A Tale of 2 Tourist Towns : Policy: Charming Laguna legislates to keep seasonal commerce in check, while funky Huntington Beach hustles for more visitor dollars.

Diane Neville wanted to open a small gift shop in artsy Laguna Beach. Her competitors persuaded the Planning Commission to say she would have to sell mostly home furnishings instead.

“It was,” says Neville, “like Alpha Beta telling Albertson’s not to sell soup.”

Her luck might have been better in Huntington Beach.

When a couple of developers wanted to build some stores in this surfer-dude capital, the city sold them a prime parcel of land across the street from the beach for a buck.

This, then, is a tale of two cities: One clinging to its quaint charm despite an onslaught of tourists; the other a funky oil town desperately yearning for more visitors.

Tourist towns from Palm Springs to Carmel are wrestling with a similar problem: how to pack ‘em in without turning the place into one big movie-studio back lot, a toy town where you can buy lots of bikinis and frozen yogurt but can’t find a hardware store or a grocery.

If a resort town tips too far toward tourism, warns consultant Christopher B. Leinberger, the locals begin to despise the tourists and the tourists “get upset when they discover it’s just another place selling T-shirts.”

Only 12 miles of coastline separate Laguna Beach from Huntington Beach, yet all they have in common is the Pacific Ocean.

Consider Laguna Beach: For decades, if you needed a suit or a high-school letter jacket, J. E. Dawson Ltd. was probably where you went.

The men’s shop has been around since 1929. In a photo from those days, the store sign boasts dry goods, men’s clothes and--prophetically--”beach togs.”

It took five decades or so, but the beach togs eventually took over the store. Now it sells only stuff like those colorful Reyn Spooner Hawaiian shirts on the rack near the door. At $65 to $78 each, there’s a lot more money in moving them than in underwear and socks.

“We still get a few locals who carried over from the old men’s store,” says General Manager Mark Stevens, who was manning the cash register on a recent summer afternoon.

“But they don’t bring enough business to support these enormous rents.”

On tree-shaded Forest Avenue in Laguna’s tiny downtown, the average shop rents these days for $7,500 a month--three or four times what it might cost inland. Still, so desperate are merchants to get in that there are rarely vacancies. Despite the recession, rents have not budged in five years. Some of the old shops fled; some simply expired.

Those remaining have to give the snowbirds something they can’t buy in Cleveland. Rich Boitano offers them olives.

On his counter in Chase’s Olive Barrel are 16 big jars of them--Mexican Hot, Spiced Green, Wine Spiced.

Two women browse while Boitano uses metal forceps to fish out a Spiced Green and drops it into a tiny paper cup for one to sample.

“Much as I’d like the business,” he says to another visitor, “a lot of locals don’t even want to come down here anymore in the summer.

“They think it’s crowded, and they don’t want to pay for parking.”

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Every year, 3 million tourists--enough to populate the entire state of Oregon--descend on this town of 24,000. Sometimes it seems as if every one of them is backed up in traffic on Coast Highway, or circling the block looking for a parking space.

Laguna was already an artists’ colony and tourist town before the first World War. But by the 1980s, the sunglass shops and T-shirt stores that had sprouted along the beach were threatening to march inland up Forest Avenue, the city’s first paved street. The locals were fed up. One guy running for the City Council complained that the town was becoming the “Coney Island of the West Coast.”

In 1989, Laguna struck back: It adopted one of the most stringent zoning ordinances in California.

From now on, the city said, it would decide which businesses would open on Forest Avenue. That would keep the tacky stuff away from the expensive stores. Another street, Ocean Avenue, was set aside for shops that still catered to locals--dry cleaners and art-supply stores and the like.

The type of permits Laguna Beach now requires are usually aimed only at unpopular businesses like liquor stores; what makes Laguna different is that frozen yogurt shops and sunglass emporiums are fairly new targets.

Four years later, it’s clear that the permits have helped save what remains of Laguna’s village atmosphere.

Some newcomers complain, however, that the merchants who have already arrived on Forest Avenue use the permit process to quash competition.

Remember Diane Neville?

