Theme Park Insider

Is Anaheim getting a fair deal from the Disneyland Resort?

September 27, 2017, 11:23 AM · Is Disney paying its fair share to the Anaheim community? That's the question the Los Angeles Times raises in a two-part series it ran this week. [Part One and Part Two] Of course, to answer that question, you have to start by defining what "fair" is. If you define fair as paying its legal obligation in taxes to the city, then there is no evidence in the LA Times report — or from any other credible source — that Disney is evading its legally obligated tax bills.

But I think most people would define "fair" more broadly than "legal." And that's where anyone looking to define "fair," well, fairly, needs a wide range of context to understand what's happening with Disney in Anaheim. As well reported and extensive as the LA Times report appears on first read, it lacks much of the context that I think is needed to understand the situation.

The LA Times report reflects a classic trope of political journalism — bought-off elected officials doing the bidding of the donors who funded their campaigns. To support this view, the LAT offers three main examples: that Anaheim built the Mickey and Friends parking garage for Disney but is getting only $1 a year in return, that Anaheim offered Disney a fat tax incentive to build a luxury hotel, and that Anaheim voted down an admission tax on Disneyland tickets.

Before I proceed, allow me to reveal my belief about communities offering financial incentives to business. I hate them. They generally privatize profits while socializing risk. They're welfare for corporations whose leaders and shareholders don't need the public's help to eat or have a roof over their heads. But as much as I don't like cities building stadiums, headquarters, or parking garages for private businesses, I also don't like seeing communities going backsies on a deal.

Let's look back at why Anaheim decided to build the Mickey and Friends parking structure for Disney, because the LAT ignored that context in its story. When former Disneyland President Jack Lindquist starting prodding Disney for a second gate in the 1980s, there was no consensus within the company that it needed to be built next door to Disneyland in Anaheim. Disney looked at buying Knott's Berry Farm in the years after Walter Knott's death, to convert the park into a modified version of its Disney's America concept. When Disney finally gained control of the Disneyland Hotel following the death of Jack Wrather, the company also came into possession of Wrather's lease to operate the Queen Mary in Long Beach. That prompted Disney to draw up plans for a second gate built around the retired ocean liner — a DisneySea to Anaheim's Disneyland. (Yes, those plans eventually became the Tokyo DisneySea park in Japan.)

Walt Disney famously hated the hodgepodge of development around Disneyland in Anaheim, which is why he bought so many acres and fought for his own government control for what became the Walt Disney World Resort in Florida. So when Disney decided to make a commitment to expanding its theme park presence in Southern California, it had options outside of Anaheim — a community that hadn't exactly endeared itself to Disney over the years.

That left Anaheim in a somewhat weak position as Disney basically opened the bidding for the second gate. Anaheim offered to pay for the parking structure and create a comprehensive planning and zoning policy for what would become the Resort District around the Disneyland property in order to secure Disney's commitment to build its second park in the city.

I haven't heard a single convincing argument that Anaheim would have been better off had Disney not built California Adventure and expanded the Disneyland Resort, instead of building the DisneySea project in Long Beach. Now, was getting the second gate, Downtown Disney, and the Grand Californian hotel worth what Anaheim paid to build a parking garage? Argue all you want, but I'll vote yes on that one. Could Anaheim have gotten Disney to commit to expand in the city without giving up so much? Maybe, but that's an irrelevant hypothetical at this point.

Let's look at the other two issues, starting with the hotel deal. The LA Times story in one part ignores and in the other glosses over the very relevant fact that this deal was not exclusive to Disney. Three other companies also claimed the deal, which Anaheim offered in an attempt to get companies to build more expensive hotel rooms in the city.

Why would Anaheim want to pay for that? Because Anaheim reaps millions of dollars in hotel taxes each year, and the more expensive the room, the higher the tax revenue. Higher room rates also tend to attract wealthier, more free-spending guests, which means more money for local sales taxes, too.

