We got key chains and tshirts.
We half-ass things by offering incentives to the wrong end of the transaction. All the subsidy on earth is not going to score $300-a-night if the other service and environment does not accompany the nice room!
We don’t need to incentivize construction; that will come with market demand — and I believe th global economy will eventually draw the high end patron. We need to incentivize the patron by building what they want beyond the room. We not only fail at that, thanks to the stripping of our General Fund, but we will also provide guests with an increasingly ghetto-tastic surrounding — with potholes, tagging, delayed response for public safety, etc
A whole lotta people at City Hall need to lose their jobs, NOW. My fear is that by the time we reclaim City Hall in November with a new majority, there will be nothing left to work with. The desks packed up in boxes will come from municipal bankruptcy rather than from the huge housecleaning we need to do.
In short, Anaheim’s executive staff and 3 of 5 its elected leaders would not know class if it bit them in the … hidden Mickey. Greatness is not something you BUY — and it sure isn’t something that you buy with other people’s money!
Developers rarely build anything with their own money. Development is a sort of speculation in which financiers gauge the relative risk and apply what they think are appropriate terms. High interest rates mean higher risk – right up to the point where the rate is prohibitively high. In this case somebody ginned up a formula that would work if the hotel owners could show a cash flow from the City that would make the debt payment more plausible.
I think you are hitting on something in that the terminology is so fuzzy and so hard to enforce, guarantee. 3.5?4? What’s really the difference? Does it even matter? I can’t see Disneyland patrons spending $400 a night and I can’t see wealthier people going to Disneyland in the first place. So I think there will be a 3.5 price in there (or 3.1) that ends up competing with existing hotels.
The whole thing is bad business and bad for business.
It’s produced two. Both on Disney’s property.
Now Anaheim is going to gift Disney (the entity with the largest competitive advantage to build one) $200,000,000 to do something Disney was going to do anyway.
Stupid. Stupid. Stupid.
You guys have WAY too much time on your hands. Go enjoy the Holiday weekend with your families.
You, too, champ.
Yeah, I don’t even get out of bed for half a billion dollars.
I don’t know whether Ryan or David is right and I don’t think it matters. Either way, this stinks to high heaven and needs to be defeated. If the City of Anaheim believes the hotel tax is disencentivising investment, they should lower it, but it should be lower for everybody. Creating this subsidy/ abatement scheme for some businesses and not others is an incentive for more crony capitalism, more government interference in the economy and less revenue (as more competition for tourist dollars will probably result in cannibalizing revenue from the resorts that weren’t built with tax incentives).
How many candidates total are in the same race as Dr Moreno and how may are Latino? Also, Jordan and Dr Moreno are i the same district is that correct?
“Whether the MARKET can support 4 diamond hotels” is the WRONG question! The question that NEEDS to be asked / answered, and has NEVER been asked for even the FIRST (GW) subsidy, is “Can the City AFFORD, ANY subsidy ?”. Absent (so far) ANY credible analysis/simulation forecast of TOTAL City income vs expenses over time, MY answer continues to be a resounding “NO” ! Our so-called Finance Director*** evidently oversteps her abilities, from answers such as (for the Recent Expansion) ‘Oh, well we don’t exceed our current debt payment, so things must be OK ! ‘Only to the low-information voters on the Council Majority is such nonsense acceptable. In the reality of the private sector, the question asked is “How much can our INCOME and EXPENSES — VARY and still MAKE the payments”? Wouldn’t YOU ask yourself THAT if financing a car or appliance, much less something larger? My first question at the outset was “HOW MANY rebates can we afford ?” which quickly became “Can we afford EVEN ONE ?” The City is now by law FORCED to STOP IGNORING deferred pension expenses , and even short term union contract extensions INCREASE COSTS OVER TIME, and those are just KNOWN, EXPECTED expenses! There is a glaring vacuum of financial / economic competence on the dias and on City Staff, and when their best answer is a ‘competition of convenience’ (“Oh, Garden Grove is doing it, and we can’t ‘lose’ to them” – Well, look at the Vof OC Article this week – Garden Grove’s ‘giveaways’ have contributed to their STUCTURAL DEFICIT – Should Anaheim “win” one of THOSE, too?) The “rebates for everyone!” move was a ‘Knee Jerk’ (ACCENT on JERK) response to ‘picking favorites’ criticism of the Garden Walk giveaway, and should be REPEALED. That “solution”, as this one, was thrust on the public (as usual) WITHOUT evaluation of any “PROBLEM” or ALTERNATIVES (loans, or revenue from alternate projects, to start!)or demonstration of ANY BENEFIT besides “getting a 4 star hotel built” and NO QUESTION (or now even PROOF) of the NEED, let alone the PRIORITY of this EXPENSE over the many OTHERS the City faces.
