Aug. 8, 2009--ESCONDIDO -- A proposed Marriott hotel that some saw as downtown Escondido's salvation, and which twice died in the planning stages, could be making a third comeback.

The city is researching whether it could use revenue from the redevelopment district to invest in the hotel. The city attorney is researching the possibility, but has not reached a conclusion.

The idea came from City Manager Clay Phillips, who has said that a full-service, convention-ready hotel could provide a new source of income that would help wean the city off its overdependence on sales taxes, which have plummeted in the recession.

Several City Council members said this week that they need to hear the city attorney's opinion, and weigh the pros and cons of investing redevelopment money.

That cautious reaction was a far cry from the enthusiastic council support when the city entered into exclusive negotiations with developer C.W. Clark of La Jolla in 2006. The council later committed $19 million toward the $67 million project.

The 196-room hotel was proposed for a parking lot adjacent to the California Center for the Arts, Escondido. The hotel management was to have operated the arts center's conference center.

Clark, however, missed two deadlines to secure a loan, a prerequisite for the city's investment. In January, the council withdrew its financial support.

In June, Clark said it found an equity firm that would back the project and returned to the city with a better deal, asking for $7 million less in city money.

But the timing was off. Escondido is projecting a $6.7 million deficit on its $75.4 million general-fund budget this fiscal year, and has laid off 25 employees and cut staff compensation and services.

The council said no, apparently ending years of effort to lure a hotel to anchor downtown, along with the arts center.

But some council members still hoped to find ways to finance a hotel without dipping into money that could be spent on city services. The city manager suggested redevelopment money.

Escondido's redevelopment district was established in 1984 and covers an irregular, cross-shaped area that extends from downtown west to Nordahl Road, south along Centre City Parkway to Bear Valley Parkway and north to El Norte Parkway.

Under state law, redevelopment districts rely on what is called tax-increment financing. As improvements are made to a redevelopment area, property values increase, which means property taxes do too. Redevelopment districts are allowed to collect this increase in property taxes to pay for the improvements, after sharing it some of it with the county, schools and other agencies.

This fiscal year, Escondido projects $24.7 million in tax-increment revenue from its redevelopment area. But that money already has been earmarked for affordable housing, the county's share, the bond debt for City Hall and the arts center, and the state's mandate to shift property tax revenue to education, city finance director Gil Rojas said. That would leave no money to pay for a hotel this fiscal year.

"The state take-away has thrown us into a negative cash flow," Rojas said.

Councilman Sam Abed said he still supports the idea of investing city money -- whether it be from the general fund or redevelopment money -- to make the hotel a reality.

"Now that the state is taking so much money from us, it is more critical that we have a hotel approved to start generating money," Abed said.

Councilwoman Olga Diaz said she would rather spend redevelopment money on public facilities.

"The hotel is not my first priority, and I don't see it that it ever will be," Diaz said. "I prefer to create a list of things -- for example, build a new swimming pool."

Councilwoman Marie Waldron said a hotel is not her priority right now.

"I think it's a great project, but I am not ready to build the hotel yet, not with the economic uncertainty," Waldron said. "We need to maintain public safety and public works."

Councilman Dick Daniels said he needs to evaluate the city's finances before considering spending any money on a hotel.

"Until I understand what the economy is -- and I am not getting good signals -- what our requirements are, what our revenues are, I don't want to want to commit spending $12 million," Daniels said.

Mayor Lori Holt Pfeiler said she is waiting for the city attorney's opinion.

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