Please find below a copy of a letter prepared by attorney Chris Sutton. It details the legal objections to the subsidies for the Grand Ave Luxury Hotels & Condos. They briefly consist of:
1] unlawful use of Redevelopment assets,
2] unlawful transfer of Bunker Hill Increment funds
3] unlawful pledge of Transient Occupancy Taxes to Luxury Hotel
4] unconstitutional gift of Public Funds to Luxury Hotel
5] unconstitutional Parochial Territorial Limits on Employees
6] unsupported CEQA Findings on Parking impacts
7] Violation of Federal Securities Laws and I.R.S. Rules
Please contact Chris Sutton with any questions.
Respectfully submitted,
Joe Vitti
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Objections to 2-06-07 Item 9 Council File No.07- 0332
Subsidies for Grand & 2nd Street Luxury Hotels & Condos
Prepared and hand delivered to the Housing Committee on
LAW OFFICE OF
CHRISTOPHER SUTTON
35 EAST UNION STREET, SUITE C
PASADENA, CALIFORNIA 91103-3945
TELEPHONE (626) 683-2500 FACSIMILE (626) 405-9843
February 6, 2007
HAND DELIVERED
Housing, Community, and Economic Development Committee
of the Los Angeles City Council
Los Angeles City Hall, Hearing Room 1010
100 North Spring Street
Los Angeles, California 90012
Re: Opposition and Objections to Unlawful Subsidies to Grand Avenue Luxury Hotel;
2-6-2007 Committee Agenda Item (9), City Council File Number 07-0332;
Unsupported CEQA Findings as to Adverse Parking Impacts on Superior Court;
Unconstitutional Gift of Public Funds to Luxury Hotel and Luxury Condominiums;
Un lawful Use of Redevelopment Assets and Funds for Other Than Blight Eradication;
Unconstitutional Parochial Territorial Limits on Employee Training and Hiring;
Unlawful Transfer of Bunker Hill Tax Increment Funds to Outside of Project Area;
Unlawful Pledge of Transient Occupancy Taxes ("TOT") to Luxury Hotel and Condos;
Violation of Federal Securities Laws and I.R.S. Municipality Anti-Arbitrage Rules
Dear Members of the Housing and Community Development Committee:
This office has been retained by Today's IV, Inc., doing business as Westin Bonaventure Hotel, a property and business owner within the Bunker Hill Redevelopment Project Area on Block G.
The various proposed actions related to the Grand Avenue Project are improper for the reasons set forth below. The proposed actions would violate provisions of state and federal law. The proposed actions violate the Bunker Hill Redevelopment Plan's limits on land uses on Blocks Q and W, violate the Plan's maximum floor-area-ratio, violate the plan's total limit on residential units, and violate the Plan's total limit developed floor areas. These threatened actions also include violations of federal municipal securities law and Internal Revenue Service anti-arbitrage regulations.
1. VIOLATION OF BUNKER HILL REDEVELOPMENT PLAN
MANDATORY LAND USE AND MAXIMUM DEVELOPMENT STANDARDS
The proposed Grand Avenue Project violates the governing land use document: The Bunker Hill Redevelopment Plan as last amended in 1970 regarding maximum development limits. The Redevelopment Plan limits all develop to a 5 to 1 floor-area ration ("FAR"), or a 6 to 1 ratio if a special approval procedure is followed. See, Redevelopment Plan sections 800 to 816.
The Redevelopment Plan also limits total development in the Project Area in a number of ways.
First, a project-wide FAR applies. The total square footage of development will cause the Project Area to exceed the Project Area FAR limits.
Second, the lot coverage at each development site is limited to a maximum of 40% for residential uses and 50% for nonresidential and commercial uses. The proposed Grand Avenue Project exceeds the Redevelopment Plan's maximum lot coverage requirements. In addition, there is a Project Area overall lot coverage limit, and the Grand Avenue Project will cause the Project Area to exceed those limits.
The Redevelopment Plan sets a minimum number of off-street parking spaces for residential and nonresidential developments. At each development site, there must be not less than one off-street parking space per dwelling unit, and not less than one off-street parking space for every 800 square feet of commercial and office space development. The Grand Avenue Project violates the minimum parking requirements set forth in the Bunker Hill Redevelopment Plan.
The Bunker Hill Redevelopment Plan established a maximum of 3100 dwelling units, with some adjustment in special circumstances. The Grand Avenue Project will result in over the maximum number of dwelling units being built, violating the 1970 Bunker Hill Redevelopment Plan land use standards.
