Anaheim city leaders have argued for years that the city’s path to prosperity lies in borrowing more than a billion from Wall Street to build all the infrastructure needed to keep their resort district happy and humming, pumping out jobs, investments and tax revenue for the local economy.
But two decades after charting that course, there are mounting voices questioning whether the city’s math really backs up that vision.
One of the most vocal warnings comes from one of Orange County’s most popular Republicans, former Anaheim mayor Tom Tait who began raising alarm bells as early as 2014 about the city’s debts to pay for all those expansions.
“This is money that we borrowed and spent. Now we have to pay it back on an annual basis out of our general fund. It’s like a mortgage,” Tait said during his 2017 State of the City address. “Some people have suggested that strong economic growth will offset the increasing cost of these obligations. I hope they’re right.”
“But let’s face it. That’s a big and risky bet, one I didn’t believe we should have taken.”
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The California Auditor’s office also raised red flag’s over the city’s debts, listing them as high risk in a review of the 2019-20 fiscal year, a claim Anaheim rebutted in their own release that claimed the auditors failed to take into account the city’s unique financial status as a shutdown tourism hub during COVID-19.
[Read: Anaheim Among Cities Identified as High Risk for Financial Issues in New State Report]
The city’s debt sheets do detail the extensive nature of the bet – but it’s a leverage that current city leaders don’t like to talk about in public.
According to the 2021/22 city budget, Anaheim now has over $1.5 billion in its total bond debt, a number that continues to increase because of interest on that debt that continues to accumulate every year.
Economists say it’s hard to show how things like bonds and sales taxes are connected and city officials don’t share much data, much less how they put data together on these kinds of comparisons.
But a quick review of Anaheim’s hotel taxes shows substantial growth in revenue – going from $44.7 million in 1995 to $162.6 million just before the 2020 pandemic shutdown.
The most transparent update for taxpayers comes each year in the form of debt payments, detailing just how much the city spent paying off bond debt.
For example, this year city officials plan to pay $138 million toward the city’s billion dollar bond debt by the end of this fiscal year.
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Just under half of that cash is attributed to two bonds.
The larger bond was a $510 million bond issued in 1996 that helped finance the construction of the Mickey and Friends parking structure and new infrastructure at California Adventure, along with other improvements to the city’s resort area.
That was followed by a $258 million bond in 2014 created to expand the city’s convention center, turning it into the largest center of its kind on the west coast.
The 1996 bond also triggered a big fight with local unions, who said that because Disney’s construction was financed by the city the company should pay their workers a higher wage under Anaheim’s own laws.
In an ongoing lawsuit with Disney, Randy Renick, a lawyer representing Disney workers, said that because a large share of Disney’s own tax dollars go toward paying for those expansions it’s more help to the company than the voters.
“Disney got a rebate of the best kind: it got its taxes back before it paid them,” Renick wrote in the class action complaint.
[Read: Disneyland Workers Plan to Appeal OC Judge’s Ruling Against Their Class Action Wage Lawsuit]
Despite the grim predictions from the state auditor and local voices, city spokesman Mike Lyster said the bonds have been a blessing for the city.
“(The 1996 bond) has been a great return on investment for our city, residents and neighborhoods,” Lyster said in an email to Voice of OC. “Since the 1990s expansion, Anaheim’s hotel revenue has more than tripled to a pre-pandemic high of $163 million in 2019. That money has gone to public safety, community centers, libraries, parks and meeting city obligations.”
However, it’s rare to see the merits of the bonds actually discussed in public or examined alongside the debt incurred.
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In Anaheim, that seems like a discussion current city council members are keen to avoid.
At two different meetings in November, Councilman Jose Moreno tried to publicly dive in on the discussion of bond benefits and downsides on the council dais, but was quickly shut down whenever he went anywhere near discussing what benefits the city has reaped.
At the council’s Nov. 2 meeting, Moreno pulled up a discussion on the 1996 bonds that was originally set to go undiscussed by the council, approving Disney’s ongoing compliance with the bond’s development agreement.
The big question focused on what the city got in return for financing the construction of the Mickey and Friends Parking Structure, which the theme park has owned and operated ever since it was built with taxpayer dollars.
“These questions are asked even more today than they were previously,” Moreno said. “There’s a lot of confusion about what this development agreement does and doesn’t do.”
When asked by Moreno about the bond’s financing and what would happen to the parking structure once the bond was fully paid off, both city staff and the Disney representatives at the meeting were unable to answer his questions, saying it wasn’t covered by the development agreement.
“We are prepared here to talk about the development agreement, if we get into the nitty gritty of the finance agreement…I’d be sort of happy to take questions but I don’t want to mischaracterize,” said Deanna Detchemendy, a lawyer representing Disney at the meeting.
At that point, Mayor Harry Sidhu intervened, saying that this wasn’t the right time to talk about the financial part of the agreement.
“We do not want to get into the actual development agreement details on this,” Sidhu said. “This is strictly evidence to say that Walt Disney has complied with good faith and terms.”
At the council’s next meeting on Nov. 18, the council discussed refinancing the city’s 2014 bonds that paid for updates to the city’s convention center to save the city roughly $1.5 million per year.
“Debt financing for the convention center has been a good investment for our city. It has helped keep and attract events, and bring visitors who stay in hotels and spend money in our city,” Sidhu said as they opened discussion on the issue, promising a “much stronger,” year in 2022.
Moreno began asking questions about how much the expansion had actually netted for the city, pointing out that the city pays over $16 million every year just to pay down the bond before receiving any additional revenue.
Councilman Trevor O’Neill jumped in, arguing that the discussion wasn’t relevant to the refinancing of the bonds, and Sidhu asked Moreno to “stay on course,” with the discussion.
Moreno argued that he was only following Sidhu’s lead after he spoke about how much money the convention center generates.
“I said future revenue is going to increase, I didn’t give any details,” Sidhu said. “Stay on the course, we’re not talking about the real numbers here…it’s always tricky about the financing.”
Ultimately, city attorney Rob Fabela sided with Moreno, saying that information about how the bond works and its current status were relevant questions to discuss refinancing, but city staff said it’s still unclear how much of a bonus the expansion brought in.
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But while Sidhu argued the discussion on the money was being done at the wrong time, it doesn’t appear as though there are many opportunities for the right time.
A Voice of OC review found that while the city regularly discussed issuing new bonds for various projects over the last two years, there weren’t any in-depth discussions talking about the benefits from past bonds or their current status listed in any city agenda.
City spokesman Mike Lyster did not respond to questions from Voice of OC about how often the bonds have been discussed in prior years.
Most cities don’t have regular updates for the public on how decades old bonds were put in place and what benefits they get from them, but some have gone out of their way to reopen a conversation on the issue.
In July 2021, the Irvine City Council had their longest discussion in nearly a decade about how the city finances the Great Park’s construction through bonds paid for by the residents surrounding the park, explaining how those taxes were initially set up and what they could be spent on.
[Read: Irvine Residents Rail Against Great Park Special Tax While City Council Changes Park Name]
Bonds aren’t the only issue Anaheim has been called out for failing to talk about publicly.
Right now, the city is facing a lawsuit for its discussions behind closed doors on the deal to sell Angel Stadium last year, which means the city could have to redo the whole negotiation in public.
The city is also facing a potential public land sale violation from the state housing department, but a final decision hasn’t been made yet.
Noah Biesiada is a Voice of OC Reporting Fellow. Contact him at nbiesiada@voiceofoc.org or on Twitter @NBiesiada.