The tax issue is basically that if the hotel is a commercial operation, it has to pay taxes just as would any other hotel. There is also an issue of whether the Regents can run a commercial enterprise and, if that's what they are doing, whether tax-exempt bonds (which are part of the "business plan") can be used. Note that the donation covers only about a third of the cost of the hotel so the business plan has to produce a lot of money. Taxes and non-exempt bonds would raise the costs. Delays would raise costs. The environmental lawsuit claims that the required environmental review was not properly done, that there were irregularities regarding the administrative and regental process, and that there were improper conditions imposed by the donors, among other allegations.
Right now, of course, the university is busy digging a deeper hole on the site of the Grand Hotel, as the photos show. It is confident that creating facts on the ground is the best way to proceed. It is sure it will prevail in the lawsuits. But let's suppose that there is, say, a 10% chance the university is wrong. Does it make sense to just bull along? The university bulled along on the Japanese Garden affair instead of trying to work with the plaintiffs in that case, and now litigation has put that matter on hold. The university didn't promptly apologize to Judge Cunningham who was stopped in Westwood by campus police and now has a $10 million complaint on its hands. So maybe bulling along is not such a good strategy. This blog has pointed out in each instance that there are advantages in talking, negotiating, compromising, all to no avail. So it is probably pointless to suggest talking-negotiating-compromising in the case of the Grand Hotel. But we do suggest it. Why chance digging a deeper legal hole?