Luxury Hotel Complex Recieves City Bailout

Luxury Hotel Complex gets $8 million "loan" from city council

While the Federal Government Inc is busy bailing out the financial institutions, further down the food chain, bailouts for luxury developments at the state and city level are becoming the norm. The unfortunate necessity of these bailouts is presenting a quandary for all concerned. The intention of the city councils when they allowed these luxury developments to go ahead was obviously future tax revenues. Many of them were, at least in part, funded by special tax concessions during the building phase.

Now that the financial crisis is causing many of these developments to fail, a further injection of taxpayers money is being called for. I understand the need to do so – the country will be littered with derelict luxury developments if this is not done, but the social implications are enormous. It is difficult to justify using taxpayers monies to prop up a failing business, who’s business model relies on income from wealthy patrons. One recent bailout recipient is the Terranea resort in Rancho Palos, California, which has just received an $8 million loan from the city council, and although both parties claim this is not a bailout, the social implications of doing this may eventually outweigh the financial benefits.

Quite apart from  the fact that all these developments now hang in the balance, and will only ever be successful if we return to a credit driven booming economy, which is by no means assured, the growing concern of the local citizenry needs to be taken into consideration. If you have just lost your job, and the city is hounding you for your property taxes, it is going to be difficult to be sympathetic when you see $8 million being given over to a luxury hotel complex.

The credit markets are still frozen – refinancing loans is all but impossible for many at the moment – I understand this, but there must come a point of no return and my current thinking is to use these over-built developments as social housing of some kind. Even when the economy recovers, the fact that there has been so much over-building in the segment means that propping up the failed developments will only serve to devalue the viable ones. This would serve two purposes: one, it would reduce the amount of excess inventory in the luxury segment of the market, and two, it would be a more socially acceptable use of taxpayers funds. There will eventually come a point where the socialization of private losses becomes too great a burden for the system to bear.