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Anaheim officials to Disney: Let’s talk about hotel subsidy

by in News

Surprised by Disney’s decision to halt construction of a planned 700-room luxury hotel, Anaheim officials said Thursday they want to work things out with the company, which is the city’s largest employer and provides the bulk of the city’s tourism revenue.

City leaders had promised, via a 2016 agreement, to let Disney keep 70 percent of room taxes paid by guests at the new hotel for 20 years. That money, an estimated $267 million that would otherwise go to the city, was offered as an incentive the company said it needed to fill the city’s gap in high-end accommodations.

But this week, Disney officials pulled back from the project in response to the city’s assertion that a change in the hotel site made the tax agreement invalid.

“Given the city’s position that our project does not comply with the requirements (for the subsidy), you have given us no other choice than to put construction of the hotel on indefinite hold (to review) the economic viability of future hotel development in Anaheim,” Disneyland lawyer David Ontko wrote to the city attorney.

Councilman Lucille Kring said Thursday that Disney’s decision was a blow to the city.

“I was really upset because this is something that people are looking forward to and people expected and we predicated our budget on,” Kring said. “Let’s act like grownups. Let’s sit down at the table and see if something can be worked out.”

Mayor Tom Tait and Councilwoman Denise Barnes both oppose subsidies and would be unlikely to approve a change that would allow Disney to collect money from a hotel at the new site, which is 1,000 feet from the original site on Disneyland Drive. But the feelings of the current council may be moot after the Nov. 6 election, when a new mayor will be elected to replace the termed-out Tait and Councilman Jose Moreno’s council seat is on the ballot along with two others.

Also on the ballot in November is a union-backed measure that would raise the minimum wage for workers at Disney and other businesses that receive city subsidies.

What went wrong?

While there was some public opposition to the tax incentives – at the time, Wincome Group also signed agreements to get incentives for two new hotels – and the council was split on the issue, it seemed like a done deal. So what happened?

It’s “a very basic issue,” Moreno said: Disney agreed in writing to build the hotel in one place, then last fall changed its plans. Once the city realized there was a problem, officials had to raise the issue.

Had it been disclosed after incentive payments started, the city could have been accused of making a gift of public funds, which is illegal, Moreno said.

Others are puzzled by the timing of the city’s revelation. Though Disney announced it would change the location of the hotel in October, the city first brought up the issue to Disney officials in June, Anaheim spokesman Mike Lyster said. Although city planners have been working with the company for months on the hotel project, economic agreements aren’t within their purview.

Tait said he recalled a few months ago that an economic study, required under state law before a city can grant an incentive, had predicted the hotel would create about 1,150 jobs. But that was when it was to be built on a parking lot; the new site is where Downtown Disney businesses including the Rainforest Cafe and ESPN Zone used to stand.

Closing those businesses to put a hotel in their place means about 400 lost jobs that weren’t factored in to the study, which Moreno called “a substantive change” to the agreement.

Councilwoman Kris Murray believes Tait questioned the incentive agreement because he’s never supported the project, and with a deadline that requires Disney to start construction by next summer, “This technicality allows him to kill the hotel.”

Tait countered that Disney had copies of all the agreements it signed, so “I would think with the amount of lawyers there and planners, that somebody would look at that.”

What happens next?

City leaders agree that a significant delay or loss of the hotel means the city would lose revenue, but there’s no consensus on how dire a problem that would create in the city budget.

Tait suggested the Disney and Wincome hotels combined would put only a few million dollars a year into the city’s general fund because the hotels would keep most of the taxes.

But Faessel and Murray cited a city projection of $7 million a year in revenue after the hotel opens in 2021. That’s not going to break the city, which has a $400 million annual general fund budget, Faessel said, but unless officials replace that money, “Budget decisions will have to be made.”

If Disney still wants to build the hotel, several things could happen.

The company has the proper zoning to build the hotel as proposed, Lyster said; all that’s lacking is the formality of planning commission approval of a site plan.

In Tait’s view, Disney’s choices are to put the hotel on the original site and collect the tax subsidy, or use the new site and forgo the incentive.

“I don’t think they needed a subsidy in the first place,” he said.

Others want to talk it out. Murray and Councilwoman Lucille Kring both said there’s an easy fix: just do a new economic study of the updated project and amend the old agreement to change the hotel site.

Councilman Stephen Faessel, who considers himself pro-business, said he’s “all for finding a remedy for this,” but he expects an updated agreement might look different.

Murray said she’s not optimistic that a council majority would vote to update the Disney hotel agreement, and Kring believes it would come down to Councilman James Vanderbilt, who has been a swing vote and is up for reelection in November.

Vanderbilt said he would want to see how much the lost Downtown Disney jobs subtract from the economic benefits of the hotel project.

But as to whether he would support changing the agreement so Disney can get the tax incentive at the new site, right now, he said, “I’m not in a position to make a call on that.”