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Published on June 14th, 2012 | by RLn Staff

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Building On the Public’s Dime

Marriott developer seeks $67.3 million tax subsidy
By James Preston Allen, Publisher

It seems like every time certain private investors come up short on their grand development ideas––like the current plan to build a 23 story 392 room Marriott hotel next to LA Live––they want to beg, borrow or steal, money from the public purse with the best of intentions.

The Los Angeles City Council is considering a $67.3 million tax give-away even while prepping the public for further austerity measures that would deeply cut into the city’s budget. This current attempt to pillage the public purse––this time by Portland, Ore. developer William/Dame & Associates, with its partner American Life Inc., a Seattle real estate management corporation–– is just the latest tax give back coming to city hall. How will our new Councilman Joe Buscaino vote?

Previously, the City of Los Angeles agreed to provide $249 million in tax relief within 25 years to the Wilshire Grand Hotel, just five blocks north of the Los Angeles Convention Center on Olympic Boulevard. It also is providing AEG a $300 million bond to construct an adjacent football stadium.

Now I’m not one to stand in the way of progress, or even to stop these kinds of developments that will create good jobs in a down economy. I believe that government has a significant role in stimulating the economy. But I believe that we, the public, should be getting something more for our investments. Jobs are good. New buildings are great, but how about a share of the profits too?

All too often in this great nation of ours––a nation that touts self reliance and free market enterprise–– the captains of industry come hat-in-hand looking for subsidies, bail-outs and special funding for their pet projects. More often than not, our government just gives it to them with few strings attached. How about a return on our investments? Just think of all the technologies that have been invented by U.S. Government contracts–GPS mapping, fax machines, cell phones, not to mention pharmaceutical drugs. Just think if the public received just a small royalty from these inventions, our reliance on taxes would diminish in direct proportion to our return on these investments. Not such a foreign idea to a country wedded to stock market investing.

For Los Angeles in particular, a city regularly hit-up to subsidize housing and commercial developments, it is not stretch of the imagination to ask for a return on our dollar. We want an equity position in the real estate deals equal to or greater than that which we invest. “What’s in it for us?” should be the standard answer to anyone who comes asking the way Williams/Dame & Associates has come.

Instead of engaging in these sorts of tax give-backs that has become so common place these days, the city should be forcing its pension fund managers to invest in Los Angeles in ways that guarantee higher rates of return. It’s not like they’re swimming in Wall Street success anyway.

Part of the dysfunction of the city’s budget is that when the pension funds don’t make enough on their investments the city has to “back fill” the funds up to 105 percent of their forecast obligations. This can amount to as much as $400 million per year. In other words the city has a legal obligation to pay on future retirement costs, which is only fair. What the city doesn’t do well is manage these funds for optimum returns and relies on institutions like Northern Trust to manage them.

As you will recall, our erstwhile City Attorney Carmen Trutanich, was suing Northern Trust for fiscal malfeasance before he decided to run for the District Attorney’s office. Can we hear from him now on this latest Marriott Hotel deal or shall he just go back to litigating with Northern Trust?

In the end, the public is under no obligation to give away tax breaks to private entities without just compensation. But there are a few caveats to this rule. Take for example Los Angeles County’s recent grant of $4.7 million to Harbor Interfaith Shelter to construct its Family Resource Center. When the non-profit sector steps in to fulfill a public service that goes beyond what government can do adequately, the pay back to the people comes in the services rendered, as well as, the jobs that are created. This however is not the case with the LA Live Marriott Hotel. Unless, that is, they are promising to house the homeless in luxury accommodations.

 

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