Two weeks ago, the Disneyland Resort announced it was cancelling its planned 4-Diamond hotel – a 700-room, $700 million luxury hotel at the west end of Downtown Disney that would have opened in 2021. The decision came in the wake of the city’s claim a minor siting adjustment nullified the TOT rebate agreement upon which the project was premised.
Last week, Disney Parks and Resorts announced it would build a 900-bed hotel and vacation club villas project at Walt Disney World that will open its doors in 2022.
Critics of the TOT rebate agreement loudly and repeatedly claimed Disney would build the 4-Diamond hotel in Anaheim anyway, without the tax incentive agreement.
And they were wrong.
They forget Disney is a worldwide company that has choices where to invest its capital in order to get the best return for its shareholders. The governing city council majority led by Mayor Tom Tait and Mayor Pro Tem Jose F. Moreno have created an increasingly hostile political and business environment that is driving out investment. Just ask the Angels. But for now, let’s focus on Disney.
So Disney cancels a massive investment in the Anaheim Resort that would have created thousands of jobs and deposited hundreds of millions in tax revenue into city coffers. The City of Anaheim will now receive 100% of nothing. On the other hand, Disney continues to invest in Walt Disney World.
Critics who claim this announcement is evidence the TOT rebate incentive wasn’t necessary to build the 4th hotel are comparing apples to oranges. Construction costs in Florida are significantly lower than in California – upwards of 20% more expensive. And that doesn’t include land acquisition.
In Anaheim, Disney was and is obviously space constrained, whereas they face no space constraints in Walt Disney World. Furthermore, there is a building spree going in California – including Anaheim – which also increases costs since the strong demand bids up the expense of supply.
All these factors underscores the necessity of a tax incentive agreement in order to make the 4th hotel pencil out.
The bottom line is Disney has options. The usual suspects seem to believe otherwise, pointing out that Disney can’t physically move the Disneyland Resort. What they miss is Disney has options as it relates to their long-term investments. Companies understandably prefer investing in places with a stable business environment – and that’s not how you’d describe Anaheim in the Tait-Moreno era.
In 2016, the City of Anaheim entered into a contractual agreement with Disney regarding its fourth Resort hotel. Within months, the political winds shifted and a new governing majority worked to undermine and undo that agreement. What company would want to invest hundreds of millions of dollars in such an unpredictable environment?
Also last week, the Angels chose to opt out of their stadium lease with the city. The Angels, too, have been mau-maued by the mayor and his followers and prefer to take their chances on finding somewhere to play the 2020 season rather than pursue fruitless negotiations with a hostile council majority. Given their own experience with the city, and after watching the new council majority do everything it could to renege on and undermine a contractual agreement, who can blame the Angels for this course of action when they can’t be confident the city leadership will act in good faith.
Perhaps Anaheim voters should ask themselves what a new Mayor and City Council can do to change the tone and promote continued investment, resulting in jobs and revenue for the city of Anaheim. It would appear the Tait-Moreno majority’s approach of constantly assailing and attacking the city’s largest employer and taxpayer is resulting in less investment and job creation for Anaheim. This hostile attitude has already cost the city $100 million risk-free tax revenue over the next 20 years – a windfall that would increase by orders of magnitude in succeeding decades. Anaheim voters might consider if they want their city council to continue cutting off its nose to spite Disney.