The stunning pullout this month by DreamWorks from the just-begun Playa Vista development has shaken the financial foundations of the proposed 1,087-acre complex near Marina del Rey. With the departure of DreamWorks, Playa Vista instantly lost the benefit of $35 million in city tax credits tied to jobs created by the movie studio. And then, on Friday, the Los Angeles City Council decided to take a second look at other subsidies pledged to the developer, most notably a bond issue worth millions of dollars.
Just two weeks ago, the city was ready to authorize $428 million in tax-exempt bonds for Playa Vista. The money would have paid for sidewalks, curbs, landscaping, lighting really, anything within the development with a potential public use or benefit. The money could even have gone toward the promised restoration of 188 acres of the Ballona Wetlands, where the massive project sits.
The bond deal was sweet for many reasons. Investors could buy the bonds without having to pay taxes on their interest profits. And the developers would get all their construction cash upfront at below market rates and then be able to walk away from paying off the bonds. The bond debt would become the responsibility of whoever purchased property in the development.
But now the City Council has postponed a decision on the funding called Mello-Roos bonds until August 6, to give staff a chance to re-examine the entire plan in light of the departure by the DreamWorks SKG studio. After all, the involvement of DreamWorks with its potential to create good-paying, long-lasting movie-industry jobs was a prime mover behind offering the financial incentives in the first place.
The tax-exempt Mello-Roos bonds would have been a boon in any circumstance, but the city went even further. Normally, for example, these bonds must be used to support such things as the construction of schools and major streets, infrastructure that provides an "extraordinary public benefit" outside the confines of the development. But Playa Capital, the developer, would have been allowed to use the funds for virtually any project component. The City Council also extended the bond-repayment period to 30 years (from the typical 25). And Playa Capital was given two years to attract residents and commercial renters before interest payments on the bonds would have to be paid for through special property taxes.
While city documents repeatedly insist that sponsoring $428 million in Mello-Roos bonds would have "no fiscal impact on the General Fund or any other fund of the City," there are, nevertheless, hidden taxpayer subsidies. Using conservative estimates on interest rates, the Center for Tax Justice in Washington, D.C., estimates that over a 30-year period, the $428 million in tax-exempt bonds will mean the loss to state and federal treasuries of about $335 million in tax revenues.
This enormous tax benefit for investors comes via land for which Playa Capital paid only $101 million in the spring of 1997.
The huge subsidy has not gone unnoticed by Playa Vistas foes, who still hope to preserve most of the acreage as public wetlands. The Citizens United To Save All of Ballona coalition is gearing up to lobby against the Mello-Roos bonds. "Without the Hollywood glitter" of DreamWorks, "these Mello-Roos funds can be seen for what they are straight corporate welfare," says Wendy Wendlandt, state political director of the California Public Interest Research Group (CALPIRG).
Opponents of Playa Vista have been jubilant since the announcement of DreamWorks withdrawal. Although major news media such as the Los Angeles Times, The New York Times and The Wall Street Journal all accepted DreamWorks statement that it could not reach agreement with lenders on financial terms for building the studio, that explanation has its limits. Steven Spielberg, Jeffrey Katzenberg and David Geffen, the co-owners of DreamWorks, after all, were each listed among the 50 richest men in Los Angeles County in a recent L.A. Business Journal article even before Katzenberg won an estimated $250 million settlement in a lawsuit against Disney.
Could it be that the much-maligned and scoffed-at campaign of die-hard environmentalists finally carried the day? For five years, activists have filed lawsuits and staged demonstrations, making it clear that they considered publicity-sensitive DreamWorks as much a target as Playa Capital itself. One group, the Ballona Wetlands Land Trust, reports that it has distributed 15,000 post cards of protest addressed to DreamWorks over the last three years.
But unraveling the larger development deal and influencing city policy in the process may prove a stiffer challenge. In this arena, the project developers are pros. Playa Capitals David Herbst has vowed to build a studio at Playa Vista "one way or another" and has vast experience negotiating with city officials and council members.
Still, antiPlaya Vista environmentalists sense an opportunity. Playa Capital has no tenants for Playa Vista and continues to face legal challenges in federal and state courts. The newly uncertain status of the Mello-Roos bonds undermines both the development's momentum and its financial viability. Thus, the city's pending decision on the bonds could be a bellwether for the project as a whole.