Experts: Disneyland Would Expand With or Without Ticket Tax

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Disneyland will almost certainly undergo a major expansion regardless of any long-term protection from a ticket-tax as the resort deals with increasing demand and competes with Universal Studios Hollywood, say experts who study the theme park industry.

Last week, Anaheim city officials revealed a proposal, which the City Council will vote on next Tuesday, to renew a special tax protection granted to Disneyland dating back to 1996, when a former council approved spending a half-billion dollars on improvements to the resort district.

The tax shield expires next year, and the not-to-subtle message coming from Disneyland is if the ticket protection is not extended, the company might forego a billion-dollar expansion that boosters say would be a boon for the local economy.

Under the deal that’s on the table now, Disneyland will commit to investing $1 billion into expanding the theme park by 2024 in exchange for 30 years of ticket tax protection; then another 15 years of admissions tax protection in exchange for another half-billion dollar investment.

Almost immediately after the proposed deal was announced, members of the council majority — who’ve benefited significantly from Disneyland’s campaign spending — declared they would be voting for it, and city officials touted a company-commissioned study that claims the expansion would generate $600 million in tax revenue over 40 years.

The city’s news release about the deal claims that the expansion would create thousands of new jobs, including 3,700 “construction-related” jobs. It also claims the resort district currently generates a $67 million tax revenue surplus after factoring the area’s cost to city services.

But some experts on the theme parks industry and municipal finance, however, don’t share the council majority’s enthusiasm.

“It does not sound like a good deal to me,” said Richard Foglesong, political science professor at Rollins College and author of the book Married to The Mouse, which examines Walt Disney World’s relationship to Orlando government. “City officials need to be mindful of the leverage they have in saying no.”

Meanwhile, an independent economist who reviewed the city’s breakdown of revenue and costs related to the resort district says the assumptions are flawed because they fail to account for tens of millions of dollars in additional costs imposed by Disneyland-related tourism. And he questioned whether a tourism-focused city creates a more prosperous community.

“That surplus isn’t real,” said Mark Soskin, associate professor of economics at the University of Central Florida College of Business Administration and a specialist in tourism economies. “It’s garbage in, garbage out.”

A truly objective look at Disneyland’s revenue claims isn’t possible, because the company won’t make public the report on which they are based. The company refused to provide a copy to Voice of OC, citing proprietary information contained in the document. City officials also don’t have a copy, according to city spokesman Mike Lyster.

Furthermore, few theme park industry experts buy the argument that a ticket tax would keep Disneyland from expanding.

Universal Studios Hollywood has already embarked on a $1.6 billion remake of the park (and without guaranteed ticket tax protection), amounting to an overhaul of 70 percent of the park by 2016, the New York Times reported last year.

And in a first for Universal, the park is aiming to bring younger children, an age group that has traditionally been all Disneyland. Among the new attractions will be the Wizarding World of Harry Potter, which Foglesong credits as having completely turned around Universal Studios Orlando.

Many industry watchers say this “arms race” between Disneyland and Universal Studios is a major factor behind Disney’s plans to expand the Anaheim park. With the rights to hugely successful franchises like Star Wars and the comic book giant Marvel Entertainment now in Disney’s hands, the time is ripe for an expansion that will have visitors decide on returning to Disneyland rather than a trip to Universal Studios Hollywood.

“They’re locked in this competition with Universal, and that will probably drive them to invest regardless of what the city of Anaheim does to reward them for investing in Anaheim,” said Foglesong.

Ever Increasing Crowds

Also, the park has gotten extremely crowded. Last year, industry experts told the Los Angeles Times that Disneyland faces one of two choices – hike the ticket price or expand.

Disneyland reportedly even stopped selling its Southern California Annual Passport to try and keep back the massive crowds. That was after a 30 percent increase for its most expensive pass failed to cut down on attendance, the Times reported.

Between Disneyland and neighboring California Adventure, over 25 million people visited the parks last year, according to the Themed Entertainment Association.

