Outside Disneyland, a Reminder for Governments to Be Careful What They Wish for

Cities have become increasingly focused on doing whatever it takes to attract large corporations. But it's hard to govern a one-company town. Just ask Anaheim.
by | April 2018
The Sleeping Beauty Castle in Disneyland, at night. Traditionally very pro-Disneyland, Anaheim's seven-member city council has recently been in conflict with Disney over deals that the company has signed with the city, with one councilman and the mayor questioning the benefits of such deals for Anaheim. (Photos by Gilles Mingasson)

When Disneyland opened in Anaheim, Calif., in 1955, throngs of people came to experience a theme park unlike anything they’d seen before. It soon became known as “the happiest place on earth.” For years, the Walt Disney Company seemed to have a happy partnership with the city of Anaheim, too.

Anaheim has traditionally been open-handed with the international attraction that dominates its economy. Two decades ago, for instance, it agreed to issue a $510 million bond to upgrade the area around Disneyland, rebuild the convention center and provide Disneyland with a 10,000-space parking garage. The city also promised not to impose gate taxes on Disney tickets for at least 20 years. More recently, the city agreed to provide developers -- including the Walt Disney Company -- with more than $600 million in incentives to encourage the development of four new luxury hotels. It also extended the gate tax moratorium for another 45 years. In exchange, Disney promised to invest more than $1.5 billion in Anaheim by adding a major new attraction, Star Wars: Galaxy’s Edge, which is slated to open next year.

But some have been critical of the city in its dealings with Disney. Those investments, they say, would have been made by the company anyway. For years, Anaheim’s politicians largely ignored these objections. Instead, they accepted Disney’s arguments that such deals were model public-private partnerships. But that attitude has begun to change. Disney “keeps talking about how it’s the economic engine of the city and how we need to keep investing because we get so much in return,” says Jose Moreno, a California State University, Long Beach professor who was elected to the Anaheim City Council in 2016. “But for every engine, there is exhaust, and there are parts of the city having to breathe that exhaust: the working poor.”

Moreno doesn’t deny that Disneyland and the resort area that encompasses it are net contributors to Anaheim’s budget. The city’s budget office estimates that in 2017, the city netted $81.6 million from the resort district, primarily in the form of hotel occupancy taxes. But he worries that Disney revenues are “a drug” that has hooked Anaheim on low-skill, low-wage jobs.

It’s a perspective that urban writer Joel Kotkin says is well-founded. “Disney really contributes very little given the size of the company relative to the city.” Where it has spent freely, Kotkin adds, is on politics. “It’s a problem when you have a gigantic company in a poor town and you can buy the politicians,” he says. “Disney has done a very good job of buying politicians.”

Critics of the status quo believe it’s time for the city to shift its focus. Instead of providing economic incentives to spur development in the downtown area, they want the city to invest more in the neighborhoods. The leader of this movement is an unlikely figure. He’s Tom Tait, a libertarian-leaning Republican businessman who first ran for the mayor’s office in 2010 -- with Disney’s support.

As a city council member from 1995 to 2004, Tait voted for the Disney incentives in 1996. After retiring from the council and spending a few years out of politics, he easily won his mayoral race -- and did an about face. Since 2012, he has mounted an all-out attack on economic assistance proposals. Tait has described the types of incentives for Disney and hotel developers that previous city councils saw as wise investments as “crony capitalism” and “bad public policy.” He and his allies on the city council have sought to end them, a step that critics contend will only hurt the city in the long run.

 

A Disney employee holds balloons for visitors on Disneyland's Main Street USA.

 

Cities everywhere have become increasingly focused on doing whatever it takes -- handing out massive tax breaks, land deals and other subsidies -- to attract large corporations and the jobs they provide. (The best and most recent example, of course, is the municipal arms race over the second headquarters of Amazon.) But the battle taking place in Anaheim is not just about when or how to provide economic assistance packages. Rather, the situation raises profound questions about governing multinational corporations that dominate a locality’s economy, especially at a time when a Fortune 500 company’s annual revenue can easily dwarf a city’s budget. It’s a reminder that sometimes cities should be careful what they wish for. Once you land a corporate giant, it’s not always easy to know what to do with it.

