Double standard on mega-deals? Arena didn't get dream treatment.

Arena Didn't Get Dream Treatment

In 1995, three of L.A's wealthiest media moguls asked the city for a lucrative package of incentives to help build a new high-tech filmmaking facility at Playa Vista, City official hardly blinked, quickly cobbling together a program of tax breaks worth an estimated $70 million - the largest such giveaway in the city's history.

In 1997, two other wealthy businessmen - real estate magnate Ed Roski Jr. and Denver oilman Philip J. Anschutz. owners of the L.A. Kings hockey team - asked the city for more modest assistance in constructing a new state-of-the-art sports arena in downtown L.A.

But in this case, the civic machinery failed to operate quite so smoothly

City Councilman Joel Wachs, decrying the proposal as a "subsidy for billionaires," launched a major drive against the deal, which culminated in plans for a ballot measure to require voter approval of all publicly subsidized sports stadiums, including the proposed arena - a provision developers said would have killed the deal.

The night-and-day difference between the two deals speaks volumes about the oddities of business, political and cultural life in L.A. - and has some wondering if there isn't a double standard at play.

"If you try to define L.A. by its core businesses, the entertainment industry is one of the top four or five," said Fernando Guerra, director of the Center for the Study of Los Angeles at Loyola Marymount University. "But we give a lot more leeway to the movies; the public tends to be much more tolerant."

Wachs, for his part, denies the existence of any such double standard, arguing that he was simply responding to widespread antipathy to using public funds to assist big-league sports franchises.

"The public feels strongly about not subsidizing professional sports facilities," Wachs said. "There are so many greater needs for tax dollars than subsidizing billionaire owners who don't really need public subsidies."

Billionaire media moguls, on the other hand, merit that kind of assistance, according to Wachs, because of the considerable value they bring to the city.

"Where are the new jobs?" he asked. "They're not in the sports industry. They're in the entertainment industry."

But others insist that it is impossible to compare the arena and Playa Vista deals - the two most ambitious public-private partnerships currently underway in L.A. - without taking into account the enormous shadow Hollywood casts across life here.

"The film industry is recognizably one of the largest industries in our town," said John Semcken, vice president of Majestic Realty Co., who worked on the arena deal for the developers.

"People are enamored with individuals like Steven Spielberg and David Geffen - people with reputations that are hard-earned and well-deserved. With them trying to create a new studio, it becomes a sexy thing to get behind," he said.

Hollywood, added Joel Kotkin, senior research fellow at Pepperdine University's Institute for Public Policy, "is our 'peculiar institution,' so to speak. It is our niche in our world."

Two-and-a-half years ago, city officials took steps to protect that niche, offering Spielberg, Geffen and Jeffrey Katzenberg an estimated $70 million in concessions to locate their new headquarters and film studio at Playa Vista.

The deal came at a critical time for Los Angeles, which was just emerging from a painful recession and still reeling from the Northridge earthquake. In 1994, the city's unemployment rate averaged 10.6 percent - compared to 7.9 percent now. The real estate market remained severely depressed and foreclosures were on the rise.

Given such circumstances, the announcement that DreamWorks would set up shop in the city of L.A. was a powerful symbol.

Under its deal with DreamWorks, the city agreed to:

* Cut in half the cost of hooking up to the municipal sewer system, saving DreamWorks an estimated $12 million;

* Pick up half the estimated $20 million cost to hook up to the city's water and electrical system in exchange for a long-term contract with the city's Department of Water and Power;

* Allow DreamWorks to reduce its business license taxes by between $2,000 and $3,000 for each new job brought to the city, at an estimated cost of $10 million over the next five years.

* Contribute $5 million for traffic improvements. Caltrans, meanwhile, pledged up to $40 million in highway improvements to accommodate a huge expected increase in traffic in the area.

The package represented a major political change for L.A., where many elected officials had spent the boom years of the 1980s trying to control or limit development.

"It was not easy to change course," said Adi Lieberman, chief of staff to Councilwoman Ruth Galanter, who was involved in the negotiations leading up to the December 1995 announcement. "It took some years into the recession before people saw that the issue was not how to limit development, but how to bring things back."

