Some of my Republican friends argue with me over my support for the GardenWalk project TOT rebate, pointing out that it isn’t free market economics and that government shouldn’t subsidize a business enterprise.

My response is that they’re right, but Anaheim isn’t working in a free market. I recognize that state government has gone too far on the regulation and taxation of business activity, and Anaheim itself is bordered by a city that has no compunctions about luring four-star hotels with not only TOT rebates, but free land.

Last week, the Garden Grove City Council unanimously voted to give a luxury hotel developer five-acres of city-owned land on Harbor Boulevard , adjacent to the Resort District. The council also voted to rebate back to the developer millions in TOT generated by the project for up to 20 years.

At the same meeting, the council unanimously approved a water park resort-and-hotel project, with the city putting up the land and issuing $42 million in revenue bonds to finance it.

Where was the outrage from Adam Elmahrek of the Voice of OC, or the OC Register editorial writers?

This is the market in which Anaheim is operating. For years, Garden Grove has pursued a deliberate strategy of benefitting from the expansion and improvement of the Resort District  — financed by the City of Anaheim bonds guaranteed by Disney) by luring high-end hotels with land and TOT rebates.

That’s why it has been many years since a four-star hotel has been built in Anaheim: we can’t compete with Garden Grove.

To be sure, Garden Grove’s free land-and-subsidies policy creates an artificial market, but that doesn’t make it any less real. Anaheim is heavily dependent on TOT revenue from the Resort District to fund city services. That’s what the whole battle with developer SunCal a few years ago was all about.  The Resort District is driven by tourism and convention business. The convention business is tremendously competitive, and four-star hotels make a destination that much more attractive for higher-end conventions, which in turn generate higher tax revenues for Anaheim.

The difference in the amount of TOT revenue generated by a four-star hotel versus a three-star hotel is very big, and is magnified over the course of many years.

If we were in Texas or Nevada or some state with a much-friendlier business climate, I would be as skeptical as my Republican friends. But given the reality of the situation, the City of Anaheim would be short-changing itself and its citizens by refusing to compete with Garden Grove by pursuing a more aggressive strategy for developing high-end hotels within the Resort District.

In the short-term , the GardenWalk project will create much-needed, good-paying construction jobs. In the long-term, it will generate much higher TOT revenues for the city than yet another three-star hotel. Garden Gove gets that, which is why they are playing the long game and reaping the benefits of Anaheim’s investment in the Resort District. The GardenWalk agreement is an example of our city waking up to this reality and refusing to cede high-end hotel development to its neighbor.