Neville is no stranger to bureaucracies; she spent six years on the Planning Commission in San Clemente. It was a little unusual, she thought, that she had to apply all the way to the Laguna Beach Planning Commission just to open a gift shop. Still, she figured the hearing would be smooth sailing.

But several Forest Avenue merchants objected, including a competing gift shop owner. The grounds: Neville’s store, called Season, would not add to the “diversity” the city encourages on the avenue. In other words, there were too many shops selling gifts down there already. The Planning Commission turned her down.

There were reasons to fight, Neville decided. “We saw the foot traffic down there, and it looked really good,” she says. “Plus it looked like a fun place to be.” She hired a consultant at $90 an hour and tried again.

This time she had to promise to sell home furnishings like lamps, too, even though, as Neville says, “tourists don’t come from Minneapolis to buy mattresses.”

Gifts, the commissioners told her, could be no more than 20% of her stock if she wanted a permit to operate. When she agreed, the commission narrowly approved the store.

Season was scheduled to open in April, just in time for tourist season; the shop finally opened in mid-August.

“It’s been,” she says, “just a horrible experience. The word that comes to mind is ‘ micro-management .’

“I’d never have done this if I’d known what I was in for.”

Much bigger Huntington Beach, on the other hand, seems as though it never met a store it didn’t like. (The city’s new theme is “Turning Red Tape into Red Carpet.”)

It doesn’t have a lot of choice: Huntington Beach is a city of 187,000 with a blue-collar, oil-town history. The greasy reminders are everywhere--the pumps that groan from their hiding places behind fences next door to expensive homes or even behind the bushes at City Hall.

Most California cities these days get about a third of their tax revenue from sales taxes. But in Huntington Beach, it’s only half that, or 17%. That is because there are no mega-malls in Huntington Beach, so people go to neighboring towns to shop.

Ten years ago, the city decided to do something: It would reinvent itself.

One of its first projects was to snazz up the ramshackle collection of surfboard shops and seedy bars near the pier that had symbolized Huntington Beach since Frankie Avalon movies and Beach Boys tunes idealized Southern California beach culture in the 1960s.

Seven million people hit the beach in Huntington every year. Most of them, though, are day-trippers who buy a hot dog or a trinket and go home. The city’s idea was to attract different people, visitors who might stay a little longer and spend a little more money.

When the city got through, there wasn’t much left of the neighborhood: To the dismay of conservationists, seven of nine downtown blocks were razed.

Then the city went into high gear. It made more than a dozen deals to subsidize developers with public funds so they would build in the neighborhood, the reasoning being that developers needed an incentive to build in a run-down part of town.

In one transaction, the city’s Redevelopment Agency sold that slab of land on Pacific Coast Highway--worth $1.5 million--for $1. It spent another $10 million helping build a parking garage and putting in sidewalks and landscaping--all for a group of developers that included a multibillion-dollar concern: Haseko Corp., one of Japan’s biggest builders of condominiums.

Even though Haseko has yet to rent all the office space in its building, the city has promised another developer who is building across the street that if he cannot rent all his office space the city will subsidize it indefinitely, a deal that could run into six figures in costs to the public.

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Despite the infusions of public money, some of these redevelopment projects have not been very successful.

Take the Waterfront Hilton, which towers 12 stories above the beach near downtown.

The city agreed to extend a street and move some trailer-park residents out of the way of the construction. That eventually wound up costing $4.3 million.

The city leased the land to the developers at below-market rates: The hotel pays rent of $90,000 a year, or about what it costs to rent the average shop on Laguna Beach’s Forest Avenue.

In April, three years after it opened, the 290-room hotel filed for bankruptcy when a $55-million short-term construction loan came due and the developers could not find another lender to give them a long-term loan.

One rationale for helping these projects is that they bring the city a “profit” in the form of more property taxes. But as the Hilton struggled to make its loan payments over the last three years, the tax valuation of the hotel dropped from $51 million when it opened, to $30 million now. That, of course, means far less property tax for Huntington Beach.

And all the city freebies were given on the understanding that the developer would build an entire resort by 2004: three additional hotels, an athletic club, a shopping center and 600 expensive condos. Even the developer--The Robert Mayer Corp. of Newport Beach--now concedes that the entire project probably will not be built.

