City Controller Ron Galperin said Friday that Los Angeles needs more transparency and accountability when issuing tax incentives for large-scale real estate developments in a report that looked at almost $1 billion in incentives granted since 2005.
The city has approved incentive agreements without a comprehensive citywide economic development strategy, the report states, while policymakers have evaluated and approved financial incentives using a Block Grant Investment Fund policy, which was not originally intended to determine incentive agreement eligibility.
The incentives are intended to stimulate economic activity and make up for what developers said was a funding gap that prevented them from moving forward with proposed projects.
“Tax incentives can be a useful tool to help spur worthy projects and jobs. But when the city provides financial assistance to any business, it is vital that we ensure total accountability for every cent of taxpayer funds,” Galperin said. “It’s essential that every deal be maximally transparent and advantageous to taxpayers. That is why we need a clear roadmap to ensure consistency, fairness and value for those we serve.”
The Controller’s Office conducted a review of agreements on five projects from 2005 to 2015, which were approved to receive up to $654 million in tax refunds or abatements over a 25-year-period. The city also approved an additional $345 million in tax incentives for three more projects within the last two years.
The projects from 2005 to 2015 include the Headquarters Hotel, which is now a J.W. Marriott and Ritz Carlton; the Wilshire Grand Hotel (now an InterContinental); the Olympic North Hotel (now a Courtyard Marriott and Residence Inn); the Metropolis Hotel (now a Hotel Indigo); and the Village at Westfield Topanga.
Within the last two years, the city has approved incentives for the Grand Avenue project, Cambria and Pico-Figueroa hotels. Incentives for all eight projects total up to $999 million.
In the report, Galperin recommends city leaders:
— Develop a framework for incentive agreements to ensure the city identifies clear and measurable goals, identifies opportunities for economic and fiscal optimization, and considers opportunities for improvement;
— Revise the scope of evaluations and consultant studies to require a more thorough evaluation of claimed “feasibility gaps,” encourage development with fewer public dollars, and require more rigorous analysis of future economic and fiscal benefits;
— Conduct a post-completion analysis to compare actual vs. projected costs and conduct an appraisal of the project post-completion to determine whether incentive amounts should be reduced; and
— Produce an annual report to identify how the goals, number of jobs and tax revenue realized as a result of incentivized projects are meeting the parameters when first approved.
The full report can be found at lacontroller.org/incentiveagreements.
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