The ‘Topper of Anaheim Taxpayer Intelligence Insults’ was Kring’s (unsubstantiated and anecdotal) claim that we “lose” ballplayers as 4-star customers to elsewhere because of the “Disney Kids” flooding the existing 4 Star hotels. This begs TWO questions-
1) With demand for Disney exceeding capacity and UNDETERRED by (UNtaxed!) admission price hikes, HOW would/ could MORE 4-star hotels SOLVE this problem and NOT become PART of EXPANDING it ?
2) If THESE sports customers are so important to justify new hotel construction, wouldn’t Disney have already created “Adults Only” rooms/floors to satisfy the demand ? (If this is even legal – I believe restaurants tried this a few years back and got SUED !) And so HOW could NEW HOTELS enforce this to serve ‘lost’ sports guests?
Anaheim’s greatest LACK is not of 4 Star hotels, it is of COMPETENTCE in Council and Staff who grasp unquestioningly at ‘shiny objects’ put in front of them, without examination or KNOWING HOW TO EXAMINE THEM, paired with a Staff /CM that has demonstrated its product does not have to SURVIVE scrutiny, when clever presentation to its current Majority audience can AVOID scrutiny and achieve ITS results, obstacles (residents) be damned.
(Oh, but that’s just “STREAMLINING” !!)
City fees change annually, Utility customer charges seldom break 5-10 years unchanged, but , with NO EVIDENCE, Staff and CM3 would have you believe that the City will have NO NEW REVENUE NEEDS for 20 YEARS !
Blindly and unquestioningly spending the City’s future by handcuffing revenues by crony handouts with NO CONSIDERATION of future revenue /expense variation is LUNACY, but now ‘Status Quo’ for CM3 and Staff, who I doubt will personally experience the consequences on the City you could experience from this proposal or be willing to wait 20 years for pensions or paychecks, as they assume City needs would.
*** I refuse to add “Treasurer” to that title- There was NEVER a management OR financial analysis to support the $300K Measure C “savings” allegations (basically the Treasurer salary) slid by the voters as a fraudulent “technical cleanup”. and the significant duties were OUTSOURCED to a “Financial Advisor” AT AN UNSPECIFIED COST, with NO provision for monitoring / verification that the results of the move are satisfactory. A phone call to Mr. Stern at the time revealed he was NEITHER consulted NOR involved in the “consolidation” process, making it seem SOLELY to be Ms. Moreno’s effort, as ALL INFO (or lack of it) was sourced to the Charter Review Committee by HER.
Good points.
Good points.
And like the Angels proposal there is ZERO independent analysis by people who are paid to study such things. We are just asked to take it as a given, a sort thing that must be true because, well, Kris Murray says so.
“This analysis is brilliant!” Lucille Kring, Politician
“This analysis would get me fired.” Me, Analyst.
“How much brilliance would you like, and what color wrapping? We sell it by the yard !”