Communities offer variations on this deal all the time: In order to attract the development of a business that will elicit more tax revenue for the community, offer the owners of that business a cut of that extra tax revenue up front in order to give them an extra incentive to develop that hotel, factory, warehouse, shopping mall, etc. It's a risk for taxpayers. If the business doesn't succeed and start generating extra tax revenue, then the taxpayers spent a bunch of money up front for no return. But Anaheim thought that this would be a good deal for the city, then Disney — and other hotel developers — took them up on it.

I wrote before about the admission tax proposal, which was an act of political theater — Anaheim agreed not to impose a tax it had never collected before, in exchange for Disney building expansions (including Star Wars Land) that it was going to build anyway. Both sides agreed to the status quo.

How is this a giveaway to Disney? Well, it meant that Anaheim would forgo an opportunity to collect more tax revenue via the Disneyland Resort. But that didn't mean that Anaheim wasn't looking to raise more money in taxes. It simply decided instead to go with increased collections of an existing tax — the hotel tax. (See the luxury hotel incentive, above.)

(And let's not overlook that it ain't Disney paying these taxes — the hotel tax or the hypothetical ticket tax. It's us, the visitors to Anaheim.)

Thanks perhaps in part to Anaheim switching from electing its city council members at large and instead electing them by geographic districts, as the LAT reports describe, the ideological make-up of the council has changed and now features a majority that is publicly more skeptical of Disney. Will that mean that Anaheim residents and taxpayers will get a better deal from the city's largest employer?

Not necessarily. Because the relationship between Disney and Anaheim is not a zero-sum game. Opposing what Disney wants does not necessarily help the people of Anaheim, or vice versa. The LAT article cites a recent decision not to tie the resort district into a larger mass transit plan as a strike against Disney. But that's actually a short-sighted decision that hurts the people who work at and visit the Disneyland Resort, as it limits options to get to and from the resort without suffering through what can be nasty traffic in the community.

If Anaheim's representatives really want to leverage more money from the Walt Disney Company to help the people who live in the community, they'd stop worrying about whether to support of oppose what Disney wants and flip the script to set the agenda themselves. Want to put more money in the hands of the people in Anaheim? Vote to increase the minimum wage.

California's minimum wage is rising annually on track to go to $15 an hour by Jan. 1, 2022. Anaheim could help its citizens by voting to raise the wage within the city (and at the Disneyland Resort) before then. And if Anaheim wants to protect the purchasing power of its residents, it could vote to index its minimum wage to the inflation rate, meaning that its minimum wage would never effectively decrease in the future.

But if Anaheim really wants to show that it is serious about negotiating from strength with Disney, it would propose something even more aggressive — a minimum wage of $15 an hour, tied to the inflation rate or the price of a Disneyland ticket, whichever is greater. If Disney raises ticket prices 10 percent, that means minimum wage earners throughout the city get a 10 percent raise.

Trust me, next to that proposal, a ticket tax suddenly would look like an irresistible deal to Disney, not matter what it and the city decided two years ago.

Reflexively doing whatever Disney wants is no way to protect the interests of the people of Anaheim. But neither is reflexively saying no to Disney either. Like it or not, Anaheim's health and prosperity is tied directly to the Disneyland Resort. Anaheim doesn't need leaders who will stand up to Disney. It needs leaders that will stand up for its residents — and who have the creativity to find the best deals with Disney and other area businesses to do that.

Replies (20)

September 27, 2017 at 11:46 AM · It sounds like Robert Niles is comfortable paying higher admission to the parks in Anaheim. If Anaheim raises the minimum wage to $15/hour now, admission will go up. Perhaps Disney should create a special admission, just for him to pay for all of their employees working at the higher wages.
September 27, 2017 at 12:05 PM · Well said Robert!

I read the LA Times story and thought they had conveniently left a bunch of information out and I'm glad you've filled in the holes for those that don't know the history!