Disneyland did hike the ticket price from $96 to $99, but the overflow kept coming. During its 24-hour celebration of the park’s 60th anniversary in May, the park had to close its gates in the middle of the day due to overcrowding, the Orange County Register reported. The event jammed city streets and Interstate 5.

As the crowds grow bigger and bigger, Disney’s proposed investment promises to include a 5,000-space parking garage. But parking conditions have gotten so bad employees have at some point been forced to park at Angel Stadium and take a two-mile shuttle ride to the park, according to the Register.

In addition to overwhelming practical needs to expand, Soskin likened the decision to expand to Apple releasing a new iPhone. It’s all about keeping customers coming back for more. Soskin says the ticket tax protection is more about making sure Disney’s already gold-plated bottom line remains thick.

“They’ll take whatever they can get in other words, is the idea,” Soskin said.

Soskin went so far as to say the terms of the deal allow Disneyland to install a hidden ticket price increase. He says this because the current council can’t lawfully ban future tax increases. But officials came up with a workaround. Under the deal, if the residents vote for a ticket tax, Disney gets to keep the revenue.

“It’s an under-the-table way to raise their prices,” Soskin said.

So far, City Council members are unconvinced that Disney would invest regardless of a ticket tax protection.

Councilman James Vanderbilt, the only council member who hasn’t explicitly said whether he would vote for or against the deal, said he’s assuming they company is asking for this deal in “good faith.”

“With my council colleagues, we can go over the agreement point by point during the public meeting to remove any doubt of a need for the plan to get the Disney’s investment,” Vanderbilt wrote in an email to Voice of OC. “Together, I believe the Council can shape this proposal to everyone’s satisfaction. I believe there is a ‘sweet spot’ to be found.”

Proponents of the deal say that a ticket tax might hurt attendance and chip away at Disney’s profit margins, so much so that the company would refuse to invest in the expansion without guaranteed protection from a ticket tax.

Bryan Starr, senior vice president of government affairs at the Orange County Business Council and supporter of the deal, said this week on public radio that businesses like to have “certainty” when deciding whether to invest. He said the deal is a “no brainer” for Anaheim because it secures Disney’s promise to invest in the expansion, which he also said was remarkable given California’s economic and business climate.

But if the experience of a municipality that has a ticket tax is any indication, the effect would likely be negligible.

In Sandusky, Ohio, Cedar Fair’s Cedar Point theme park actually supported an increase to the town’s admissions tax last year from 3 percent to 4 percent. And by all indications, the increase hasn’t disrupted the downtown’s “ongoing renaissance,” according to Andy Ouriel, government reporter at the Sandusky Register newspaper.

The Sandusky ticket tax increase was a compromise after calls to double the tax. The town also implemented an income tax increase that year.

“I don’t think the tax has played a role in the attendance,” Ouriel said. “We haven’t heard about any person complaining they’re not going to Cedar Point this year because of the tax increase… I have a Cedar Point pass. I didn’t think twice of it.”

Does Disneyland Make Anaheim More Prosperous?

As Disneyland continues to expand and bring millions of people to the city each year, Soskin questions whether it’s all worth it.

First, there’s Anaheim’s claim that tax revenue from the resort district is $67 million more than the cost of providing city services for the area. That surplus, city officials say, funds services for the rest of the city.

Soskin says the city is extremely understating the cost of city services to the resort district.

For example, city budget documents claim that the resort only sees 4.6 percent of all the city’s calls for police service, and thus only that portion is the resort’s cost for police.

But Soskin says that assumption is a “huge underestimate” because tens of thousands of tourists are driving through the city on any given day, and calls for service involving tourists could happen at any part of the city.

The more accurate way to look at the city services burden, Soskin said, is to take Anaheim’s population of almost 350,000, and then add another 150,000, and probably more, for all the tourists.