Originally, Leiberman said, DreamWorks had asked for three times the assistance that they eventually received. To make things more difficult, the studio wanted it all up front.

After six months of talking and little to show for it, negotiations took on a frantic pace in the final months of 1995, Lieberman recalled.

Since then, a number of those same incentives - including the reduction in sewer hook-up fees and a cut in business license taxes for multimedia firms - have been extended city-wide. The City Council also is considering a proposal to provide similar job-creation incentives to other large-scale development projects.

Nonetheless, the proposed DreamWorks incentives consist largely of taxes and fees that otherwise would be paid into the city's general fund. In essence, the city is gambling that a flurry of economic activity generated by the new studio will offset any loss in revenues as a result of the tax breaks.

The arena deal, by contrast, was structured specifically to avoid any hit to the taxpayers which was appropriate considering the nature of the development, said Steven L. Soboroff, senior advisor to Mayor Richard Riordan and a backer of the arena.

Under the original arena proposal, the city would have put up $70.5 million in bond money to purchase land adjacent to the arena site and demolish a number of buildings to make way for the structure. Developers would have agreed to repay the debt over the next 25 years with the revenues from ticket fees and parking and other taxes, including hotel taxes.

Most analysts agreed/that the proposal was superior to similar deals reached in other cities many of which ended up paying for the sports facilities entirely out of their general funds.

Wachs sweetened the deal somewhat. In working out a compromise to avoid being part of the ballot initiative, the developers have agreed to obtain a guarantee from a financial institution that $58.5 million in city-issued bonds will be repaid. The remaining $12 million has been pledged by the Community Redevelopment Agency, which is not affected by city-wide ballot measures. In addition, none of the money used to pay off the bonds will come from property or sales taxes.

Wachs said the arena project proved so controversial because the developers were insisting upon forms of assistance that are not granted to other businesses, such as using city bonds for buying the land and demolishing buildings.

"I was more than prepared to have the arena people share in the same kinds of programs (as DreamWorks)," Wachs said. "If the city provides a jobs-incentives program for DreamWorks, it should offer the same thing to the arena. But the arena was getting benefits that nobody else gets and I just couldn't justify it."

But other significant factors also came into play.

Unlike the DreamWorks deal, which had the enthusiastic support of Riordan, Galanter and other city officials, no such political support emerged in the case of the arena. Riordan was forced to bow out of the fight because he owns property in the area and no council members sought to seriously challenge Wachs' opposition.

"That made it tougher," said City Councilman Mark Ridley-Thomas.

According to Semcken, the last several weeks were a frantic series of meetings and negotiations, with Chief Legislative Analyst Ron Deaton, Wachs, his advisor, former Riordan aide Michael Keeley, and Latham & Watkins attorneys George Mihlsten and David Rogers.

"The whole thing was based on a lack of trust," said Semcken.

There also are substantive differences between the DreamWorks and arena projects themselves.

The arena proposal, which consists of redeveloping one of the dreariest sections of downtown L.A., comes amid growing controversy over the use of public funds to attract professional sports teams - whose economic value to a region is very much a matter of debate.

The DreamWorks proposal, by contrast, involves creating a massive, cutting-edge filmmaking and multimedia campus on one of the county's last remaining large tracts of developable oceanfront land.

Backers of the project boast that it will create thousands of high-paying jobs and hundreds of millions of dollars in taxes and fees for the city.

"You can justify DreamWorks more easily because of the tremendous number of jobs it will generate," said Richard H. Close, president of the Sherman Oaks Homeowners Association, whose members have rallied behind the Wachs initiative. "But it's the same concept - to what extent should the city subsidize billionaires?"

What They got

DreamWorks SKG 

* Estimated $45 million from Caltrans and city of L.A. for street improvements.

* Estimated $12 million from city in discounted utility hookups.

* Estimated $10 million in tax benefits for creating new jobs.

Sports Arena

* $58.5 million in municipal bonds that must be repaid.

* $12 million from the CRA.

* Developers must pay $3.2 million for use of arena site.