Block W is limited to office buildings and parking facilities. The Grand Avenue Project fails to construct offices on Block W. Residential uses are not allowed in Block W to the extent planned in the Grand Avenue Project.
Block Q is primarily designated for office uses with only other incidental commercial uses. The Grand Avenue Project violates this restriction by having primarily residential and hotel uses.
The Bunker Hill Redevelopment Plan provides the exclusive method for financing, and does not provide for rebates of hotel "Transient Occupancy Taxes."
The Bunker Hill Redevelopment Plan as approved by a state agency under a specific state law wholly pre-empts and overrules any contrary merely local land use standards of the City or County. See, Gibbs v. City of Napa (1976) 59 Cal.App.3d 148, Kehoe v. City of Berkeley (1977) 67 Cal.App.3d 666, Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, and Walker v. City of Salinas (1976) 56 Cal.App.3d 711. The City has no authority to approve any plan or agreement violating the Bunker Hill Redevelopment Plan. Section 409 of the Plan renders the City's policies merely advisory to the binding policies in the Redevelopment Plan.
2. IMPROPER ATTEMPT TO AMEND BUNKER HILL REDEVELOPMENT PLAN
The Grand Avenue Project contemplates a number of zone changes, municipal code text changes, and several zoning variances. Taken together, these are an improper and illegal attempt to amend the Bunker Hill Redevelopment Plan by a means other than the exclusive method set forth in the California Community Redevelopment Law at Health & Safety Code sections 33450 to 33458. This includes a right of referendum at sections 33378 and 33450. By using improper variances the City is attempting to circumvent the referendum rights of the Westin Bonaventure Hotel and all residents of Los Angeles as guaranteed by state law.
The proposed zone changes and variances seek deviations from the mandatory provisions of the Bunker Hill Redevelopment Plan. Such actions are void and pre-empted by the supremacy of all redevelopment plans and the Community Redevelopment Law over all merely local enactments. See, Gibbs v. City of Napa (1976) 59 Cal.App.3d 148, Kehoe v. City of Berkeley (1977) 67 Cal.App.3d 666, Redevelopment Agency v. City of Berkeley (1978) 80 Cal.App.3d 158, and Walker v. City of Salinas (1976) 56 Cal.App.3d 711.
3. THE LARGE SUBSIDIES FOR THE LUXURY HOTEL/CONDO PROJECT
ARE BASED ON DECEPTIVE AND INCOMPLETE ANALYSIS
The large and unjustified subsidies being offered to private developers for their combined luxury hotel / luxury condominium project could permanently harm the fiscal integrity of the City of Los Angeles. This is a time of budgetary constraints. The City Council should not approve these subsidies based on the fraudulent analysis and illusory benefits contained in the staff reports. We strongly urge a NO vote on the these approvals. Remove any and all subsidies for the luxury hotel/condo project. There needs to be a fuller economic analysis of actual and provable need for any subsidies for this luxury hotel to be developed jointly with 250 luxury condominiums.
4. THE PROPOSED C.E.Q.A. FINDINGS
IGNORE THE EXTREME PARKING IMPACTS
ON THE STANLEY MOSK SUPERIOR COURTHOUSE
LOCATED JUST NORTH OF 1ST STREET AND ACROSS THE STREET
The EIR fails to address the interim and long vehicle parking shortage which will be created regarding persons using the Stanley Mosk Superior Courthouse. All existing Courthouse parking lots south of First Street will be simultaneously destroyed and not replaced. These over 2,000 parking spaces south of First Street now used by jurors, attorneys, witnesses, and visitors to the Stanley Mosk Courthouse are being eliminated. The purported replacement parking spaces are already fully utilized. Other suggested parking spaces are so distant from the Stanley Mosk Courthouse that they are beyond the allowable limited for off-site parking for similarly intense commercial developments. Most of the available parking is three or four blocks away from the Courthouse. The Grand Avenue Project fails to include adequate phasing to provide any ongoing significant replacement parking adjacent to the Stanley Mosk Courthouse.
5. VIOLATIONS OF LOS ANGELES CITY CHARTER'S
ANTI-SUBSIDY PROVISIONS
Section 104 of the Los Angeles City Charter reads in pertinent part as follows:
Sec. 104. Restrictions on the Powers of the City.