Only then do you start to have the true picture, and the surplus is “all eaten up,” Soskin said.

But more importantly, Soskin says, there is a larger question about whether having Disneyland means a more prosperous community for city residents. In answering that question, residents have to contend with heavy traffic, low-paying jobs that place even more burdens on government services, fireworks exploding over the neighborhoods and more.

If having Disneyland was a net loss to the city budget but meant a better quality of life for residents – such as living wage jobs — then residents could say they’ve got a good deal on their hands, Soskin said.

And those are exactly the kinds of guarantees city leaders should be asking for when deciding whether to sign a deal that promises Disney protection from an admissions tax, Foglesong said. Otherwise, it’s giving a huge well away for nothing.

“The demands on your social services network, law enforcement, educational system, are greater with a lower wage work force, and that’s what Disney theme parks produce,” Foglesong said, adding that city leaders should bargain for “a certain number of jobs at a certain wage level, at a certain period of time.”

The Timing of the Deal

So far, only Vanderbilt has suggested guarantees for the city in the deal. He wants to see Disney held to “definitive park attendance minimums” installed in the deal, using an independent CPA to determine whether Disney’s investments really amount to $1 billion, and not allowing Disney to include in that investment research and development costs for attractions already at other parks.

Coincidentally or not, this deal also comes just as a new election system is poised to transform how council members run for office, thereby guaranteeing seats on the council for Latinos, who comprise the majority of the city’s population but currently have no representatives on the all-white council.

But those new council members won’t take their seats until 2017.

Jose Moreno — president of the Latino grass roots group Los Amigos of Orange County and former council candidate who successfully sued the city in a state Voting Rights Act case — says rushing this deal through is an example of city government and Disney disenfranchising working-class Latinos.

“It is very disappointing,” Moreno said. “It appears that Disney, the [Councilwoman Kris] Murray majority and special interests in Anaheim are trying to handcuff the power of those neighborhood voices that will be coming into the governing structure.”

A Disney spokesperson said Disney representatives wouldn’t be available for an interview by the deadline for this article. Council members Lucille Kring, Jordan Brandman and Murray did not return messages from Voice of OC for comment.

A previous statement by Disneyland Resort President Michael Colglazier and emailed to Voice of OC said that policies like the proposed deal are what allows businesses to “invest and thrive.”

“We are asking City leaders to continue with a policy set two decades ago that has driven unprecedented job creation, growth, and prosperity, and enabled the City to invest in vital services that benefit every Anaheim resident,” Colglazier said.

Mayor Tom Tait — the only council member who has said he’s against the deal — disagrees. He says the deal would tie the hands of future councils and residents for over a generation. That’s a bad deal to make, Tait says, because the city’s ongoing expenses are growing at a rapid clip, and the city is contending with a half-billion dollar unfunded pension liability.

If the city’s revenue doesn’t grow fast enough to meet its ballooning expenses, then at some point the city would need to tap what he calls its “insurance policy” — a ticket tax that could raise millions of dollars annually.

“Hopefully there won’t be a need. But if there is, the people, this City Council, should not give away that ability” to levy an entertainment tax, Tait said.

Please contact Adam Elmahrek directly at aelmahrek@voiceofoc.org and follow him on Twitter: @adamelmahrek

  • Smeagel4T

    As an annual passholder for the last 10+ years, it’s a no-brainer Disney will expand in Anaheim regardless of any corporate socialism subsidies they want. Disneyland (as possibly distinct from CA Adventure) keeps butting its head up against capacity limits. They’ve been creatively throttling back on annual passholders, and Disney ticket prices have reached the marketing dilemma of the $100 psychological threshold.

    The room prices at Disney’s Grand Californian have remained astronomical, which means they keep that hotel operating at sufficient capacity WITH those astronomical prices. Another sign that demand is extremely high and solid at Disneyland.

