Theme Park Closures are Hurting State and Local Tax Revenues

The COVID-19 pandemic’s impact on government finances has proven more nuanced than originally thought. While many entities have seen relatively minor revenue losses despite the recession, those that depend on travel and tourism-related revenues are taking a major financial hit. Among the biggest victims is the city of Anaheim. And an extended closure of California theme parks could make matters considerably worse.

At the state level, revenues continue to surprise on the upside. For the first three months of the 2020-21 fiscal year, the Department of Finance reported that total revenue exceeded budget projections by 19 percent. Personal income, corporate income, sales and insurance taxes all contributed to the $8.7 billion of extra general fund revenue.

At the local level, many cities and counties are experiencing better-than-expected revenue performance as retail sales held up and property values continue to grow.

But in Anaheim the story is different.  The city levies a 15 percent transient occupancy tax on room charges when visitors stay in one of the city’s 20,000 hotel rooms.  With the Disney Resorts and nearby Knott’s Berry Farm closed, there is a lot less reason for tourists to occupy these rooms, so tax receipts are down.

In 2018-2019, Anaheim’s transient occupancy tax pulled in $163 million, or almost 40 percent of total general fund revenue. Transient occupancy tax revenue fell to $120 million in the fiscal year ended June 30, 2020, and Anaheim’s budget expects a further decline to $84 million in the current fiscal year. With cases rising across the country and a potentially prolonged amusement park closure even this much lower number may prove unreachable. In addition to transient occupancy tax money, park closures are impacting local sales tax revenue as the lack of tourists reduces restaurant and local business patronage.

Fortunately, Anaheim entered the crisis with a decent level of general fund reserves, but it is also shouldering a heavy load of bonded debt, pension liabilities and other post-employment benefit obligations.  Anaheim’s 2019 audited financial statements showed $59 million of unrestricted general fund balance, but $2.9 billion in long term liabilities. Barring a quick rebound of Anaheim’s resort area, the city will be obliged to continue spending cuts.

Disney World in Orlando reopened in July. The Register reports Disney California Adventure will partially reopen for shopping and dining along Buena Vista Street on Nov. 19 but Anaheim’s Disneyland remains shuttered— and may remain closed well into 2021.

At a recent news conference California Gov. Gavin Newsom said, “We should be concerned about opening up a large theme park where by definition people mix from every conceivable walk of life and put themselves and others at increased risk of seeing transmission rates rise related to COVID-19.”

But, as The New York Times reported recently, Disney World’s reopening has not produced a surge in cases in Orlando. Particularly telling is that leaders of unions representing Disney World’s employees agreed that their members were not contracting COVID-19 on the job.

Indeed, amusement parks do not seem to be a major source of contagion anywhere around the world. Much of the action occurs outside and ride vehicles often have low occupancy meaning that families do not have to come into close contact with strangers.

It is important to recognize that state approval of amusement park reopening plans would not going to restore all the revenue being lost by park operators or local governments. While some people are understandably reluctant to travel or go to places with a lot of people, park attendance will remain far below pre-pandemic levels—as it has at Disney World.

It is incumbent on park operators, hotels and airlines to take all steps necessary to ensure that the risks to their customers are kept to an absolute minimum. Governments and the media can present complete and unbiased data about tourism-related virus transmission so that potential visitors can accurately weigh the risks they face and whether the joy of an amusement park visit offsets the chances of contracting a serious illness.

Some of Anaheim’s losses were offset by federal stimulus funds.  More federal support may come in the future, but even that is unlikely to make up for the city’s major revenue losses. For Anaheim, the best stimulus would be a restoration of amusement park operations with appropriate safety precautions.

A version of this article previously appeared in the Los Angeles Daily News.