NO SUBSIDY, NO HOTEL MAJOR STAPLES AREA EXPANSION NEEDS TAXPAYERS' HELP.

Byline: Beth Barrett Staff Writer

Billionaires Philip Anschutz and Rupert Murdoch have put together a deal to build a four-star hotel, 7,000-seat arena and trendy nightlife and shopping district next to their Staples Center, but it hinges on getting a $75 million city tax subsidy.

Los Angeles city officials, led by Chief Legislative Analyst Ron Deaton, have worked out the contours of the deal after months of behind-the-scenes negotiations and are ready to push it forward in the next two weeks if possible while the lame-duck City Council and mayor still hold office.

The key to what is being billed as a billion-dollar West Coast version of Times Square is about $60 million of the hotel's room tax - an amount that could be leveraged at a tax-exempt rate to $75 million, according to several sources.

Developer-operators and banks have expressed interest in erecting the ritzy hotel in a downtown area between Staples and the Los Angeles Convention Center that attracts about 6 million people a year, but no one is willing to invest without a taxpayer subsidy, said Ted Tanner, senior vice president of real estate for L.A. Arena Co.

``It won't happen,'' Tanner said. ``The economics just won't allow it to happen.''

The 27-acre project calls for hip nightclubs, trendy restaurants, shops and hot music venues, all trimmed with edgy neon and other artsy signage alongside a 45-story, 1,200-room hotel at Georgia Street and Olympic Boulevard.

On Monday, Deaton is scheduled to recommend to an ad hoc City Council committee that the law firm of Orrick, Herrington & Sutcliffe be hired for up to $150,000 to ``analyze the tax implications'' of the proposed hotel.

Tanner, with the Arena Company, said the developers have no objections to the consultant.

``It's a logical extension that the city take a leadership role in the structure and financing of the deal,'' he said.

Representatives of Anschutz and Murdoch already have worked out deals with unions and local resident associations, but as details have begun to surface, criticism is mounting.

Gerald A. Silver, president of Homeowners of Encino, said the deal represents a ``giveaway'' to downtown business interests at the expense of the rest of Los Angeles, including the San Fernando Valley where the secession movement has been fueled by City Hall's long history of investment in downtown at the expense of the neighborhoods.

``The taxpayers pony up the money - we're the moneybags, but we don't get to share in the profits,'' Silver said.

``With the Valley poised on secession, it's not opportune for the city of Los Angeles to take the Valley's share of the capital and invest it when the Valley will get nothing out of it. The Valley needs its own venues. This will undercut the Valley's efforts to put those venues in place.

``One reason there is secession, people don't want to schlep from Woodland Hills or Chatsworth all the way downtown for the government, and they certainly don't for entertainment.''

Valley Voters Organized Toward Empowerment board member Richard Katz said subsidizing downtown developers does little for the Valley.

``It seems like another example of taxpayers subsidizing wealthy downtown developers,'' Katz said. ``This isn't money to increase tourism in the San Fernando Valley or to increase business in the Valley, but it always seems to be available when downtown developers need a handout.''

Tax revenue touted

Tanner defended the project, saying residents throughout the city will benefit by the area's transformation, with taxes generated by the new businesses - including sales and utility taxes from the hotel - resulting in a net gain for city coffers.

``This is the engine that provides for an increase in the economy, which will repair streets and pay for other services in the Valley,'' Tanner said. ``And it will provide the Valley with a place to go.''

He added that between the hotel, which includes a large meeting space, and three and a half acres set aside for a 250,000-square-foot convention center expansion, the public's stake is large.

Katz, however, questioned whether the developers have fully disclosed the cost of the project to the public, noting promises of about $750,000 in seed money for job training programs and to develop low-income housing, a commitment that could eventually end up being footed by taxpayers.

``If you're starting with seed money, then you'll need more taxpayer money to make it come true,'' Katz said.

``It hides the true cost of the project; it sort of launders the money so taxpayers never really know how much they'll be on the hook for. The council needs to be honest about it.''

Tanner said the seed money was intended to be flexible, allowing local nonprofits and others to consider a range of public-private funding options.

While no specific funding sources have been identified yet for the low- incoming housing and job training elements, Tanner said he expected them to run the gamut, including government funding, tax credits and nonprofits' participation.

``We're trying to provide seed money to help the project applicants put together the best possible applications,'' Tanner said.

Community organizations near Staples Center and two unions, representing janitors, and hotel and restaurant workers, are embracing the project after winning a package of concessions, including living wages for at least 70 percent of the 5,500 permanent jobs the project is estimated to create, along with the job training and low-income housing components.