Every one-company town struggles with how to negotiate the needs and wants of the local economy’s 800-pound gorilla. In Anaheim, that struggle boils down to one simple question: Can a city built around the Magic Kingdom ever say no to the demands of the Mouse?

When Walt Disney bought 160 acres for a new kind of amusement park in 1953, he asked the city of Anaheim to annex parts of the property and provide help with infrastructure improvements. The city spent about $153,000 on water, sewer and road upgrades. Disney chipped in $54,000 when the city complained about the costs. He didn’t ask the city for much else. His personal assets, loans and a television deal with ABC covered the $17 million cost of building Disneyland.

The theme park was an instant success. Visitors came in droves to ride the Jungle Cruise through Adventureland, explore the Western-themed attractions of Frontierland and glimpse the future in Tomorrowland. Main Street U.S.A. -- the resort’s thoroughfare -- harkened back to the small town in Missouri where Walt, his brother Roy and their other siblings grew up. At the center of the Magic Kingdom was Sleeping Beauty’s castle. But it might as well have been Disney’s castle. Inside the park, it was Walt’s world.

Outside, it was not. Much to Disney’s dismay, a flurry of gas stations and neon-signed motels soon grew up around the theme park. “A second-rate Las Vegas,” he called it.

Meanwhile, Anaheim and Orange County were growing rapidly. Military bases and the aerospace industry provided well-paying jobs. During its heyday, North American Aviation employed 36,000 workers at its 188-acre Anaheim factory.

For years, the Anaheim-Orange County growth engine worked smoothly. In the early 1990s, however, the end of the Cold War brought devastating changes. Military bases closed, and the aerospace industry drastically downsized. It was around this time that Tait, by then the CEO of the family engineering business, was appointed to fill a vacant space on the city council.

He took his seat in 1995, a difficult time for the city. The Los Angeles Rams NFL team had left for St. Louis, and the Major League Baseball team, the Los Angeles Angels, was threatening to leave. The Walt Disney Company’s commitment to Anaheim was also in doubt. Six years earlier, the company had announced plans to build a second theme park in Southern California. Two contenders quickly emerged for the new attraction -- Anaheim and Long Beach. In 1991, the company announced it had chosen Anaheim. However, problems soon emerged. The park Disney envisioned had a price tag of about $3 billion. The company wanted the city to contribute roughly $1 billion, primarily in the form of infrastructure upgrades. This was a hard sell. Some locals, among them the Anaheim police union, proposed instead a small gate tax on the roughly 11 million people who visited Disneyland every year at the time. The idea was not well received.

 

Anaheim thrived with the rise of the aerospace industry, but today many parts of the city are struggling.

 

But the next year, in 1996, Anaheim city officials and Disney were able to negotiate a more modest deal -- the $510 million bond and the 20-year moratorium on ticket taxes. The parties also agreed to designate a 1,100-acre parcel of land near Disneyland as the Anaheim Resort District.

Tait was wary. Orange County had just come out of bankruptcy, the largest municipal bankruptcy in the country. He worried about the size of the bond issue and disliked taking a gate tax off the table forever. But when Disneyland agreed to guarantee the bond and accept the 20-year moratorium instead of an indefinite extension, Tait voted for the deal.

But things changed when Tait decided to run for mayor. His platform wasn’t a threatening one. It called for cultivating a culture of kindness in Anaheim. There was nothing in it to suggest that, in fact, Tait imagined a very different relationship with Disney.

 

The trouble began in 2012. 