    Disney knows perfectly well, due to all the glaring signs of it, that Disneyland is currently only revenue limited by capacity. When you are finding ways to turn visitors away because of capacity limits, every single business owner knows the best solution to gaining more revenue is to increase capacity.

    The other option, which works but is elitist, is to simply raise prices until enough potential customers can’t afford your business. Disney has been pursuing that option with some constraint because it’s a seriously bad option for Disney’s “family friendly” marketing image. Making parents try to explain to seven year olds they can’t go to Disneyland because the park is at capacity is also very bad for Disney’s “family friendly” marketing image.

    What Disney is REALLY looking at is the potential of a ticket tax having to come either out of their profit or causing their ticket prices to go above the psychological $100 threshold. Since they desperately don’t want their ticket prices to go above $100 right now, that means any ticket tax would have to come out of their profit.

    The problem in Anaheim is they have nothing but dunderheads on the council who have absolutely no clue how big business works. Disney spoons feeds them excuses and the council lacks any experience (or perhaps caring) in the ways of big business to sit across the table from Disney, have a good chuckle with the Disney representatives, and then say “okay now, why don’t we cut through the hype and let’s talk about what your REAL concerns are and how we address BOTH of our needs.”

    What I suggest to the Anaheim city council is Disney’s REAL concern is with their ticket prices and NOT with the ticket tax. This is EASILY addressed in a manner that works for both parties. Just do what Disney itself does. Get the revenue from sources that are significantly less obvious to the park visitor. Specifically concession sales.

    For example… the two Starbucks inside the theme parks (one in Disneyland and one in CA Adventure) charge around $0.50 MORE for a frappacino than the price at a standard Starbucks. Why isn’t Disney petrified no one will buy a Starbucks after Disney has applied that $0.50 Disney-tax onto the drinks? It’s because Disney knows the psychology of the visitors. The majority of people only pay attention to the entrance (and maybe parking) fees. After that the majority of visitors are SIGNIFICANTLY less sensitive to the price of things.

    So if Anaheim had competent council members who had any clue about the ways of big business, they’d tell Disney “Yes, we can completely appreciate your being sensitive to your ticket prices. So instead let’s add $0.05 Anaheim-tax on top of the $0.50 Disney-tax that’s already being applied to Starbucks frappacinos — and all the other concessions in the parks. We end up with a win-win. We’re considerate of your ticket prices, and you’re considerate of our need to fund city services.”

  • Almost 20 years ago Disney, the City and Anaheim Resort Area businesses worked together and created a multi-day, world-class tourist destination with two theme parks, Downtown Disney, Disney’s Grand Californian Resort & Spa, an expanded Convention Center, a revitalized Anaheim Resort Area, and a traffic, parking and infrastructure plan that set the stage for twenty years of unprecedented growth. Disneyland Resorts doubled its workforce, attendance increased by nearly 60%, the TOT has more than doubled from $45,000,000 a year to $110,000,000 per year and the average daily rate at area hotels nearly doubled from $87 per night to $160 per night.
    Disney is now offering an additional $1 billion investment in Anaheim. The past success is proof that investment will exponentially benefit the Anaheim Resort Area and will benefit all of Anaheim and the region. SOAR and our membership of more than 10,000 Anaheim residents, community and business leaders are wholeheartedly supportive of Disney’s investment!

  • Cynthia Ward

    Anaheim Resort Area Fiscal Analysis

    Prepared for City of Anaheim

    Prepared by: Economic and Planning Systems, Inc.

    September 24, 1996

    YES this is a 20-year old report, done to justify the last
    “partnership” between Anaheim and Disney.

    Page 4

    “New Development will continue in the ARA without the Resort
    Project

    Even without the proposed Disneyland Resort Project, the ARA
    will continue to grow. Based on past trend, pending development proposals,
    Convention Center expansion and related demand on new hotel rooms, continued development is anticipated.”

    Page 6

    “The proposed Disneyland Resort project will significantly
    increase the number of visitors to the ARA, and lead to increases in both
    municipal revenues and service costs.”

