Disney California Adventure opened to the public 18 years ago on Feb. 8, capping off the transformation of the modern Disneyland Resort as residents and tourists have come to know it since. Downtown Disney and the Grand Californian Hotel celebrated grand openings a month before the new theme park’s big day. Anaheim city council passed a massive Disneyland expansion deal in 1996 that led to $510 million in bonds for resort-area improvements and projects like the Mickey & Friends parking garage in exchange for Disney’s planned $1.4 billion investment.
Now, after more than two decades of wading through bond payments compounded by interest that have been expected to total $1.6 billion when all is said and done in 2037, current city council members are looking to unload resort debt sooner by refinancing some of the bonds. Sounds good, right?
A workshop on the plan occurred on Jan. 29 just hours before council members were expected to approve the plan. The financial innards of the massive subsidy can be confusing. In 1997, the Anaheim Pubic Financing Authority issued $510 million in bonds. Lease Payment Measurement Revenues (LPMR) are the means to pay them back with interest. There’s three revenue streams serving as means to that end: three percent of all bed-taxes collected from hotels city-wide, 100 percent of Disney’s bed and sales tax revenue and 100 percent of the Mouse’s property taxes.
With resort debt burdens, the money doesn’t go into the city’s general fund, but gets diverted into a special reserve fund that can only be used to purchase, redeem or pay outstanding resort bonds. In 2018, non-Disney bed-taxes brought in $23.4 million. Disney’s bed, sales and property taxes accounted for $36.5 million in bringing the total close to $60 million. Debbie Moreno, Anaheim finance director, told council members during the workshop that the special reserve fund as of Dec. 30, 2018 had $134 million, more than its $106 million requirement. There’s roughly $600 million in remaining resort debt.
In seeking to refinance some of the bonds, the hope is to free up money to pay down that debt sooner. “We would like to lower the requirement down to approximately $50 million and be able to release the difference,” said Michael Berwanger, a city consultant with PFM Financial Advisors. The proposed solution outlines $30 million in potential savings while reducing total debt by $24 million. In 2007, a portion of the bonds were refunded with better interest rates, a move that saved about $20 million over the life of the bonds.
Being as convoluted as it is, councilwoman Denise Barnes asked city staff and Berwanger to do their initial presentation so that she could take better notes. Councilman Stephen Faessel wanted things explained in a way that an average homeowner could understand.
“We have outstanding debt and we have a reserve account, kind of like a savings account, towards the debt,” Faessel explained in plain speak. “Our savings account is now large enough so that we can use some of that savings account towards paying off, basically, the end of the debt.”
Berwanger liked the analogy in giving it a nod of approval. Councilman Jose Moreno had some questions concerning the planned refinancing of some of the bonds. “None of Disney taxes actually go to our city’s general fund revenues right now, is that fair to say?” he asked. The finance director disagreed. Moreno then haggled Berwanger for an estimated early payoff date. “You could cut the debt term potentially in half if all goes well,” he finally responded. Moreno framed the answer in putting an 8-10 year timetable on paying off the resort debt.
Councilwoman Lucille Kring took the occasion of the discussion to bemoan the permanently shelved Disney luxury hotel project from last summer. “This is why it’s critical that we have a very, very profitable resort,” she said. “That’s the sadness of having lost the 4-Diamond Disney property. That could all have gone into this and paid down the debt a lot sooner.” Now, had Disney gone forward with the hotel sans $267 in bed-tax breaks over 20 years, the surplus in the reserve fund would’ve moved things along even faster.
Moreno asked during council after the workshop if the LPMR financing itself couldn’t be restructured, an alternative that Berwanger dismissed as “cost-prohibitive” before adding, “What’s been presented is the best, most cost-effective way to get out of the debt faster.” It’s a question former mayoral candidate Cynthia Ward wanted to ask herself during a briefing on the bond refinancing as Moreno’s guest and constituent before the workshop but was disallowed because of the privileged information to be divulged.
At the end of discussion, council voted 6-0 to approve the bond refinancing with Moreno abstaining.
“There is nothing to say that we are trapped into this financing structure forever,” Ward tells the Weekly. “That’s an agreement between Anaheim and the original bond holders from 1997, who would be paid off in a full refinance. We could structure any new obligation to new bond holders in any way we wished. The only organization that would hold us to those original terms is Disney itself.”
Following the vote, the city calls the bond refinancing a “months-long process with several steps yet to come.” They need to gain required consent through discussions with Disney and bond insurers next. Disney didn’t return comment for this story.
Ward sees the bond refinancing as more as a lost opportunity, with savings infinitesimal compared to the debt’s accumulating interest. “We could have potentially been released from that financing structure and then we’d be able to free up these tens of millions of dollars that we can’t put to use in our neighborhood because they’re trapped in a reserve fund,” she says. “It’s pretty clear to me that a lot of our elected officials who voted on this did not understand what they were doing.”
Gabriel San Román is from Anacrime. He’s a journalist, subversive historian and the tallest Mexican in OC. He also once stood falsely accused of writing articles on Turkish politics in exchange for free food from DönerG’s!