The rights and powers granted by the Charter shall be subject to the restrictions set forth in this section or elsewhere in the Charter.
[ . . . . ]
(g) Business Enterprises. The City shall not engage in any purely commercial or industrial enterprise, except upon a majority vote of the voters of the City voting on the question, unless the enterprise was engaged in by the City at the time the Charter becomes effective, or unless engaging in the enterprise is elsewhere specifically authorized in the Charter.
The proposed Grand Avenue Project proposes a violation of Section 104(g) because the new 5 star hotel/ condo project will be operated as purely commercial enterprise. The voters' approval will be required for the proposed hotel subsidy involving the unjustified rebate of over $55 million in tax revenues. The failure to obtain voter approval will render the subsidies as an invalid and illegal gift of public funds.
6. THE PROPOSED GRAND AVENUE PROJECT
AND LUXURY HOTEL SUBSIDIES VIOLATE PROPOSITION 218
Proposition 218, at Article XIIIC and XIIID of the California Constitution, prohibits the City from imposing or collecting new taxes or assessment affecting real property or for improvements to real property without approval of the persons and business who will pay the taxes or assessments. No such approval has been obtained for the proposals in the Grand Avenue Project to divert Transient Occupancy Taxes ("TOT") to subsidize the proposal for a new luxury hotel with hundreds of luxury condominiums.
This diversion and restructuring of the TOT tax and revenues requires approval of the hotels City-wide who pay the TOT. The same Proposition 218 violation will occur if local building fees are use to cross-subsidize any waiver of similar fees to the new hotel. The failure to obtain the approval renders the proposed Grand Avenue Project and all the suggested new hotel subsidies and fee waivers a violation of Proposition 218. Such subsidies and fee waivers would be an illegal gift of public funds in violation of California Constitution Article XVI section 6 because the required approval process under Proposition 218 has never been obtained.
7. LOCAL CITY SERVICES ARE BEING SACRIFICED
FOR THE SUBSIDIES TO THE LUXURY HOTEL/CONDO DEVELOPMENT
The City of Los Angeles should not sacrifice public safety or the salaries of City employees who provide vital services. This Grand Avenue Project would result in a gift of public funds because the rationale that a luxury hotel/condo project needs any subsidy is an irrational and groundless assumption. The analysis provided to the City Council failed to acknowledge the over $200 million dollars the developer will receive from selling the luxury condos attached to the luxury hotel. The City would be giving away money needlessly and waiving fees and charges in violation of Article XVI section 6 of the California Constitution.
8. FRAUDULENT DATA USED TO JUSTIFY LONG TERM SUBSIDIES
It appears that incomplete or fraudulent data is being relied on to justify potential long term and open-ended subsidies for the new luxury hotel/condo project. There is a lack of data on how the developer will profit from the luxury condominiums selling at up to $2,000,000 per unit or the income derived from the luxury hotel suites at $500 to $2000 per night. The development does not need subsidies to proceed. It would be an illegal gift of public funds to provide them.
9. THE CURRENT GRAND AVENUE PROJECT IGNORES
THE EARLIER PLEDGE THAT NO CITY SUBSIDIES WOULD BE NEEDED
Just two years ago the developer of the Grand Avenue Project pledged that no City subsidies would be needed for the hotel/condo project. At that time, all Council members and staff experts chimed in: No subsidies will be needed. The long term subsidies being offered to a this developer could permanently harm the fiscal integrity and local services of the City of Los Angeles. We strongly urge a NO vote on these unneeded massive subsidies. It is clear that this hotel/condo project will be built without any subsidies.
10. VIOLATION OF STATE REDEVELOPMENT LAW
BY CONTINUAL TRANSFERRING OF "TAX INCREMENT FUNDS"
AND EQUIVALENT ASSETS OUTSIDE THE BUNKER HILL PROJECT AREA
The City and Agency repeatedly spend assets and tax increment funds of the Bunker Hill Redevelopment Project outside the boundaries of the Project Area where they were derived. These practices violate Article Sixteen section 16 of the California Constitution, which mandates that all funds must remain in the Project Area. There is no logical or rational nexus between the expenditure of Bunker Hill funds elsewhere and the Bunker Hill project area. The Westin Bonaventure Hotel is located within the Bunker Hill project area. Subsidizing a remodel of the County fountain and mall outside the Bunker Hill Project Area is not logically of any benefit to the Project Area.