    “The available net revenues may be combined with other
    sources of funding to pay for needed public improvements in the ARA.”

    NOTE: the cost of needed improvements is not anticipated by
    these industry experts to be covered by the net new revenues, but must be
    “combined with other sources of funding” to cover the price tag to underwrite
    Disney’s expansion.

    Yeah, you read that right, in 1996, the City was told the
    Resort would keep growing with or without Disney’s expansion, and they were
    told the cost of underwriting the expansion would exceed revenues and need
    other sources of funding, yet elsewhere we heard claims of 60% increased
    revenues, which means that 60% was expected to come in and GO RIGHT BACK OUT AGAIN.

    And yet….they obligated the taxpayers of Anaheim to repay
    ONE AND A HALF BILLION In bonds through 2037, (without a vote or even any
    notice I can find) and the powers that be cannot figure out why those of us
    doing the math are ANGRY AT THIS!

    BTW the return on investment 20 years later?

    In 1996, the report said 22.7% of General Fund revenues came
    from tourism. In June 2015, the City’s staff FINALLY calculated the cost to
    benefit ratio of tourism and determined “just under 25% of the General Fund was generated by the Resort. Yep, that would be a 2% spread after 20 years and one and a half billion in tax dollars committed to projects that benefit
    Disney. So is a potential gate tax really picking on one private company in some biased attempt to take what is theirs, or is it COST RECOVERY for the taxpayers of Anaheim whose investment is not paying off as promised?

    This also means that since 2007, the City has been operating
    on the unproven assumption promoted by SOAR AND THE CHAMBER that claimed 50% of GF came from tourists. That claim was supposed to be made by a CBRE analysis, but I finally got a copy of the report and even CBRE doesn’t really claim it, so the info was twisted by the Chamber and then repeated and relied upon by the City without verification. What a great way for highly trained and very highly paid professionals to run the 10th largest City in CA. On assumptions. I guess it is better than the Magic 8 Ball I envisioned sitting on the desks of department heads.

  • “Anaheim’s City Council should support this proposal. It’s good for the local economy and renews a commitment from Anaheim that low taxation improves the business climate and economic vitality of the community.”

    http://www.ocregister.com/articles/city-669971-tax-agreement.html

    • Carrie Guerriero

      Do you agree with this article?

      I would like to know what your thoughts are on the subject.

  • Carrie Guerriero

    Will you all please attend the City Council meeting this Tuesday? 5pm next Tuesday, July 7th. 200 S. Anaheim Blvd, Anaheim, CA 92805. In the Anaheim City Hall, Council Chambers. I would like you to participate with me in this discussion at the meeting. The City Council is liable for the future of Anaheim, and Disney needs to be held accountable on how this expansion will not only effect Anaheim, but surrounding cities, transit, water usage, crime, environmental impact, and all things effected by this expansion. Thank you for your support.

  • Boat Nectar

    What leverage does Disney have to ask for 30 more years without taxing tickets if they are going to invest in $1B to expand anyway? The Anaheim City Council going along with this proposal are either in Disney’s pockets, or they’re just plain stupid and corrupt. Source: DisneyHub(dot)blogspot(dot)com.

  • Cynthia Ward

    OK this is not an expansion, read the deal they are offering to expand their PARKING. Yes easier parking may drive more visitors to the existing parks but the 1996 agreement in place diverts ALL revenues from the post 1995 baseline for income, so it doesn’t matter how much more the parks make, we don’t see it because it goes to bond payments. This is a cost Disney is already on the hook for and will not boost money to the General Fund even if it generates the revenues promised. This is CEQA exempt because they already built the projects into the specific plan in previous enviro docs, it literally is work they already planned to do and now they are going to swap us like it is some big favor for us. This is frankly an insult.