September 27, 2017 at 12:42 PM · You had me until the minimum wage proposal, but that's a discussion for another time.

Governments extorting citizens and businesses for hypothetical tax revenue is the biggest plague on society outside the pillared buildings of Washington, DC. Taxes, permits, zoning, transportation planning, et al, should never be for sale/negotiation, and as we all know, local governance is NEVER a zero-sum game. These power-hungry community activists think they're all high and mighty when they can show to their constituents that they didn't get taken for a ride like those that built stadiums, highways, and gilded corporate headquarters for big business. They see other communities seemingly fleeced, and do whatever they can to try to flip the script, even when businesses and developers truly have the community's best interests in mind, or are simply trying to operate. Local governments in California are like the mob, "shaking down" its residents and visitors, and if you don't pay up, they'll slap you down or ask/tell you to leave.

The whole concept of quid-pro-quo when government and big business strike a deal is so ridiculous, and it's typically the government officials that feel the need to keep score so they make sure posterity puts them on the winning side of the ledger. Business will go on, and if the climate shifts, the business will move. We live in a dynamic world, and too many elected officials feel the need to keep things static. Few local officials ever have their communities in mind, and far too many have their eyes on a more influential or powerful position at the state or national level. Sadly, that's what local government has become, and until citizens actually start paying attention to what their local elected officials actually do, these little dictators will continue to rule their fiefdoms until they find a castle on a higher hill.

It's stories like this that make me more convinced that I could never live in California. You rarely hear of local governments exerting such tremendous power and influence in other parts of the country than in the Golden State.

September 27, 2017 at 1:14 PM · I read TPI every day. I seldom if ever comment. I had to this time. This is one of the best pieces I have read of yours Robert. Mainstream media has gone to crap. What happened to present both sides and let the reader decide?
September 27, 2017 at 1:20 PM · I'm an economist in local government and I completely agree! Some people think they understand the problem, without really understanding the issue. I spent my entire career trying to convince civil servants otherwise! Good piece.
September 27, 2017 at 1:32 PM · I have not yet read the LA Times articles, but what's the status of the new parking garage and Harbor Blvd bridge? Appears that a stand off is occurring.
September 27, 2017 at 2:09 PM · Correct, AFAIK. There's a stand-off involving access to Harbor Blvd. businesses from guests entering via the Eastern Gateway.
September 27, 2017 at 3:01 PM · Anaheim really does benefit with those hotel taxes & fees - that tax and resort fee took my one night stay, charged at 89.80, to a final bill of 112.00. Anaheim reaped 22.00 out of my desire to not drive home at 3:00 am. I stayed at one of the national chain hotels that is not affiliated with Disney resort.
Not tying the resort into a mass transit system is really a slap at the residents and employees of Anaheim. The traffic can be terrible around the resort and the side streets. If visitors and employees had a reliable mass transit system that would get them to the resort, not just close to it, that would relieve some of the traffic issues and lessen the demand for parking spaces.
Not having mass transit to the resort is just about the same as not planning for mass transit to LAX when the subway and metro lines were started in the 1990's. An "oversight" which is being revisited now.
September 27, 2017 at 3:15 PM · The idea that Disney needs to pay up more taxes to Anaheim and somehow Disney gotten away with it is a statist big government argument. Yet Disney is involved with such concepts in it's advocacy. Does Disney want to pay more since such sympathies are more agreeable with it's politics. Of course not. Disney is no better than Apple or Google that seek to reduce it's obligation to pay taxes. Hypocrisy as policy.

Nonetheless, Anaheim can unravel such deals over time. That's their choice and it's odd that Anaheim would be willing to fork over these incentives when Disney was already planning expansions. I argue that Anaheim should forgo the second half of the ticket tax incentive that extends it beyond the first 15 years. Disney appears willing to spend an additional $500 million on it's own on top of the already $1 Billion commitment with Star Wars Land and the new parking structure.

