Putting a Brake on the Break

I’m still trying to figure out how it is that I’ve found myself stuck in the wilderness. The offices of the San Fernando Valley Business Journal are smack in the middle of Warner Center Towers, which is by my calculation the largest office development in the business district. Yet, as I observed the debate last week that took place over the proposed tax break for Westfield Group’s massive Village at Westfield Topanga mall project, I thought I just as well might be in the middle of the Tongass National Forest in Alaska, which is the nation’s largest at 17 million acres. So, how is it I felt so isolated? Well, I watched as the Valley’s business groups – from the Valley Industry and Commerce Association to the Valley Economic Alliance – offered up their support of the tax break at a lopsided City Council meeting during which opponents were given a grand total of five minutes to speak. And it’s not as if the details of this tax break, which could exceed $25 million, have been debated for months and months. The city’s Chief Legislative Analyst released a numbers-heavy, dense 68-page report on the project only late last month. It stated that consulting firms hired to perform the economic analysis concluded the project has a likely $49 million “feasibility” gap due to development costs. To the consultants’ credit, the gap they found was below the $91 million Westfield had estimated, though the report noted the gap could grow higher. But the cure-all is what makes me quite queasy. The report proposes turning over to Westfield up to $25 million of the $61 million in tax dollars that the project is expected to generate on a net present value basis for the General Fund over the next 25 years. That is under the 50 percent cap in tax rebates but still a quite healthy 42 percent. It’s also a figure that could grow to $59 million given inflation and other factors. Westfield says the payoff for this break is a commitment to build the entire 31-acre, 631,703 square-foot mixed-use project in three years instead of in stages over 25 years. For sure, it’s a massive project that will essentially link Westfield’s existing Westfield at Topanga and Westfield Promenade malls into one gigantic complex, replete with a Costco, a Hyatt hotel and all sorts of new restaurants and shops. But does Westfield Group, an Australian multinational company that is one of the world’s most successful mall developers, really need a tax break? Like many in the Valley business community, I attended VICA’s annual meeting in December at the Warner Center Marriott. Peter Lowy, who lives in Los Angeles and is the co-chief executive of Westfield, was the keynote speaker. He positively crowed about his company’s performance and strategy, which involves building huge top-dollar malls in the world’s top markets such as London, New York and Los Angeles. I’m ashamed to admit, but the corporate video he showed of Olympic crowds at the company’s new Westfield Stratford City outside the Olympic Village last summer in London almost made me get up and cheer. And Lowy wasn’t exaggerating. When the company released its consolidated earnings in February, it reported that its profit had grown 18 percent to $1.59 billion in U.S. dollars last year. So why does this incredibly successful mall developer need to stick its hand into the coffers at City Hall? I can think of 10 different uses off the top of my head the tax break could go toward, starting with our streets and sidewalks. And I’m sure there are thousands of struggling local business owners who wouldn’t mind a little tax break of their own. Off the record, one Valley business leader told me he was conflicted by the tax break. Another told me it’s a win, win. “Yeah, sure, Westfield keeps some cash but we get that commerce, a boost in employment we wouldn’t get otherwise.” Or something like that. Don’t get me wrong. Sometimes a development needs a break to get off the ground, but I’m not so sure about this one. Is it really true Westfield wouldn’t pony up the money and just build its massive complex as fast as it could? It certainly seems to have the cash. The Council voted to move ahead with the tax break, but the details still need to be negotiated. At the very least, I suggest everyone take a deep breath and take a second look at the city report. I tried to dig into it last week and it was daunting, complicated and filled with all sorts of economic and fiscal assumptions it would take a CPA a week to untangle. I’m just a voice in the wilderness in the middle of the Valley’s biggest business district, but maybe, just maybe somebody will hear me squawking. Laurence Darmiento is editor of the Business Journal. He can be reached at [email protected].