In addition, there must be evidence of ongoing and current "blighted" conditions that are being alleviated in the Bunker Hill Project Area to allow funds to be transferred outside the project area. This is required by Article Sixteen section 16 of the California Constitution for the use of tax increment funds. There is no evidence or showing that any "blighted" conditions in the Bunker Hill Project Area today actually exist, or if they exist how the "blighted" conditions will be alleviated by spending the Bunker Hill money outside the project area. Without actual and CURRENT evidence of "blighted" conditions there can be no lawful transfer or loan of the Bunker Hill tax increment funds or assets.
The Bunker Hill Project Area is no longer a "blighted area" as defined by Health and Safety Code sections 33030 and 33031. The diversion of property tax increment revenues to subsidize activities outside the project area is a violation of the Article 16 section 16 of the California Constitution. The "presumption" of "blighted conditions" in Health and Safety Code section 33368, is meant solely to secure bonded debts, and it cannot overcome the CONSTITUTIONAL prohibitions in Article XVI sections 6 (no gifts of public funds), and 16 (no expenditures of redevelopment funds or assets outside the project area). See, Meaney v. Sacramento Housing & Redevelopment Agency (1993) 13 Cal.App.4th 566; (subsidies may not be used outside a redevelopment area); Lancaster Redevelopment Agency v. Dibley (1993) 20 Cal.App.4th 1656 (redevelopment funds are restricted to specific purposes); Craig v. City of Poway (1994) 28 Cal.App.4th 319 (accounting tricks will be ignored in finding an abuse of state law funding restrictions); City of Ontario v. Superior Court (Duck) (1970) 2 Cal.3d 335 (subsidy of a race track found illegal), City of Redondo Beach v. The Taxpayers, Property Owners, Citizens, and Electors of the City of Redondo Beach (1960) 54 Cal.2d 126 (diversion of taxes found illegal); County of Riverside v. City of Murrieta (1998) 65 Cal.App.4th 616 (non-blighted areas are not properly the subject of redevelopment subsidies); People ex rel. Lungren v. Community Redevelopment Agency of Palm Springs (1997) 83 Cal.App.4th 892 (improper subsidies for a casino); County of Wayne v. Hathcock (July 30, 2004) 684 N.W. 765 (economic development and increasing tax revenues alone are not a valid public purpose); Cottonwood Christian Center v. Cypress Redevelopment Agency (C.D. Cal. 2002) 218 F.Supp.2d 1203 (facilitating a Costco store is not a valid public purpose); 99¢ Only Stores v. Lancaster Redevelopment Agency, City of Lancaster (2001 C.D.Calif.) 237 F.Supp.2d 1123 (facilitating a Costco store is not a valid public purpose); Thompson v. Consolidated Gas Utilities Corp. (1937) 300 U.S. 55 (using regulatory power to subsidize one business at the expense of other is not a valid public purpose); Card v. Community Redevelopment Agency (1976) 61 Cal.App.3d 570 (redevelopment efforts may not discriminate against one class of property owners).
The Westin Bonaventure as a project area tax payer and business is entitled to have all redevelopment funds and assets expended solely in the Bunker Hill Project Area. Any use of public money for an ostensible "redevelopment" purpose must strictly comply with the requirement that it be used to remedy truly "blighted" areas. Cities and redevelopment agencies have no power or authority to violate the limits of redevelopment law because in redevelopment matters local entities are subordinate state functionaries. They are not independent local governments. There is no justification for such a subsidy under California law. It is an illegal gift of public funds.
11. VIOLATION OF PROHIBITION ON GIFT OF PUBLIC FUNDS
The California Constitution prohibits government entities in California from making gifts of public funds. See Article XVI section 6. This prohibition include using government credit or other benefits for a private purpose. This Grand Avenue Project will lead to an illegal gift of public funds or credit because the new luxury hotel/condo project does not need any subsidies to be built or to operate. The portion of the structure that will be private condominiums or luxury suites will be pure profit to the developer.
12. VIOLATION OF U.S. SECURITIES EXCHANGE COMMISSION
MUNICIPAL OFFERING RULES BY OMISSION OF MATERIAL RISK FACTORS
Pursuant to the U.S. Securities and Exchange Commission's "Municipal Offering Rules" issued in 1994 and 1998 at 59 Federal Register 12748 to 12774, and 63 Federal Register 41394 to 41404, the City of Los Angeles will be the "municipal issuer" of any municipal securities related to the Grand Avenue Project. See, Section 17(a) of the Securities Act at 15 United States Code § 77q(a), and see, Securities and Exchange Act of 1934 at 15 United States Code 78j(b), and see, Rule 10b-5 promulgated thereunder at 17 Code of Federal Regulations 240.10b-5.
