Lido Hotel Lease Guarantees a Taxpayer Loss

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The city’s plan to award a long-term lease for old City Hall land is a guaranteed loser for taxpayers. Let’s quickly run through the three possible scenarios that could play out during a long-term land-lease from the city of Newport:

Let’s assume that Newport wants to lease land for 85 years to an entity, and they come to an agreement with the entity that they will charge an amount per month (let’s call it $X).

Down the road – 10, 20, or even 50 years into the lease – we can be virtually assured that the market value of the property will be more or less than $X, which we had originally agreed upon.

Option 1: If it is higher than $X, then the city is losing money. The renter will surely not renegotiate the lease to pay more money.

If it is lower than $X, then the renter is paying too much, and the city is profiting wildly.

That sounds like a great scenario for the city, right?

Wrong.

Option 2: If the renter pays too much, they will renegotiate the price with the city. The city will either cave in and negotiate (in which case: Why have long-term leases to begin with?) or the city will declare the lease valid for the duration of the time.

Option 3: If the city declares the lease valid and non-negotiable and the amount is high enough above the premium, then the renter will simply abandon the property, leaving the city holding the bag.

As you can see, all three possible scenarios wind up with the city losing money and shortchanging the taxpayer.

The old City Hall land should be sold, not leased. Rumor has it that RD Olsen wants to purchase the land. I say, let them do so. Conversely, if RD Olsen does not want to purchase the land, then let someone else purchase the land and lease it to the hotel. Risk-taking is the duty of the free market entrepreneurs, NOT the duty of government.

Mayor Rush Hill has declared that he will sign the lease agreement on Monday, September 15. If he does so, it will virtually guarantee a recurring loss to the taxpayers. It is precisely this type of fiscal management that has put us in the spot we are in today. Rush Hill still has the time to do the right thing—but will he?

Mike Glenn

Newport Beach

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2 COMMENTS

  1. To sell the land would give the city a one-time cash windfall. To keep the land and lease it gives the city a revenue stream that will help the next generation of city leadership. Newport currently enjoys a healthy revenue stream from investments made a long time ago, such as the Balboa Basin marina. Leasing it out allows for participation in the property’s increased value later. Bottom line… whether an individual, company or municipality…never sell the real estate!