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L.A. could waive up to $79 million in taxes for Wilshire Grand Hotel and office towers

March 24, 2011 |  4:01 pm

The developers of a proposed $1-billion hotel, office and retail complex downtown could get up to a $79-million tax break if the Los Angeles City Council approves a recommendation by the city's top legislative analyst on Friday.

Hanjin International Corp., which owns the Wilshire Grand Hotel, plans to build the project on the site of the existing hotel at Figueroa Street and Wilshire Boulevard. But last summer the developers said they could not move forward without economic assistance from the city.

A report released Wednesday by the city's chief legislative analyst, Gerry Miller, calls for an effective waiver of the city's transient occupancy tax, or bed tax, for the developers once the project is constructed.

Consultants estimate that the hotel would generate $108 million in new taxes for the city. If the office tower and hotel are built in tandem -- a scenario that developers say is unlikely, given the current economic situation and lack of demand for commercial space downtown -- the project would generate $158 million in new taxes for the city.

Miller suggested that the city cap its assistance at 50% of the new net tax revenues expected to be generated by the project. That means that if the project is completed as a whole, the city would waive up to $79 million in bed taxes over 25 years, and if the hotel is constructed separately, the city would waive up to $54 million.

The proposed agreement would guarantee the city at least $4.2 million annually in taxes generated from the project. That's the amount of money the current hotel generates for the city each year.

City assistance for hotel renovation and development projects is not uncommon. In 2005, the council agreed to provide up to $290 million in subsidies and loans for construction of a 55-story hotel next to the Los Angeles Convention Center.

But it can be controversial.

When the city granted the Anschutz Entertainment Group a bed tax waiver to build the sprawling LA Live entertainment and hotel complex, for example, owners of the Westin Bonaventure at 4th and Figueroa streets objected.

Along with the partial tax waiver, Miller's Wilshire Grand proposal also calls for the hotel to set aside a block of rooms when conventions come to town. It also calls for construction supplies for the project to be purchased in Los Angeles.

The City Council will take up Miller's proposal on Friday. Next week, the council will consider the development agreement for the entire project.

-- Kate Linthicum at Los Angeles City Hall