Increasing the minimum wage won't necessarily help Anaheim. Many residents probably live in other cities. If labor gets too expensive, Disney will choose to cut the labor force.

Anaheim needs to improve the tax structure to increase tax revenue. This is the hard part since much of Anaheim has depressed areas. It should change the zoning of certain areas to have more hotels and high rise apartments for renters.

September 27, 2017 at 3:52 PM · Very well said. Much better research done here than they did. It would also be interesting to see the numbers comparing what Disney has done for the community vs. what the city has done for the community (financial and otherwise).
September 27, 2017 at 4:24 PM · This article is outstanding and really provides the kind of depth and insight that traditional reporting did not take into account. I don’t believe the LA Times article was trying to put a negative slant on Disney (as your version made things very transparent) however, the “context” is missing.

The premise as you put it was more simplistic: If I am negotiating for my organization and it wants you to provide something to us which you then “provide”, then you were only unfair to yourself. (If you believe you were wronged after the fact).

Am I correct that the Mickey and Friends Parking Structure had been built during the beginning of a significant economic downturn? With Disney proposing the 2nd gate, the City believed it was in both of their interests to develop a large scale parking solution prior to opening the next gate. The larger picture of why the structure was built has been forgotten.

Robert, can you answer these head scratchers ?: Wasn’t part of Disney’s agreement with the City for the omission of taxes on park tickets “A pledged minimum investment of 1 billion” and that Galaxy’s edge and the parking structure were both on the table when they entered into these discussions?

To me, this means Anaheim is now opposing the EGP which is something that for lack of a better term they made Disney agree to build…
Does this make Anaheim’s now stonewalled position on the EGP convoluted at best?

September 27, 2017 at 5:05 PM · optimistic greetings robert. While, I applaud you showing that the LA TIMEs, elevates their anti corporate bias, over actual truth telling. (excepting themselves, of course) I don't understand the min wage, part of the article.

Unless, you just wanted to give a little something to both sides of the political aisle, to increase comments. I don't understand how you could possibly acknowledge as fact, that taxes are paid by the customers of a company, and not actually by the company. In reality.

And, on the other hand, advocate for a really, super high minimum wage. It's extremely contradictory. As it is already, a 10.50 dollar min wage, is causing restaurants (and some other industries), to lay off or not hire workers. In fact, disney has gone (in a few restaurants, and planning more), to install self serve kiosks for food ordering, by the customer themselves. That is becuase, of the minimum wage

See seattle, where the 15 dollar min wage, has caused a REDUCTION in restaurant workers. Even, while real estate prices, due to seattle's anti construction policies, is still causing real estate to rise, over the cost of inflation.

what do other people think of this?

September 27, 2017 at 5:05 PM · optimistic greetings robert. While, I applaud you showing that the LA TIMEs, elevates their anti corporate bias, over actual truth telling. (excepting themselves, of course) I don't understand the min wage, part of the article.

Unless, you just wanted to give a little something to both sides of the political aisle, to increase comments. I don't understand how you could possibly acknowledge as fact, that taxes are paid by the customers of a company, and not actually by the company. In reality.

And, on the other hand, advocate for a really, super high minimum wage. It's extremely contradictory. As it is already, a 10.50 dollar min wage, is causing restaurants (and some other industries), to lay off or not hire workers. In fact, disney has gone (in a few restaurants, and planning more), to install self serve kiosks for food ordering, by the customer themselves. That is becuase, of the minimum wage

See seattle, where the 15 dollar min wage, has caused a REDUCTION in restaurant workers. Even, while real estate prices, due to seattle's anti construction policies, is still causing real estate to rise, over the cost of inflation.

what do other people think of this?

