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The Real Deal Los Angeles

LA Controller criticizes city record of negotiating big hotel tax breaks

A report says LA needs better guidelines and expertise, which could impact four projects going forward
August 14, 2018 09:40AM

LA Controller Ron Galperin and Wilshire Grand

Ron Galperin, controller for the City of Los Angeles, put a magnifying glass to the city’s big tax break deals with major hotel developers and his office didn’t like what they found.

The city needs to do a better job evaluating and negotiating its deals, and make them more transparent, the Los Angeles City Controller’s Office wrote in a 29-page report released Friday.

The controller found that since the mid-2000s the city had approved projects “without having a broader, comprehensive Citywide economic development strategy.” That included several deals that were part of the nearly $1 billion in tax breaks the city has negotiated since 2005. Curbed first reported the news on Monday.

The report studied five deals totaling $654 million in tax breaks made between 2005 and 2015, including Hanjin International’s Wilshire Grand, which received $61 million in tax breaks, and the Village at Westfield Topanga.

Los Angeles typically makes tax incentive deals when developers are facing a funding gap, or feasibility gap, that would stall development. The idea is that losing that tax revenue is worth the economic benefit the development brings.

Galperin said the city should bring in an expert — either on the city payroll or as a consultant — that can best determine if a project actually needs financial assistance. That would put the city in a better negotiating position with the developer, he said.

The controller noted that the city failed to negotiate the best deal in some of the five cases it examined. For example, the formula used to determine the feasibility gap at Wilshire Grand “deviated” from the typical formula used “as a result of attorney negotiations.”

The report could impact ongoing negotiations with developers on four other projects, including Ventus Group’s 4.4-acre mixed-use Fig Project near Exposition Park.

[Curbed] – Dennis Lynch