Experts: Disneyland Would Expand With or Without Ticket Tax

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