September 27, 2017 at 7:15 PM · I'm still not clear why the Harbor Blvd businesses are so upset about the bridge. Foot traffic is just going to take a detour down a well defined path and cross over Harbor Blvd vs. across a busy street. The whole issue of them thinking Disney is shutting them out is curious. That said, unlike WDW with affordable hotel options maybe Disney Anaheim should consider that those partner hotels are the affordable option for the resort since they are not, nor have the room to build.
September 27, 2017 at 7:23 PM · One thing I noticed left out of LAT article about the parking structure. Yes Anaheim owns, but it doesn't operate and maintain the structure. Yes Disney receives all the gate fees, but Disney still need pay salaries and cost of maintenance. Have you seen all the employees working in the structure. There is still some profit to be made, but I am sure Disney did not send a bill for the moving of tram routes or adding the electric charging stations. I think if Anaheim where to run the structure like all municipalities it would look like crap and there would never be employees Manning the gate, some crappy excuse of union break requirement ( think dmv).
September 27, 2017 at 8:00 PM · Negotiations such as this is business. How much is the city willing to give up to maintain the business and associated tax revenue. How much is Disney willing to spend to maintain their multi billion dollar business. It's no different than how much your willing to pay for the house you want to purchase and how much the seller is willing to sell it for. The only big difference is that the voters may change the economic calculus for the city.

As far as the minimum wage, you lost me completely. Wages are also a supply and demand function, only they are manipulated by government decisions driven by voters. Minimum wage is an implied (nexessary) tax on the buyers, especially affecting demand by out of state visitors. The math here gets far more complicated than your brief discussion.

September 28, 2017 at 7:51 AM · "I'm still not clear why the Harbor Blvd businesses are so upset about the bridge."

It's a sound argument. It will mean a significant decrease in foot traffic in front of their establishments. It could also affect guests leaving the parks in the middle of the day for lunch at the off-site establishments with the pedestrian bridge essentially pushing guests in specific directions across the street.

The last time we visited Disneyland, we stayed on the east side of I-5 and walked into the parks. Not only would a pedestrian bridge change the typical walk for guests coming from the east, but the parking garage could also shift the way guests drive to Disneyland, altering vehicular traffic in the area. If Disney creates a direct link to the new garage straight off I-5, it could mean that vehicles don't drive past anything other than Disney-owned property getting on and off the interstate. While vehicles currently coming from the north on SB I-5 have a pretty direct link to Mickey and Friends, those coming from the south on NB I-5 are either driving along Katella or Harbor before reaching a Disney parking lot.

In the grand scheme of things, I really don't think the businesses are complaining furiously, and it's instead the politicians deliberately making a mountain out of a molehill to make it appear they're doing something positive for the community (standing up to the big bully Disney). Honestly, if standing up for crappy independent eateries, chain restaurants with deliberately inflated prices because of their proximity to Disneyland, and other establishments is considered a public service for these elected officials, they should find another line of work.

Many of these businesses have been leaching off Disneyland for generations. Some of them could even be considered predatory in terms of their policies and pricing, yet the public is supposed to feel for them when Disney wants to create a way for visitors to avoid these blights on the community? I'm sorry, I'm not buying it. These little leaches and cockroaches need to learn how to compete, not handed more concessions by greasy politicians at the expense of the county's biggest employer.

September 28, 2017 at 7:54 AM · Since others have brought it up, I'll go ahead and weigh in on the minimum wage issue. My opinion is from a capitalist perspective, and viewing the current employment market. I believe in supply and demand, and if companies can't fill entry level/minimum wage positions (as is the case right now across the country with record low unemployment), businesses either need to offer higher compensation or find ways of doing without those employees, meaning wages will eventually go up naturally or positions paying the current minimum wage will disappear. However, a government forcing companies to pay workers a wage that's not based on any local or regional economic analysis or value-based decision of the work performed, simply just a number pulled out of the air because it sounds nice in a chant or looks good on a sign, will not help. I've always opposed the concept of a federal minimum wage, because it doesn't take into account local economic conditions. $7.25/hour is enough to live on for a grocery clerk in Montana, but is woefully inadequate for a cashier in San Francisco, so why do we have a national minimum wage if it's not applicable across the entire country?