Then there’s the housing.

About 900 expensive condos have sprouted around downtown. But there’s no designated housing for low-income people--even though state law requires 15% of the homes built in redevelopment areas be affordable.

Instead of making the builders do it, the city until recently shouldered this costly job--which now, of course, must be done with public funds.

So Huntington Beach is on the hook for 130 units of affordable housing. And those units are sure to be expensive to build in a beach neighborhood where condos sell for as much as $400,000. None have been built so far. (The city says nobody wants housing for low-income people going up next door.)

Most of these redevelopment projects were agreed to in better times. Now, like most cities, Huntington Beach is short of cash--$7 million short, to be exact, a shortfall that had to be made up by cutting the number of lifeguards at the beach, doing less street maintenance and buying fewer books at city libraries.

So the city’s “Let’s-Make-a-Deal” approach has recently come under fire from new members on the City Council. Two of them were elected last year, giving the environmentalists on the board a majority for the first time in memory. The November election was widely seen as a backlash against Huntington Beach’s image as a “company town” run by big developers like Huntington Beach Co., part of the Chevron oil company.

“I’m a little on the warpath right now,” says new Councilman Ralph Bauer, a retired oil-company executive. “The city has spent a lot of taxpayers’ money, and you have to ask: Are the benefits worth it?”

Yes, says the city’s Redevelopment Agency. Those nice new buildings bursting with stores on once-scruffy Main Street were too risky or too expensive for private developers to build without some help from the city.

The stores in Huntington Beach may not be as fancy as Laguna Beach’s expensive shops; in fact, many of those dreaded T-shirt shops have found a home in Surf City. But they’re creating jobs and filling city coffers with sales and property taxes.

And as the neighborhood booms, so the theory goes, the city won’t need incentives to lure developers.

“We’re to the point where we’re trying to make our deals break even,” says Barbara A. Kaiser, the city’s director of Economic Development, who also took the post after many of these deals were made.

“Soon we’ll have people knocking down our doors to do business here.”

Maybe. Some of the merchants say downtown certainly looks spiffier: Those hulking new Mediterranean-style buildings, all tile and salmon stucco, are clean and well-lit places, even though they may not be everybody’s idea of what Surf City should look like.

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What some merchants still worry about, though, is whether all this will lure enough well-heeled customers to justify the higher rents.

Listen to Mike Thorn, who quit a hectic consulting career three years ago to open a little bookstore called Thor’s Hammer. He says he’s paying three times his old rent since moving into one of the new buildings closer to the beach on Main Street.

“This used to be a rough area,” he says as a woman with a small boy in tow enter the shop. They are the only customers. He nods at them and turns back to a visitor: “Drugs and hookers, that’s what it was.

“It was sleepy, low-rent. Some people thought it was charming. But it was also really run-down.”

Thor’s Hammer is just able to make it in Huntington Beach, says Thorn. There is a hopeful sign, though: More yuppies with money in their pockets are showing up on Main Street, though usually only in the daytime.

“At night,” says Thorn, “it’s still mostly the same kids who always hung out here.”

Tale of Two Cities

Laguna Beach, the oceanside art colony, has been swamped with tourists and is struggling to cope with too much of a good thing. Farther up the coast, Huntington Beach is polishing up its oil-town image, hoping to attract more visitors by renovating entire blocks of its downtown business district.

LAGUNA BEACH

Estimated annual visitors: 3 million Population: 24,000 Median household income: $53,419 Licensed businesses: 4,000 1992-93 Sales tax revenue: $2.1 million 1988-89 Sales tax revenue: $1.8 million Incorporated: 1927 *HUNTINGTON BEACH

Estimated annual visitors: 11 million at beaches* Population: 187,000 Median household income: $50,633 Licensed businesses: 16,000 1992-93 Sales tax revenue: $16.0 million 1988-89 Sales tax revenue: $17.5 million Incorporated: 1909 * Estimates for non-beach tourism unavailable Sources: Individual cities; California Department of Finance; U.S. Census; Researched by JANICE L. JONES / Los Angeles Times

* ROOM FOR CRITICISM

The Waterfront Hilton has become a symbol of ambitious city plan that has faltered. D7