The city of Rancho Palos Verdes, Calif., is loaning $8 million to the developer of the $475 million Terranea resort, scheduled to open this week.

Localities aid developers, but critics cry 'bailouts' On a stunning bluff overlooking the Pacific Ocean near Los Angeles, a new luxury hotel and golf resort are ready to open. But, first, they need a little help from taxpayers. Like a growing number of businesses, the swank Terranea resort knocked on the door of City Hall for financial aid. The developer asked for, and received, an $8 million loan from the city of Rancho Palos Verdes , Calif., to finance the cost of opening the resort Friday. "This is not a bailout," says Robert Lowe Sr., developer of the $475 million resort. "We're looking for the city to partner with us on an important project in a difficult time." Following the federal government's lead, cities and states increasingly are handing out financial support to struggling businesses. The federal government has committed $2 trillion in financial help to Citibank , AIG , General Motors , Fannie Mae, Freddie Mac and other large corporations and financial institutions. Now, the same thing is happening locally. Prominent businesses are seeking — and in some cases getting — cash, tax forgiveness, loans, loan guarantees and other types of aid to help survive the recession. Supporters call the deals crucial economic development programs that will create jobs and generate taxes. "In desperate times, we're taking desperate measures," says Bill Wells, a City Council member in Mesquite, Nev., which is considering more than $10 million in aid to several real estate developers. Critics call the deals bailouts. "It's developer welfare," says Kevin O'Connor, an activist in Evanston, Ill., who opposed that city's decision to rebate $4.1 million in taxes to a developer. "How can you not call it a bailout?" USA TODAY examined more than a dozen cases of cities and states providing direct financial help to businesses hurt by the recession. No national numbers place a total value on the deals. Developers of luxury real estate projects started during the real estate boom are the most aggressive at seeking help, which puts governments in the uncomfortable position of directing taxes to businesses that cater to the wealthy. The Terranea resort describes itself as a "timeless, world-class resort and spa with a rare collection of Legacy Estates in a remarkable setting." 'A fine line' A three-bedroom, three-bath, 2,040-square-foot "casita" costs $2 million to $4 million, including room service, housekeeping and concierge service. Hotel suites featuring ocean views cost up to $3,400 a night. "In the entire world, there are very few pieces of land like Terranea," says the resort's website. "My natural instinct is to not provide the loan. The city is not a bank," says accountant Steve Wolowicz, a fiscally conservative City Council member in Rancho Palos Verdes. But the potential benefits to the city — the jobs, the taxes — were so great that Wolowicz joined a unanimous City Council in approving the $8 million loan on May 26. "There's a fine line between an economic incentive and a bailout, and I'm standing on that line," Wolowicz says. Terranea is a local version of the "too-big-to-fail" argument that drove the federal government's decision to inject huge sums into giant financial institutions. Washington bailed them out because their failure could have threatened the entire financial system. At the local level, Terranea and many other luxury developments have consumed so much time, money and prestige that elected officials are reluctant to let them fail. Rancho Palos Verdes, a city of 41,000, has been trying to get something built on the 102-acre oceanfront property since the Marineland amusement park closed in 1987. A previous developer went bust during the savings and loan crisis. Lowe, the current developer, has steered his project through repeated zoning reviews and the stringent California regulatory process for developing coastal land. He has spent more than $12 million on public amenities — a beach, hiking trails, restrooms — that will be available to everyone. Terranea could generate $8 million a year in taxes for the city if the resort is successful and the homes sell. "It's a spectacular asset for our city," says Mayor Larry Clark, who favors the loan. The proposal calls for the city to give most hotel tax revenue — up to $8 million — from the resort back to the developer for 34 months. The developer would use that tax money as collateral to get a bigger, private loan to finance the cost of opening the resort. The developer would later pay back the city with interest, according to the agreement. Taxpayers are at risk because other creditors get paid first if the developer defaults on its debts. The developer declined to personally guarantee the loan. Bexley, Ohio, an affluent Columbus suburb, has a similar "too-big-to-fail" dilemma: the Gateway Residences, a luxury condo and townhouse development located at the city's entrance. Today, there's little demand for $1.6 million penthouses, leaving the buildings largely vacant. The developer wants the City Council to increase his property tax exemption on the homes from 50% to 100%. The change will reduce taxes by an additional $2.2 million over 15 years. Mayor