For years, the city’s visitor and convention bureau had worried that the city didn’t have enough four-star luxury hotels. For more than a decade, it had only one: the Disney Grand Californian. The bureau believed that the lack of luxury hotels meant that some high-income visitors came to town for events or to visit Disneyland and then left at the end of the day, depriving business owners of revenue and depriving the city of hotel occupancy taxes the visitors would have paid if they had stayed overnight. To incent developers to build four-star hotels, Tait’s predecessor as mayor, Curt Pringle, and a majority of the city council approved an incentive package that would effectively apply the city’s 15 percent hotel room occupancy tax to only the first $130 of guest charges in new luxury hotels. The idea was that high-end hotel operators would get a subsidy for 10 to 15 years, and the city would get new higher-priced hotels that would ultimately generate more tax revenue.

The incentive didn’t work. With a plethora of less expensive hotels and motels in the area, average daily rates weren’t high enough to attract investors in luxury hotels, even with an incentive. The incentive package languished until 2012. That’s when Pringle reemerged, as a consultant for a hotel developer seeking a more generous subsidy. 

Pringle’s government affairs firm counted as clients the Walt Disney Company and a local hotelier, Bill O’Connell, who was looking for a more generous luxury hotel incentive package. At one point, Pringle and Tait met for lunch. During the meal, Pringle told Tait that O’Connell would be seeking 100 percent of the city’s share of the hotel room tax for 15 years, an amount that would add up to roughly $150 million. 

 

Disneyland City Hall.

 

Tait says he was shocked. “I didn’t think it stood a chance of passing,” he says. But when Tait tried to rally the city council against Pringle’s proposal, he discovered something startling: He didn’t have a majority on the council. The city council later approved the subsidy.

For Tait, the vote was eye-opening. Without controlling a majority of the city council, he was mayor in name only. To gain control of the city’s agenda and end what he saw as insider dealing, he would need a majority of the city council on his side. Fortunately for Tait, a lawsuit filed against the city by local Latino activists, Los Amigos, and the American Civil Liberties Union offered him a chance to do precisely that.

Anaheim is a curiously shaped city. Imagine a bow tie 22 miles wide. In the west part of the city, there are flatlands filled with predominantly working-class Latino neighborhoods. The central portion of the city is anchored by the Anaheim Resort District. To the east, the city rises into the Anaheim Hills, the wealthy, largely white part of town. Tait and his family live there. Until 2016, most Anaheim City Council members lived there, too.

The ACLU lawsuit, filed in 2012, aimed to change that. It alleged that the city’s at-large election system violated the California Voting Rights Act by effectively disenfranchising Latinos, who at the time made up about a third of the city’s population. (That percentage today is more than half.) Then-school board member Jose Moreno was an outspoken supporter of district-based elections and eventually became a co-plaintiff in the lawsuit. In 2013, the ACLU and the city agreed to settle the lawsuit by holding a referendum on elections. That fall voters overwhelming approved moving to a system of district-based city council seats. The new system would go into effect in 2016, giving Tait his majority.

Before that happened, however, the 20-year prohibition on a gate tax was set to expire. Disney wanted to ensure that the city would never impose a tax on the 25 million-plus visitors who streamed through its gates every year. In exchange for a 45-year commitment to forego a gate tax, the company offered to invest $1.5 billion in a new attraction -- Star Wars: Galaxy’s Edge.

Tait rejected the idea. He didn’t support imposing a gate tax, but he was offended by Disney’s attempt to tie the hands of future city councils. He believed that Anaheim might, in fact, need to impose a gate tax in the future to cover the city’s pension liabilities. But a majority of the city council disagreed, and in June 2015, it voted to accept Disney’s proposal by a vote of 3-2.

 

Anaheim's mayor Tom Tait pauses in front of City Hall.

 

Tait and allies such as Moreno responded by making the city’s subsidies to Disney the central issue in the 2016 campaign. Moreno, in particular, made the city’s supposed largesse toward Disney the central refrain of his campaign. Anaheim, he claimed, has “invested a billion and a half dollars in the children of tourists so they could be happy and come and spend their money. It’s time for us to invest in the children of Anaheim.”

