Developers Seek $6 Million Tax Break for Trump-Managed Hotel
Posted February 9, 2018 4:02 p.m. EST
As President Donald Trump’s family business prepares to open a hotel in the Mississippi Delta this fall, its local development partners have asked the state of Mississippi to subsidize the project with up to $6 million in tax breaks, according to documents obtained through an open records request.
If approved, the benefits could offset nearly a third of the projected $20 million in costs for the hotel, which is owned by the local developers, Dinesh and Suresh Chawla.
The Chawla brothers are already financing the project through a bank loan, but Dinesh Chawla said in an email to The New York Times that the Mississippi tourism tax rebate would “improve our cash flow.” The Chawlas, who applied for the rebate in late December, are also planning to use city and county property tax abatements, records show.
The development in Cleveland, Mississippi, is expected to be the first in a new line of upscale hotels the Trump Organization is rolling out under the name Scion. The Trump Organization, which will brand and manage the Mississippi hotel, but not own it, did not respond to requests for comment.
Chawla, in the email, said that the Trump Organization played no role in the rebate application and that his company first considered applying for it in 2015, two years before he teamed up with the Trumps. He said the Trumps and the Chawlas had agreed that any rebate — which Mississippi offers in an effort to draw tourists — would not figure into fees paid to the Trumps.
Still, if the state approves the tax rebate for the Chawlas, it could indirectly, but personally, benefit the president, who owns the family business through a trust, an arrangement that raises some constitutional concerns, critics and legal experts say.
In lawsuits filed last year, a number of lawmakers, academics and state attorneys general contended that Trump was violating the Constitution’s emoluments clauses, which essentially prohibit the president from accepting certain gifts from foreign or domestic governments. A federal judge in New York dismissed one case, while a federal judge in Maryland signaled recently that he might allow another to proceed.
“The country’s founders included the emoluments clauses as a big bright-line rule,” said Jed Shugerman, a professor at the Fordham University School of Law who helped write a legal brief in support of the plaintiffs in the emoluments litigation. Assessing the Chawlas’ application, he argued that while some state incentives are allowable, “Mississippi has discretion to give the tax rebate, and if they do award it to this hotel, then they are likely giving Trump an emolument.”
In preparation for the same brief, John Mikhail at Georgetown University Law Center studied 40 dictionaries from the founding era and concluded that the term “emolument” was almost always defined more broadly than the Trump administration has interpreted it. Still, some legal experts argue that domestic emoluments are allowable so long as Trump does not earn them from his service as president.
“If you’re applying the original meaning of emolument, the Mississippi transaction you’re describing could reasonably be called one,” Mikhail said. “Whether or not it’s the precise kind of emolument prohibited by the Constitution is a more difficult question.”
Even without a legal problem, the rebate request demonstrates how the president’s sprawling business operation can intersect with state and local governments that rely on federal funding, creating a perception of potential conflicts of interest. Government officials from Florida to New Jersey have confronted the balancing act that comes from having a Trump property in their backyards.
When he became president, Trump decided not to sell off his assets, but he promised that new hotel branding or management projects would be subject to approval from an outside ethics adviser, Bobby Burchfield. In general, Burchfield is required to review transactions or contracts between the Trump Organization and local, state or federal agencies as well as certain deals with private entities, he has said. Because the Trump Organization itself did not request the Mississippi rebate and would receive no direct benefit from it, Burchfield said he is unlikely to scrutinize it.
The Chawla brothers, who are seeking the rebate from the Mississippi Development Authority, seemed confident that it would be approved. Although the authority is still reviewing the application, a business plan the Chawlas submitted to local officials in December stated that the hotel “utilizes local tax credits and the Mississippi Development Authority (MDA) Tourism Tax Rebate program,” and that “our development team is securing final agreements.”
The executive director of the authority, Glenn McCullough Jr., has shown support for Trump and is an appointee of the state’s Republican governor, Phil Bryant.
The partnership between the Chawlas and the Trumps materialized after Bryant, also a Trump supporter, introduced members of the two families during the presidential campaign.
In his email to The Times, Dinesh Chawla said political influence had not played a role in the development. “No contact with Governor Bryant or his executive staff has been made regarding the project, other than our general discussion about what the project contains,” he said. “The project is subject to review by financial auditors, construction supervisors, and it cannot be bypassed by executive staff, nor the Governor to my knowledge.”
Clay Chandler, a spokesman for Bryant, said the Chawlas had followed the same procedure as other applicants for the tax rebate.
“Mr. Chawla’s project has been in the works since before the presidential election,” he said. “State law guides the application process, and state law alone will determine if any application is approved.” Bryant had ties to the Chawlas before the election, having honored their father, V.K. Chawla for his contributions to state tourism. And he called their family after their father’s death in 2015, the Chawlas’ corporate website said. That year, Suresh Chawla wrote an article that appeared in local newspapers about how his father, an Indian immigrant, had sought and received business advice from Trump decades earlier.
Bryant saw the article and invited Suresh Chawla to attend a campaign event in Jackson, Mississippi, in August 2016, where the governor introduced Chawla to Trump, according to the Mississippi Business Journal.
After Trump took office, executives from the Trump Organization reached out to the Chawlas about teaming up.
At the time, the Trump Organization, known for five-star luxury properties bearing the Trump name, was beginning a new line of four-star hotels called Scion Hotels and Resorts and a budget-friendly chain called American Idea hotels. The Trump name will not appear on these hotels.
The Chawlas, who own 17 hotels in the Mississippi Delta, including Comfort Inns and Hampton Inns, agreed to brand their new Cleveland project, which was already under construction, the Scion West End. They also agreed to convert three of their existing hotels into American Idea properties.
On Dec. 28, the Chawlas submitted the tax rebate application for the Cleveland hotel with the Mississippi Development Authority, according to a redacted partial copy of the application obtained through the records request. The Trump name was not mentioned anywhere in the application, an agency spokesman said.
The tourism program, according to the agency, is set up to allow a developer to recoup some of the sales taxes collected on a property to “reimburse the applicant for eligible costs incurred during the project’s construction.” The agency said 23 tourism rebate applications had been approved under the program, including 10 for hotels.
A rebate for the Chawlas would be capped at 30 percent of the projected $20 million in eligible costs, or about $6 million, their application said.
The Chawlas estimated that the project would draw tens of thousands of visitors, including many from out of state, and that it would eventually create more than 100 jobs, the application said. Dinesh Chawla said in the email to The Times that he was “working very hard and ethically to create jobs, tourism opportunities, and a chance to showcase our Delta culture in food, music and the arts to the whole world.”
Plans call for a 96-room boutique hotel as part of a complex that includes eight buildings. There would be two restaurants, as well as a meeting and event center and a spa, according to a copy of the business plan, which was obtained through a public records request. The hotel rooms are expected to cost between $145 and $185 a night, though the Chawlas have not finished setting the rates.
“We are inviting the world to the Mississippi Delta,” the Chawlas wrote in the business plan.