    The exemption until 2017 means Disney understood a gate tax was on the table and got an opt out, but by no means is that theirs by right, it was part of the discussion while they demanded taxpayers pony up ONE AND A HALF BILLION in bond payments until 2037. Revisiting the whole issue the same year another series of bond payments comes on line makes sense, 20 years into the deal let’s see if revenues hit projections and then we can renegotiate. Well as it turns out, we are nowhere near the 60% increase in revenues predicted back in 1996 (by the City’s own “experts” no less) when we compare percentage of General Fund driven by tourism we are only TWO PERCENT better than before we made that questionable partnership, with mythical returns on investment. TWO PERCENT. And that is not counting the hidden cost of being a terrorist target etc.

    yes they are the biggest employer, but how many of those jobs are full time with benefits? Disney is notorious for spreading one full time job over three cast members so nobody gets enough hours to need benefits and they can get their health coverage through Obamacare, passing their costs to taxpayers under the table.

    Yes, Disney pays taxes, welcome to reality, we all pay taxes it is the price we pay for making a profit and enjoying the benefits of civilization, This is not an act of benevolence on their part, and when we review the cost of hosting them i do not believe they pay anywhere near their part in the tax base needed to cover the nut. I do not like taxes, I do not like new taxes, but on some level Disney needs to step up and provide taxpayers with the return on the investment we made on their behalf in providing infrastructure that would NOT have been needed if not for their highly profitable expansion, At the very lease we need to slow down and review the heck out of past documents and see how the last 20 years has worked for all involved in this partnership, and sadly i think we all anticipate the usual rush to a YES vote by 3 leaders who are, in my opinion, not even trying to hide their efforts to defraud the people of Anaheim of the honest services we are entitled to. I hope a lot of folks show up Tuesday with torches and pitchforks demanding that for once the band of 3 miscreants listens to constituents.

  • astar2b

    I thought so…

  • RyanCantor

    The idea that Disneyland won’t expand for 30 years without some sort of tax deal is complete and utter comedy.

    The Anaheim City Council has a very poor recent track year with this kind of false duality pitched to its residents.

    If we don’t give away $158,000,000 in future tax revenue, our hotel industry will collapse. Hotels were constructed without the subsidy and ToT revenues continue to climb. There’s still no market based support for the hotel receiving the giveaway three years later.

    If we don’t spend $300,000,000 to expand the convention center, it will fail. This was totally false and based on subjective forecasts of future demand. It’s just as likely the convention center will fail, after an expansion, if say– crude oil prices climb.

    If we don’t give away 155 acres of land worth over $300,000,000, the Angels will leave. The Angels are still here.

    Now, if Anaheim doesn’t agree to not tax Disney, Disney won’t invest in its own assets to earn an even greater profit? B-o-l-o-g-n-a.

    That’s nearly a billion dollars in bad deals because the Anaheim City Council doesn’t have the moral courage to negotiate on behalf of its citizens.

    There’s a common theme with these “the sky is falling” proposals. The Anaheim Chamber of Commerce.

    The decision to impose a gate tax should be up to the residents of Anaheim– who can make a wise decision based on the merits of the case before them. It should stand apart from the other bone headed decisions made by the council, but unfortunately, Disney has allowed its political capital to be spent by the Chamber. If this tax deal fails, and it should (but probably won’t), it’s Disney’s own fault for not keeping its backyard in order.

    The council should vote this deal down. At worst, they should put it to a public vote. After all, they’re abrogating the public’s right– the public ought to have a say. I don’t recall opposing a gate tax being in anyone’s campaign literature.

    • Jason

      You make it sound like Disney doesn’t pay it’s usual taxes. Do you understand what tax they are referring to? The ticket tax is eaten by the consumers/guests. Right now, Disneyland goers don’t pay tax on the tickets, but the tax will impose that on the consumer.

      • Boat Nectar

        They don’t. They make a pure profit from $99 at the gate with no taxes from each patron even before guests have a chance to step on a Disney theme park. Source: DisneyHub(dot)blogspot(dot)com.