Disney responded by pouring more than $1.2 million into the race, primarily through a network of 10 political action committees, a campaign described in detail by a Los Angeles Times series earlier this year.

Despite Disney’s efforts, Moreno won, albeit by only 72 votes. Another candidate who shared Tait’s skepticism toward economic assistance packages also won. When the new city council was sworn in, Tait had his majority. One of its first acts was to repeal the four-star hotel incentive program. However, it didn’t roll back a final incentive package, approved the previous summer. That package provided more than half a billion dollars in incentives for Disney and the Wincome Group to build three new luxury hotels.

To Moreno, it was a deal that symbolized everything that was wrong with the status quo. “You are talking about a corporation that has the resources to buy the Star Wars film franchise for $4 billion,” he says, “and then turns around and says, ‘We want to build a hotel to expand our business, but to do that we don’t want you to ever tax us.’”

It was a position that struck Moreno as ridiculous. “That’s where you say, ‘Wait a minute.’”

 

Today, relations between the two factions on the city council are strained. Councilwoman Kris Murray says she’s perplexed by Tait’s turn against economic assistance programs. The 2015 luxury hotel incentive package and gate tax moratorium “cost us zero,” she says. “We don’t encumber any new debt as a result of the hotels or the Disneyland investments.”

The idea that such investments should be left to the market is, in her view, naïve. “Cities all over the world create public-private partnerships to attract and compete for these” luxury hotel developments, she says. Economic assistance packages are “a useful tool that we have employed for decades with great success.” As she sees it, the idea that subsidies are costing the city hundreds of millions of dollars is simply not true. “We’re talking about nearly a billion dollars in new revenues for the city over the next 30 years,” Murray says. “That’s the economic value these agreements provide to the city.”

As for Disney itself, the company makes no apologies for its involvement in local politics in general and the 2016 city council campaign in particular. “We have billions and billions of dollars invested in the city, and I don’t think there’s any company that wouldn’t look at ways to ensure that those investments are protected and nurtured,” says Lisa Haines, Disneyland’s vice president of communications and public affairs.

 

The Colony, a predominantly working class Latino neighborhood, where a one bedroom, one bath apartment can go for $1,400 a month, due to the proximity of Disneyland. A proposed ballot measure this year would require Disney and other hospitality businesses in Anaheim to pay employees a living wage.

 

When asked what, if any, obligations Disneyland has to Anaheim, Haines emphasizes what the company is already doing. Disney, she says, is the city’s largest employer, its biggest taxpayer and its most charitable company. She notes that hotel occupancy taxes from the resort district account for nearly half of Anaheim’s general fund. It also provides nearly 20 percent of the city’s employment. In addition, Disney contributes about $21 million a year to Orange County charities.

It’s possible that the next mayor will agree. Tait will step down this fall. But he’s hopeful that his philosophy of governance will resonate with the next mayor. It’s not that he is against Disneyland. On the contrary, he wants it to succeed and grow. He just believes that local government should put neighborhoods first. “If you create great neighborhoods, great businesses will follow,” Tait says. “It’s not the other way around. So, you focus on your core services of public safety and civic upkeep, and do those really well. But,” he continues, “you can’t do those really well when you give millions of dollars away to hotels and convention centers and things like that.”

There’s something else that could potentially shape the election this year -- and further complicate Anaheim’s relationship with the Kingdom next door. In late February, a coalition of local unions representing thousands of Disney workers announced a drive for a ballot initiative that would require any large hospitality business that receives subsidies from the city to pay its workers a living wage. If the measure makes it to the ballot, and if voters approve it, Disney and many other companies would have to pay employees a minimum of $15 an hour starting next year, $18 an hour by 2022 and include annual cost-of-living increases after that.

“We are not attacking Disney,” said Christopher Duarte, the president and chief executive of Disneyland’s largest union, in announcing the effort to a standing-room-only crowd gathered at the Anaheim Sheraton Park Hotel. “But if taxpayers are going to subsidize a large corporation, then that corporation should pay a living wage and not contribute to poverty.”