LA gave developers $1B without ensuring the deals were ‘advantageous to taxpayers’

City officials have given developers tax benefits valued at $1 billion since 2005—and they need to do a better job ensuring the financial assistance is really needed, says controller Ron Galperin.

In a new report, Galperin says officials are approving agreements with developers to get hotels and other commercial projects built “without a comprehensive strategy” to ensure the deals are “transparent and advantageous to taxpayers.”

“We need a clear road map to ensure consistency, fairness and value for those we serve,” Galperin says.

Developers typically ask for public assistance when projects have a funding gap, and the agreements usually allow developers to keep some of the taxes they collect after the project is built—money the city would otherwise keep.

The controller’s report was released as Los Angeles City Councilmembers debate incentives for four more development projects.

Those projects are a hotel at 3900 Figueroa Street in Exposition Park; a mixed-use development at 3240 Wilshire Boulevard in Koreatown; a hotel at Olive and 12th Street in South Park; and the possible expansion of the JW Marriott at LA Live. The amount of financial assistance these projects could receive is still being determined.

The report includes multiple recommendations, including the creation of “a broader, comprehensive citywide economic development strategy” to evaluate whether projects should receive incentives.

The controller also suggests the city hire a consultant or “qualified city entity” with “robust experience” to help evaluate projects seeking financial assistance. That person could suss out if projects could be retooled or redesigned to avoid a “feasibility gap,” the difference between a project’s estimated value when complete and the cost to construct it.

Having someone look out for the city’s best interest during negotiations would give the city an advantage it doesn’t have now.

“I am not convinced at this time that the city has the kind of expertise that would put us in the best negotiating position,” Galperin told the Los Angeles Times.

The report looked at agreements—totaling $654 million—made with developers for five projects from 2005 to 2015: the J.W. Marriott and Ritz Carlton at LA Live; the InterContinental Hotel in the Wilshire Grand; the Courtyard Marriott and Residence Inn north of LA Live; the Hotel Indigo in Metropolis; and the Village at Westfield Topanga, a shopping center in Woodland Hills.

“The city’s intended goal for incentivizing Downtown hotels was to draw more conventions,” the report notes, but the incentive agreements for the projects “do not include guarantees for increased convention bookings.”

The city’s agreement with the Village at Westfield Topanga “does not require that the mall maintain a certain number of jobs, or other benefits as promoted by the city,” the report notes.

In the last two years, the city has approved an additional $345 million for the Frank Gehry-designed Grand Avenue Project; the Cambria hotel near LA Live; and the Fig + Pico hotel.