When Disneyland officials unveiled plans this week for a massive new luxury hotel in Anaheim, they also applied for a room-tax subsidy worth well over $200 million, which would be the largest hotel tax subsidy in the city’s history.
The proposal calls for a 700-room, 900,000 sq. ft. hotel to be built on a parking lot adjacent to the resort. It would include upscale rooftop dining, two swimming pools with food and beverage service, multiple spas, 24-hr. bell and valet services and a fitness center, among other amenities.
The mega resort's subsidy request was made under the city’s hotel development incentive program, which allows developers to collect 70 percent of the room taxes generated over 20 years by luxury hotels. To qualify, the hotel must be built to standards that would earn a four-diamond rating from AAA.
An application for the subsidy submitted by Disneyland states that the first year of operation would generate $14.7 million in room tax revenue, 70 percent of which – or $10.3 million -- would be rebated back to Disneyland.
And that’s only the first year – rebates could be much higher in future years as room rates increase. The subsidy could dwarf a highly controversial subsidy granted to the developers of two luxury hotels near the GardenWalk outdoor mall that was worth $158 million. While the GardenWalk subsidy was capped at that amount, there’s no limit to how much room-tax revenue Disneyland gets to collect under the city hotel incentive program’s new rules.
If the Disneyland subsidy and tax rebates for two other planned hotels are approved, the city will have granted $700 million in tax subsidies to hotel developers since 2013, according to figures produced by the city and the hoteliers.
Mayor Tom Tait called Disneyland’s request and other large hotel tax subsidies “insane.”
“[$200 million] is a massive amount of money given our entire general fund budget is $300 million,” Tait said, adding that the city “writing a check to Disney for $15 million a year for 20 years -- coupled with tens of millions in other subsidies to hotel developers -- is going to have a massive negative impact on our ability to deliver vital services.”
He also balked at Disney making this request less than a year after the Anaheim City Council in a narrow vote agreed to give Disneyland any and all revenue generated by city taxes included in the price of admission to the park. There aren’t currently any taxes on Disneyland tickets, but the city has changed its electoral system and a new, progressive council would be more likely to try and levy a tax.
Disney is building Star Wars Land in exchange for the tax protection.
“Disney of all entities doesn’t need city funds to build this hotel,” Tait said. “There’s no reason why the city would ever do this, no legitimate reason.”
Councilman James Vanderbilt wasn't nearly as strident as Tait, but made remarks indicating he is unlikely to vote for the subsidy.
“I evaluate [tax subsidies] on a case by case basis, but in general I’m more in favor of subsidizing projects most Anaheim residents can take advantage of,” Vanderbilt said.
Members of the city's council majority, which includes Councilwomen Kris Murray, Lucille Kring and Jordan Brandman, have routinely supported the tax subsidies. None of them returned calls seeking comment.
Disneyland says the subsidy will ultimately provide an economic boon to the city. The resort’s subsidy application states the hotel will produce 1,500 jobs during construction and an additional 1,150 full-time jobs related to hotel operations, including retail and restaurants. And a Disneyland spokeswoman said in a statement that the resort was “excited about our proposal to build the first Disneyland Resort hotel in 20 years.”
“This new flagship hotel would create thousands of jobs and benefit Anaheim with more than $750 million in additional tax revenue over the next four decades, while helping the city reach its stated goal of attracting more high-end visitors,” a statement said.
Other hotel subsidy requests in recent years have been hugely controversial.
A council vote in 2012 to grant the $158-million tax subsidy for the GardenWalk hotels created a significant rift among council members and sparked an angry backlash from many residents and activists. They questioned why the city would be giving away taxpayer money when city streets were crumbling and services for poorer residents were underfunded.
Backers of the subsidy – including members of the council majority, tourism industry representatives and building-trade unions – said the GardenWalk hotels subsidy would trigger construction during the sluggish recovery from the Great Recession, providing badly needed construction jobs.
But resistance to the subsidy was fierce, and a lawsuit alleging that the deal was approved illegally by violating the state open meetings law successfully overturned the deal.
The council ended up re-approving the deal in 2013. And by that time the hotel industry was picking up steam and financing experts said the subsidy most likely wasn’t even necessary to kickstart construction. Council members approved the subsidy regardless of those concerns.
The Disneyland subsidy is the first of three hotel tax subsidies council members could be approving in the coming months. Two other luxury hotels are also asking for hotel tax subsidies – which combined add up to $334 million, city and developer figures show.
City leaders contend such deals are needed because Anaheim is lacking in luxury hotel rooms needed to attract upscale clientele for events at the convention center.
But Alan Reay, president of Irvine-based Atlas Hospitality Group, says such arguments are dubious. Wealthy convention goers won’t be sticking around Anaheim, they’ll be going to places like the Montage Laguna Beach because of its beachside location.
“I don’t care how good a quality hotel you have in Anaheim, you can’t compete with the beach,” Reay said. “It’s a great deal for the developer... I don’t know that it’s a great deal for the city."
Reay said that city leaders need to consider the amount of tax revenue they would be losing by inking such a deal, and says that the luxury hotels will be taking visitors away from three-star hotels that pay their full freight in taxes.
“Not only am I taking money away from a competing hotel, I’m taking money away from the city,” Reay said.
Reay also speculated that Disneyland was likely to be planning to build the hotel with or without the tax subsidy, and decided to ask for the subsidy now because council elections in November could produce a new council majority that is against hotel subsidies.