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Solimar Research

Disney Puts Tax Dollars to Work

Oct 1, 2000
It's the oldest contract in the world: I'll scratch your back, if you'll scratch mine. The Walt Disney Co. recently worked a variant on this contract when it agreed to help the City of Anaheim obtain attractive interest rates for nearly $400 million in public improvements around Disneyland and the city's other big draws. On its face, the deal looks good. The town gets fixed up, and both the city and the theme park make money. Why would I care that The Walt Disney Co. was able to obtain at least $108 million, and possibly more, in financing for stuff that benefits Disney almost exclusively, but won't cost Disney anything but a smile and some paper guarantees? Here's the deal in a nutshell: The City of Anaheim raised a total of $395 in revenue bonds (some taxable and some not). Disney sweetened the deal by letting the city use its AAA corporate bond rate allowing the city to borrow at 6.75% for the tax-free revenue bonds and 8.75% for the taxable. The annual payments which I calculate to be about $28.1 million comes entirely from sales tax, hotel tax and increases in Disney's property taxes above a base year. (Disney has a sweetheart deal in Anaheim that exempts the company from paying taxes on either admissions or parking.) To help generate the money for debt service, the city added another 3 percentage points to its hotel tax, and anticipates those revenues growing by 2% annually. In return for its investment, the city expects to receive an impressive $50.6 million in combined tax revenues by the year 2008, about $36 million more than the city had expected to get without the landscaping and new infrastructure. It is enough to pay off the bonds and still add millions to the general fund every year. Disney seemed like a model corporate citizen in 1996, when the entertainment megalith shook hands with Anaheim officials. The undertaking would beautify the streets surrounding Disneyland, the Anaheim Convention Center and Edison Field (formerly known as the Big A.) As anyone who has ever visited Disneyland before this year knows, Anaheim's commercial strips were throbbing eyesores. Mile after mile of flashing signs offered motorists fantasy motels and themed fast-food on their interminable journey from I-5 to the Magic Kingdom. Anaheim officials knew that the tacky streetscape was an obstacle on the road toward making Anaheim a conventional capital on a par with Las Vegas, Atlantic City, and the city's arch-rival, Orlando the upstart city that had stolen much of Disneyland's thunder and Disney's corporate investment for two decades. The solution was the creation of two contiguous tourist districts, known respectively as Anaheim Resort and Disney Resort. The latter contains the company's 500-acre holdings in the city, while Anaheim Resort comprises the convention center, the arena, and two big entertainment centers that the city has planned but so far has been unable to build. Within the tourist districts, the city removed all the garish signs from hotels and restaurants, replacing them with subdued monument signs that sit on the ground. Telephone and electrical wires have been "undergrounded." Twenty-foot wide promenades with landscaping on both sides replaced narrow sidewalks. Beyond the landscaping, the bond financing paid for a whole bunch of infrastructure for Disney, including a 10,000-space parking structure, a vehicular "flyover" (otherwise known as a bridge) that carries motorists from the freeway exit over busy Ball Avenue and into the parking garage; a new pedestrian bridge on the newly created street known as Downtown Disney; and a lowering of Disneyland Drive by 15 feet (!) so that it can pass beneath a pedestrian bridge that connects old Disneyland with the new theme park. Disney also benefits from the widening of Interstate 5 and a new, free offramp leading to Disneyland Drive. This was financed by a separate issue, and I am not quibbling with these costs, because the same street serves both the Anaheim Convention Center and Disneyland. Still, the bond issue covers many items that appear to benefit Disney almost exclusively. Consider the $90 million parking structure, $5 million pedestrian bridge over Disneyland Drive, and the $13 million "flyover" that connects an interstate highway with a the parking garage. In short, the bond issue funded Disney's plan to make its California franchise look and feel like Orlando: Cars roll off the freeway almost directly into Disney Resort, where tourists can shed some unwanted cash before going back from where they came. Conveniently, Disney "guests" can do all of this without stepping foot in non-Disney Anaheim. After you park your car, a shuttle picks you up and takes you to either the theme parks or your hotel. Like the Patrick McGoohan character in the old TV series "The Prisoner," a present-day Disneyland "guest" (I almost said captive) has to work pretty hard to get away from The Mouse: If you want your car, you have to shlep back to the garage and navigate your way out of the giant structure onto unfamiliar streets. Or you can catch a taxi. So, am I being a spoilsport in questioning whether it was appropriate to spend public funds to absorb almost the entire cost of Disney's Orlando-ization of Anaheim? Some folks would cry corporate welfare, but such talk is considered quaint nowadays. Other folks would say that the cost was worth it to give Anaheim a future. So what if Disney got public funds to make itself into a self-contained tourist-capture machine inside of Anaheim? Since when do you spend public money on the public realm? Disney scratched Anaheim's back as promised, but I can't shake the notion that Disney ended up getting its back scratched far more than did the city. They don't call it the Magic Kingdom for nothing.