Disney's Force Overcomes Anaheim's Mayor on Tax Break
Editors Note: Story has been amended to reflect updated financial info on Disney's impact to So. Calif.
This week, a new chapter was written in Anaheim, Calif. Mayor Tom Tait's 20+ year struggle against corporate welfare and Disney (DIS) - Get Report , as the city's largest employer was able to extract a $267 million tax break from the municipality.
On Tuesday, Anaheim city council members voted 3-1 to approve a 20-year rebate for Disney -- key holding in the Trifecta Stocks portfolio -- that will absolve the company from paying about $267 million in taxes on a proposed four-diamond luxury hotel. Under the terms of the deal, the city of Anaheim will return 70% of the lodging tax revenue generated by the potential luxury hotel project.
Anaheim's economy is based on tourism, and Disneyland Resort contributes about $5.7 billion to the Southern Calif. economy annually while producing over $370 million in taxes for the region. Just over 27 million people visit Disney's parks annually and Disneyland Resort employs about 29,000 southern California residents. 20% of Disney's workforce are residents of Anaheim. Disney currently operates three hotels in the city and has plans to invest more than $2 billion in upgrades and new parks over the next decade.
"We applaud the city council for creating this hotel policy and approving our plans for bringing a new Disney four-diamond hotel to the Resort Area," Disney Senior Vice President Mary Niven said in a statement following the vote.
In spite of all of these apparent pluses, Tait has ascended to the highest elected office of the city while opposing many of the corporate kickbacks that Anaheim's city council has approved over the years.
History of Opposition
Tait was appointed to the city council in 1994 due to an unscheduled vacancy. Two years later, in 1996, he had his first run-in with Disney after he voted against a 1996 stadium lease agreement with the Anaheim Angels -- the city's Major League Baseball team that was owned by Disney at the time. Tait opposed a bill that authorized the city to kick in $30 million worth of upgrades to city-owned Angel Stadium.
That opposition proved to be just the first salvo in a battle against Disney and other developers. Later that same year, Disney put forth a plan to build a new theme park, California Adventure, in exchange for the city agreeing to forgo an entertainment tax on the new attraction as well as rescind the tax on Disneyland Resort in perpetuity.
In exchange for Tait's vote of approval, Disney agreed to limit the tax break to 20 years. But proving just how influential the company is in Anaheim, the city agreed to finance a $90 million new parking garage on Disney property as part of a $546 million infrastructure package for the city.
Anaheim's Future Tied to Disney
Depending on who you ask, Disney was either waiting for last night's vote before considering to develop its new four-diamond hotel, or the city just gave the company tax breaks for a project they were already planning on executing.
"On Tuesday, Anaheim's city council will consider extending a bizarre giveaway program to the influential and powerful. We won't address funding public safety, providing transportation for seniors, creating transitional housing for working mothers, or creating after school programs for at-risk youth," Tait wrote in a July 10 op-ed for the local paper. "Instead, we'll discuss why our city should give over $550 million ($27.5 million per year for 20 years) to two hotel developers to do what they would do otherwise -- build luxury hotels. One of the developers happens to be Disney."
However, Mike Lyster, chief communications officer for the Anaheim Convention, Sports & Entertainment office, said in a phone interview Disney has publicly stated it would not build a luxury hotel on the parking lot that it currently owns unless it was able to secure the tax rebate -- an assertion that Niven reiterated at the council meeting.
"For six decades, investing in entertainment experiences and infrastructure support has been our top priority, and hotel development has always taken a back seat," Niven said at last night's council meeting. "This isn't just any hotel -- it's a Disney 4-Diamond hotel ... one that will be a game-changer for the resort area ... one that will complement our two other Four Diamond hotels and send a message to the Southern California market that Anaheim is a city with luxury accommodations."
The fact is that Disney has been the major driver of growth for the mid-sized southern California city. That fact is not lost on the lone council member to agree with Tait and vote against the tax break.
"I am fairly confident Disneyland will develop an outstanding hotel. However, given the scale of tax break, I was hoping the city would have been more deliberate in requiring clear details about what is proposed," Council Member James Vanderbilt said in an email exchange.
The hotel stay tax currently provides annual revenue of $133 million to the city's general fund. Even with the tax breaks, the millions of dollars generated annually from the proposed hotel would trump the $40,000 annually the city currently receives from the property taxes Disney pays for the land on which the hotel would sit.
Municipalities across the country have begun to buck the decades-long trend of cities providing billionaire developers kickbacks through deals that either provide lucrative tax incentives or sell prime real estate for pennies on the dollar. Four hundred miles north of Anaheim, in Alameda County, the Oakland Raiders are seriously considering moving out of the Bay Area due to the team's inability to get sufficient tax breaks for a new stadium deal.
At the forefront of this political shift stands Tait, a pro-deregulation Republican, who has railed against corporate kickbacks for two decades. Unfortunately for him, the city of Anaheim knows where its bread is buttered and a four-diamond hotel in a destination city that doesn't have them took precedence over Tait's principled stance.
Editor's Note: This article was originally published at 5:12 p.m. EDT on Real Money on July 13.