– Unnamed “consulting” subsidiary of unnamed Sports Hospitality Enterprise
In the reality of the private sector, the question asked is “How much can our INCOME and EXPENSES — VARY and still MAKE the payments”? Wouldn’t YOU ask yourself THAT if financing a car or appliance, much less something larger?
Ah B-Box, here is where the rubber meets the road. You see, it is NOT a matter of making the payments. When it comes to our long term obligations, including both pension formulas and bond payments, those funds take FIRST POSITION. They are subtracted from our General Fund before all other expenses. We are then left to fund current service levels with what is left. So the question becomes really, “can we keep the current inadequate service levels with what is left from the long term obligations the current Council keeps increasing because there are still checks left in the checkbook?” Never mind needing to step up service levels or the patrons we wish to draw will flee from the same city we will all want out of when there is no cop on the other end of a 911 call because we are funding the cops who are no longer on the force. The reply you are looking for here is ” oh crap.”
So when Murray bats her baby blues at Finance Director Moreno and asks if Anaheim has ever “defaulted on the obligations” it is PAINFULLY CLEAR that either she has no freaking idea how the money works in the City she was elected to serve, or she is being deliberately misleading to the public watching this Kabuki theater in order to get her predetermined outcome. You pick which answer suits you. My head hurts. I’m gonna go lay down.
OH yeah, and one more thing. If the long term obligations like the 27% of the General Fund already committed to bond payments on the 1997 debt we took on to help Disney expand last time COME OFF THE TOP, and are NOT discretionary, not paid if we can afford it after covering expenses, then WHY ARE THEY INCLUDED IN REPORTS OF THE GENERAL FUND REVENUES? The FY 2016-17 budget shows about $300MM so we look healthy compared to surrounding cities. Remove the bond obligations that are in no way available to us to spend, and are as restricted fund as a Homeland Security grant, and our General Fund balance drops to at or below Santa Ana levels. Yeah. I saw a bicker fest over the weekend on a facebook page in which an “economist” was denouncing locals for claiming the bond funds absorb ALL Disney taxes, as they show up in the General Fund so they can’t possibly be obligated. I laughed and laughed, and saw someone stopped to correct him. I wonder if he will admit to the bonehead and come over to the dark side by admitting the local might be right in objecting to the hotel subsidy.
There is a legal definition for providing false information in order to induce action one would not take absent the false information. Not being a member of the bar I don’t know at what point gross stupidity steps into negligence or when negligence crosses into outright fraud, Anyone?
For WOT-
After reading this-
http://www.ocregister.com/articles/guns-721378-police-stolen.html
The article’s source was a survey conducted by the Mercury News, but limited to Northern California / Bay Area agencies. It might be an interesting project, since the OCReg didn’t hint they would attempt it, for OJB readers to find out the incidence of weapons theft from THEIR City’s police Dept. via letter, or request to the Council at Meeting Public Comments, or by Public Information Request, if need be. Perhaps posts to WOT could serve as a clearing house, including which if any Cities REFUSED disclosure, and why. Anyone interested ?
While doing some research for one of our stories on the SuperSubsidy, which will appear over this next week, I came across this article by Voice of OC’s Adam Elmahrek, from February 1, 2012, which should reminds us all of how much we will miss him. Note both the familiar themes and the now-sad-seeming optimism of Mayor Tom Tait, who saw where this could well go — which it then did. Read it again.
…”Sidhu was absent because he had back surgery the day of the meeting, city officials said…”
Sadly, comments were detached from the archived article. Were there any “spine” jokes ????
We’d like to give someone the opportunity to write an appropriate bio, obit, or tribute to the late Marian Bergeson. I knew of her back in the late-70s and early 80s, but not recently enough to write a good one — and this should be a real treat for some Republican (or other moderate) out there. Just post here if you’d like to take a shot at it, or else email Vern.
I’ll pass.
For the 7-8 WOT-
Never a slow weekend, with YouTube “Suggestions” ! If you are contemplating cost-saving ‘medical tourism’, perhaps some revisions are in order ?