However, state and local governments that have started to override the Federal Minimum Wage are doing so without any insight as to what would be an appropriate wage. They see Seattle establishing a $15/hour minimum wage, and assume that they should do the same regardless of the cost of living or types of industries/businesses in their jurisdiction. They also fail to take into account the ripple effects that ultimately result from a minimum wage increase. The shift manager making $3/hour more than their minimum wage subordinates cannot simply be bumped up to the same $15/hour their subordinates are getting. Similarly the office manager making $5/hour more than the shift manager would require an adjustment to create the necessary pay gap. It's a domino effect that doesn't just affect those under the new minimum wage line, but everyone, and somewhere along the line, the business needs to compensate for the increased costs to produce their goods and/or services. That means either a reduction in the overall workforce or benefits to workers, reduction in wage differential between employees (less incentive to advance within an organization), reduced dividends for stockholders (in turn devaluing everyone's investments and the value of individual companies along with their ability to raise money for expansion), or increasing prices. If it ends up being the last of those, the cycle just starts all over again, because then those making minimum wage can no longer afford basic necessities due to increasing prices to compensate for higher production costs. It's a vicious cycle that will never end, particularly if the minimum wage is indexed to inflation, with wages constantly going up to keep up with higher and higher prices.

Certainly, there's something to be said about executive compensation and excessive dividends to shareholders, but altering the minimum wage will never change the way individual companies confront those issues, and honestly it's not the government's role to force companies to change the way they compensate their high level employees or stockholders either.

Increasing the minimum wage seems very gallant and compassionate, but in the end, it will only make things worse in the long run. Additionally, a local government trying to leverage minimum wage increase as a bargaining chip for concessions from businesses is just dirty pool. Washington, DC did it to Wal Mart when the retailer was attempting to expand into the city. They forced Wal Mart to comply with a newly increased minimum wage established almost exclusively because the retailer was coming to town (passed a law requiring the higher minimum wage only for retailers specifically with more than 100 employees at a single location). What resulted was that Wal Mart gave in because they wanted to tap the market, but instead of building 5 new stores, they only built 3. Be careful what you ask for, and always understand that every action has and equal and opposite reaction (as true in economics as it is in physics).

September 28, 2017 at 2:14 PM · There are some really great comments here on the bridge and pedestrian path. From my perspective, I have had to cover significantly more ground walking from a hotel property to the Anaheim convention center. (From 2 prior conferences I attended there) My GPS watch would argue the same.

I have walked from the parks to Anaheim Garden Walk for dinner and back to the parks and I did not consider it "inconvenient". If I wanted to eat at one of the establishments on harbor, the pedestrian bridge does not make a impedance to me. What data if any has been presented to Disney to show them this is an issue?

Also, during peaks when their existing parking structure was full, you used to be re-routed to either the Anaheim convention center parking or the parking south of Disney Way. Shuttles were often too long of a wait so we walked. IF walking is that big of an inconvenience than don't quantify how much walking you do inside of Disney. You may never go there again...

September 28, 2017 at 4:43 PM · You ask why does their needs to be a Federal minimum wage. I ask why do states need to establish a minimum wage if the Federal government has already done so.

I live in a city where the minimum wage is $7.25. However, due to high demand for employees and the cost of living businesses have no choice but to pay more. There isn't a national fast food joint in town that isn't trying to hire, and most are advertising $12+ per hour as a starting wage. If you want a career dispensing soft serve, flipping burger, and dropping fries Dairy Queen will start you at $16.00, plus full benefits (health, dental, vision, and paid vacation).

It just proves that the free market can work and you don't need the government to define what is the appropriate wage.

If you know of a company that is paying excessive dividends to shareholders please do share. I can't think of one example.

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