Believe it or not, the city of LA has promised one billion dollars in tax incentives to hotel developers over the next 20 years through a poorly managed system meant to spur economic development around tourism and the LA Convention Center. The Los Angeles City Council and developers have complained that despite record demand for hotels and housing, the various costs of development mean that construction and development of hotels does not ”pencil” and requires feasibility gap spending to bridge “the difference between the estimated development costs of a project vs. what investors would theoretically be willing to pay for the business investment.” Spoiler: the comptroller’s report on these deals declares there has been a lack of “adequate evidence to necessarily support these arguments [for public money].”1
So if tourism is growing so strongly across the city (it is), and there is such demand for hotel rooms (as indicated by the surge in Airbnb-led gentrification in pockets across the city), then why aren’t there enough hotels?
The same analysis can be applied to housing or road safety or many of the other issues facing Los Angeles: land and development costs are high because of political processes and decisions that make housing difficult and costly to build across the city, especially in the wealthiest neighborhoods and cities.
Los Angeles City Council routinely engages in opaque deals and plans that could have economic development incentives, which are not vetted by the public, but are still meant to fulfill goals that the City Council deems as necessary or important. The way that council has pursued its tourism-economic development policies (strangely not listed on the City’s own economic development strategy report) illuminates how it chooses not to engage in public community politics, especially when large sums of money are concerned.
The opaque way it politically manages these systems takes power from the public in setting and meeting budgetary goals and dealing with city problems and priorities — trading public engagement for the goals of Council’s well-connected interest groups. These same issues blow up into the process for the Olympics bid, and the lack of responsibility in planning and dealing with the tremendous human crises that the city faces.
The requirement for gap financing is evidence of the long-term political failures of local and state politicians, leaving only the most well-financed developers to navigate difficult zoning and planning environments, for which they have to curry favor with City Council to win approval. By making development difficult, this leaves only the most corrupt and/or well-funded developers in the running, and concentrates power within the City Council, who benefit directly from the political intertwinement of hotel and real estate development and personal aims — all concerns for ethics or self-dealing get brushed under the carpet.
As the Comptroller’s Report on Tax Financing enumerates: the council allowed it’s Chief Legislative Analyst’s proposal for creating a systematic framework for evaluating hotel deals to lapse 2 failed to negotiate to get better deals, or to even hire staff with the experience to analyze and advocate for the public. Council has provided without complaint what other cities would consider to be extortionary demands by well financed corporations – the path of least resistance does not include advocating for the public.
Yet, as a recent scathing city comptroller report recognizes in glaring detail: in pursuit of these goals, the City Council has prioritized handouts to developers through weak negotiations and bad planning deals. The final result is deals that are worse for the city, and of course there are consequences in the form of actions not taken.
If steel costs for a 40-story steel-framed hotel were driven up by steel tariffs, the city could have asked for the developer to plan costs on four 10-story timber hotels over multiple sites as a cost-saving measure. Instead of blindly pushing for hotels strictly near the convention center, council could use cheaper land that are still accessible via public transit or they could delay disbursing public funds for a period when construction costs dropped.
But why would a developer go through this process if there’s a potential pot of money that they could get for free that the City Council is encouraging them to apply for? Why would the consultants the developers hire bother to provide alternative valuation methods if the city has no person or office with experience to vet their figures and projections and instead simply hands them the exact amount that they ask for?
Council has also not gone beyond the bare minimum in ensuring that job targets or other economic development features are met. If jobs are the target, then contributions should be made to create or preserve affordable housing. Instead, current affordable housing is being targeted for redevelopment by the next set of projects in Exposition Park and the Figueroa Corridor, an area where current residents are already under threat of gentrification and displacement from the USC housing expansion and the general lack of affordable housing developments throughout Los Angeles. Other politically courageous but quite normal negotiations could require living wage guarantees for job creation, retention of said jobs for a specific number of years, or the creation of new jobs not simply moved from elsewhere in the city, among other basic demands.
These unnecessary tax incentives means the idea of public housing isn’t even put on the table because “there’s no money.” Olympics planning behind closed doors is political time that is pulled away from making streets safer, or spending political capital assuaging resident opposition to supportive housing for our unhoused neighbors. But because building lots of hotels rooms is important for the city’s convention center (and, of course, the Olympics needs hotel rooms, too, but no one says that out loud), these other goals are forgotten.
Such behavior is fundamentally corrosive to the democratic governance of the city by its own residents. If elected representatives pursue their own long-term goals at any cost, while actively ignoring politically costly approaches to the city’s problems (like fighting wealthy classes over distribution of resources), then these issues accumulate and worsen – there is no “walking and chewing gum at the same time.” Each of these factors holds when we talk about the Olympics, actions meant to create benefits for the city and its residents have counterproductive or harmful results when they are pursued blindly in bad-faith (as handouts to developers and hotel interests or Olympics tourism activity).
One could assume if Council could get a handle on the residential affordability problem and its effect on driving up land prices, some of these projects wouldn’t have a financing gap. If the council didn’t insist on a Times Square-like LED corridor with 18,000 square feet of LEDs (again, not Olympics related), which drives up the prices of development, they wouldn’t need to band-aid a developers financing with money could be used for affordable housing today. Or if City Council were willing to engage in politics to take on local homeowners in their wealthiest neighborhoods regarding building multi-family buildings, we would reduce the cost of development and demand for political kickbacks for development and ultimately displacement of vulnerable populations in South LA.
If it seems like these issues are interrelated, it’s because they are. The system of short-sighted politics that the council has been playing creates the conditions for it to claim that its hands are tied in other arenas: economic development funding for the Olympics preempts spending money on housing.
A naïve observer could say that allowing wicked problems in urban management to fester (say, a housing crisis) helps consolidate power in City Council and wealthy hands that can opaquely be used to help themselves and not actual residents. An even more cynical observer could claim that a promised no-build Olympics that rushes a billion dollars of public money3 into hotel development may actually require building. A realistic observer would say that each step of corruption that undermines transparency and governance destroys the ability to collectively address our real problems.
All of these factors play with the Olympics as well: the politics were blown through with little-to-no public discussion. The costs and benefits of the Olympics were minified or not even discussed: “this is a no-build Olympics” was the extent of the discussion.
If this isn’t related to the Olympics, then what is? Very specific development goals — general tourism plans are pursued with tremendous amounts of money — while others are simply never put on the table, a story that quickly sums up the LA 2028 Olympics bid.
Plans for whom? Money for what? Imagine a similar map of public affordable housing proposed across the city in Hancock Park, Brentwood, or the Hollywood Hills.
Footnotes
- For more information on economic development incentives from a critical perspective see work by Tim Bartik and the Upjohn Institute among others: [1] [2][3]
- Did we mention that the Westfield Malls’ tax incentivized mall project in Topanga received the same tax financing deal with hotel room requirements that magically disappeared on final construction? Westfield is the country’s largest and most profitable luxury mall developer and manager.
- Or rushes to approve Elon Musk’s mini-metro to Chavez Ravine ahead of what is surely going to be a new Dodgertown development. Again, no discussion of reparations for the removed community or reintroducing the idea of comprehensive public housing that started the Stadium development (see Making a Better World: Public Housing, the Red Scare, and the Direction of Modern Los Angeles by Don Parson or other histories of Chavez Ravine and public housing that could have been.