John Brennan supports the deal: "Any time someone wants to invest $38 million in our city, I'll bail them out," he says. Opposition surfaces On May 26, several dozen residents showed up at the Bexley City Council meeting to protest the tax break, saying the developer should cut condo prices to make sales, rather than forgo his tax payments. The City Council postponed a vote. Some political groups — on the left and the right — have tried to stop the deals. A union, angry about the use of out-of-town construction workers, protested the city of Lee's Summit, Mo., loaning $9 million to RED Development for an upscale shopping center on Interstate 470 outside Kansas City. "Most folks don't know anything about these deals," says Dave Wilson of the Carpenter's Union. The union started a website and hung protest banners. The Lee's Summit City Council approved the loan 5-4 on May 12. The Summit Fair shopping center is set to open in August with Macy's and J.C. Penney as tenants. "Developers are wise to the fact that they can get subsidies pretty easily," says Clint Bolick , litigation director at the conservative Goldwater Institute in Phoenix. The institute won a ruling against Phoenix's $97 million subsidy to the developer of CityNorth, a multibillion dollar residential and retail development. An appeals court ruled that the subsidy — returning sales tax revenues to the developer — was an illegal gift to a private company. The city is appealing to the Arizona Supreme Court. "The government shouldn't use tax policy to pick winners and losers," Bolick says. "The small guy never gets a subsidy. How are they supposed to compete?" Requests for financial assistance during the recession are taking many forms: •Supplying credit. In Akron, Ohio, the city and county will borrow $17 million in taxpayer-backed bonds for a developer to finance a new headquarters for Goodyear Tire & Rubber Co., and the $900 million riverside redevelopment of the company's old headquarters. •Lowering interest rates. Mooresville, N.C., a town of 22,000, is preparing to borrow $9 million in tax-exempt money on behalf of the developer of a stalled $900 million condo-hotel development. The developer gets a lower interest rate but is responsible for the debt. •Building and buying. Dallas plans to build a $500 million hotel and convention center. Nashville is considering a similar $1 billion project. In Naples, Fla., the county government is buying property outright for development in the depressed Florida real estate market. "We're buying property at values that make development possible with the right incentives," says redevelopment director David Jackson. •Tax breaks. A Spearfish, S.D., developer wants the city to divert $2.1 million in property taxes he will pay to reimburse him for improvements to a golf course and service road. The city will consider the idea Monday. Mesquite, Nev., a town of 16,000 that has been hammered by the recession, is trying everything from grants and loans to selling city-owned land at a discount. One of its three casinos has closed. The city 80 miles from Las Vegas has 2,000 vacant lots for homes that can't be sold, City Manager Tim Hacker says. Mesquite will loan $2.5 million to a developer to build a road to a proposed recreational vehicle park that the city hopes to expand into a casino and golf course. The city also plans to sell 920 acres of city-owned land at a discount price of about $7 million to a developer who wants to build a huge amateur sports facility. Mesquite Mayor Susan Holecheck says President Obama is her model. "He's preached a message of hope, and I've taken that to heart. America is a can-do nation. We're going to get through this, but we need to act." Trump calling Kansas City, Mo., Mayor Mark Funkhouser says elected officials get blinded by promoters talking about grand projects and fail to understand the harm subsidies inflict on businesses that don't get tax breaks. He cites his city's popular Power & Light District, a new retail area that benefited from large subsidies, including $295 million in city-issued bonds for development costs. The subsidized district contributed to the demise of 30 traditional restaurants outside the zone, the mayor says. Kansas City taxpayers are on the hook this year for $14 million in loan payments because developers didn't generate enough cash to repay their city-guaranteed debt. Former Milwaukee mayor John Norquist says once a city starts offering subsidies, developers come to expect it. "You'll have one or two connected developers with their hands out doing all the deals," he says. "The little guy — the plumber who builds five houses — can't afford lawyers and lobbyists." Rancho Palos Verdes is quickly learning that lesson. As soon as Terranea asked for financial help, the mayor got a phone call from another developer. It was Donald Trump , who built what he calls the world's most expensive golf course near Terranea. "Trump said he wants the same deal or he'll add this complaint to a $100 million lawsuit he has against us," says Clark, the mayor. Trump sued the city in December over planning rules that govern his 580-acre oceanfront development. "We want equal treatment," says Scott Wellman, Trump's lawyer. "It's fundamental fairness." Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read more