Gilda Haas, director of Strategic Actions for a Just Economy, a nonprofit economic justice organization, said the package's strength is in its breadth, rather than a single economic value.

``What makes this a national precedent is that it's much broader than any one issue,'' Haas said.

``With most of these developments, there aren't good policy strategies to integrate a big regional attraction into an inner city neighborhood without hurting folks. There was considerable discussion with Staples how not to hurt folks, how to turn their project into concrete economic benefits. This is a community benefit package.''

Lame-duck leaders

The developers had hoped to win final approval for the project before the lame-duck council and Mayor Richard Riordan left office at the end of the month, while the city still was riding high on the Lakers' basketball playoff fortunes.

``It's nervous time,'' said Bob Sutton, deputy director of the city's Planning Department, whose commission has approved the environmental conditions and entitlements for the massive expansion.

``We have a whole slug of new people coming in and we don't know what the effect will be. We want to get this under our belt with people who know what's going on and seem to be OK with it.''

Councilwoman Cindy Miscikowski, a member of the Planning and Land Use Management Committee who is vying to replace the late John Ferraro as president, said quick approval may not be possible now.

``There was a desire that if we could do it lickety-split with a council and mayor who were familiar with it, that would be dandy,'' she said. ``If we can't, we can't.''

Jan Perry, elected earlier this month to succeed Councilwoman Rita Walters in representing the downtown area, has called for a delay on a final decision for the new council.

``It's a major project with long-term effects,'' Perry said. ``I just want to review it.''

Sources said neither side is particularly worried the new council and Mayor James Hahn will pose serious roadblocks. Hahn could not be reached for comment Friday.

City controller-elect Laura Chick promised to scrutinize any deal ``inside out'' and only to back it if it meant a net increase to the general fund budget.

``Otherwise, it's nothing I'm interested in,'' Chick said.

Miscikowski defended the subsidy as reasonable, saying the city would benefit from the redevelopment and that the room tax provided the least disruptive form of subsidy.

``This is the least painful, the least destructive, the least impact on the general fund,'' Miscikowski said. ``It's a reasonable way to go.''

Miscikowski predicted the city would recoup the $75 million on sales and other taxes over time.

The development partnership L.A. Arena Land Co., which owns Staples Center, currently has obtained city Planning Commission entitlements for about 4 million square feet of development around the arena, including a 7,000-seat indoor music theater, which it may keep in its ownership for concerts and entertainment award shows.

In synergy with the rising popularity of residential apartments and lofts in the area, the developers also plan 800 housing units in two large towers, separate from the seed program. The developers have agreed to provide 160 affordable units, either in the towers or within a one-mile radius of the project.

A second, smaller, 600-unit hotel also is planned on Flower Street between Pico Boulevard and 12th Street.

Top restaurants, nightclubs and other venues will fill out about a 1.3 million-square-foot entertainment district, wrapping the area in a chic ambience.

``There will be a sense of being hot,'' Tanner said of the anticipated mood. ``It will be edgy, modern, very pedestrian-oriented.''

Sutton, the city planner, said, ``the bottom line'' for the city is building a first-rate hotel.

City has few options

For years, the absence of a hotel has been a glaring gap in the city's amenity landscape and long a sore point among convention organizers.

Tanner said San Francisco, for example, has 10,000 hotel rooms within an easy walk of its convention facilities versus about 640 rooms close to Staples. Anaheim and San Diego also have more accommodations.

Los Angeles, in exploring subsidies for the project, had limited options.

It is unable to offer the developers property tax increment subsidies - the common way to spur redevelopment - because they are tapped out in the Central Business District where the arena is located.

Assistant Chief Legislative Analyst Gerry Miller, who has been working on the financing, said with the deadline rapidly approaching for this council's consideration, there still is no final financial agreement. He declined to discuss specifics of the negotiations.

``We're still working on it,'' Miller said. ``There's no report or anything to look at.''

Still, the city is eager to make the deal work.

``Clearly a convention center hotel would be a big benefit to people who use the convention center,'' Miller said.

Sutton, the city planner, said the developers agreed to the required mitigations.

``We have the usual slug of mitigation measures and most they're responsible for,'' Sutton said.

``The traffic isn't as bad as in a lot of places because by 7 p.m. downtown is pretty quiet. We have signage requirements to direct traffic. But traffic is not as big a thing as it is in most locations. You don't have oodles of homeowners groups coming out of the hills and saying, 'Not in my back yard.'''

The biggest public issue, Sutton said, rather was the number of new liquor licenses - about 17 - anticipated for the new bars, restaurants and nightclubs, not noise, lighting or traffic.

``Now it's just negotiating with the city's financial people,'' Sutton said.

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