As the "municipal issuer" the City of Los Angeles and its officers, officials, and employees are required to comply with the anti-fraud provisions of the federal securities laws. Among the requirements are that there be no actual or implied misstatements of a material fact relevant to these municipal securities, and that there be NO OMISSION OF A MATERIAL FACT relevant to the municipal security. You are the "obligated persons" pursuant to Exchange Act Rule 15c-2-12 (17 Code of Federal Regulations 240.15c2-12). You are obligated to fully and accurately disseminate all relevant information that would inform or influence a buyer of municipal securities in a decision whether or not to purchase or hold your entity's municipal securities.
Required disclosures include the conflicts of interest that may arise from political campaign contributions that flow to municipal decision makers from the advisers, underwriters, law firms, and developers who would benefit from the proceeds raised from private investors or who would receive a fee from such bond proceeds. The Grand Avenue Project will facilitate violations of the S.E.C. municipal offering rules by pledging tax increment revenues for subsidies of private luxury projects.
13. TAXPAYERS THROUGHOUT LOS ANGELES SHOULD NOT SUBSIDIZE
A LUXURY HOTEL ROOMS & CONDOS IN DOWNTOWN LOS ANGELES
The development of yet another hotel in downtown Los Angeles should not be subsidized by taxpayers throughout the City of Los Angeles. The loans, public improvements, tax rebates, and waiver of revenues are injuries to the general fund, and services will be impacted City wide to some degree or taxes or fees will be subject to increases as a result of these subsidies.
14. PAROCHIAL GEOGRAPHIC LIMITS
ON EMPLOYEES' RESIDENTS AND JOB TRAINING RECIPIENTS
VIOLATES THE CALIFORNIA AND UNITED STATES CONSTITUTIONS
The Grand Avenue Project contains terms that limit who can work at the construction jobs, who can work at the completed new facilities, and who future tenant businesses may hire. These limits are based on specific zip codes set forth in the documents. Penalties are imposed on violators, even violators who are not parties to these documents and receive no subsidies or benefits from these Grand Avenue Project documents. These are governmentally imposed parochial geographic restrictions that violate the equal protection, due process, privacy, and freedom to travel rights of employees and employers protected by the United States and California Constitutions. See, Dunn v. Blumstein (1972) 405 U.S. 330, 338; Hooper v. Bernlillo Couny Assessor (1985) 472 U.S. 612, 618; Attorney General of New York v. Soto-Lopez (19 86) 476 U.S. 898; Zobel v. Williams (1982) 457 U.S. 55; Memorial Hospital v. Maricopa County (1974) 415 U.S. 250; Saenz v. Roe (1999) 526 U.S. 489, 500; Crandall v. State of Nevada (1868) 73 U.S. 35, 46; Hicklin v. Orbeck (1978) 437 U.S. 517 [employment]; Toomer v. Witsell (1948) 334 U.S. 385; Shapiro v. Thompson (1969) 394 U.S. 618 [welfare benefits]; United Building & Construction Trades Council v. Mayor and Council of Camden County (1984) 465 U.S. 208 [municipality limit unconstitutional]; and In Re King (1970) 3 Cal.3d 226.
In effect, the geographic limit is a discriminatory limit on private employment activities based on
where the potential job recipient resides. The City and Agency are mandating political participation with the City of Los Angeles as a pre-condition to employment and job training by local private businesses, including future businesses who have not signed the Grand Avenue Project documents, but whom are merely future tenants in the project. The rent of such businesses is set by market conditions and the future tenant businesses receive no benefit from the subsidies given years earlier to the developers for constructing the buildings.
These future tenant business are forced to limit the pool of potential job seeker to residents in a hand full of zip codes. If an unemployed person who lives outside the target Los Angeles zips codes seeks employment or job training, the Grand Avenue Project documents mandate, under the threat of penalties, that the person from the wrong address be denied employment and training at that private business. The need for employment and training is not rationally related the site where one sleeps and eats. The program punishes certain residents and rewards others, who are then free to move out of the selected zip codes without any penalty.
CONCLUSION: Please vote NO on the Grand Avenue Project.
Sincerely,
Christopher Sutton
Attorney for Westin Bonaventure Hotel
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