by Ray Keating
August 30, 2018
When was the last time a business asked government to take back a subsidy? I’ve been writing about such issues for nearly 30 years, and don’t ever recall it happening, certainly not at any major level. Until now.
In an August 21 letter, the Walt Disney Company asked the Anaheim city council to take back hundreds of millions of dollars in subsidies. Anaheim, California, of course, is the home of Disneyland, and one subsidy tallied up to $267 million over 20 years in hotel tax rebates on a new 700-room hotel that had been scheduled for construction. The second was a 45-year exclusion from any ticket tax that the city might impose, as long as Disney invested $1.5 billion in its parks.
As DisneyBizJournal notedrecently, Disney put an indefinite hold on the hotel project, which had been scheduled to open in 2021. Meanwhile, Star Wars: Galaxy’s Edgeis scheduled to open in Disneyland summer of 2019 (followed by a Disney World version later in 2019).
On August 28, the city council voted 7-0 to end the subsidy agreements.
So, what does this tell us about relationships between business and government, including a huge attraction and employer like Disneyland?
Well, that question cannot be answered without looking at the other half of this story. That has to do with the costs of government regulation on business.
A coalition of labor unions managed to get a measure on the city ballot for this November that would jack up the minimum wage mandate on hospitality businesses located in the city’s entertainment district that receive a city subsidy. This, or course, is targeted at Disney, which is the city’s largest employer. The measure would impose a $15 minimum wage, which would be increased $1 annually to reach $18 per hour in 2022, and subsequently increased each year according to changes in the Consumer Price Index. The measure defines “City subsidy” as “any agreement with the city pursuant to which a person other than the city has a right to receive a rebate of transient occupancy tax, sales tax, entertainment tax, property tax or other taxes, presently or in the future, matured or unmatured.”
There are several problems with government mandating minimum wages. First, as a minimum wage is increased, fewer jobs opportunities exist for young, low-skilled and/or inexperienced workers. So, many of the people a minimum wage is assumed to help wind up getting hurt. Second, businesses are forced to find ways to respond to the increased costs imposed by such a government mandate, which can include higher prices for consumers, replacing labor with automation, and shifting duties to higher skilled workers. In the end, what labor unions and other advocates for higher government mandated wages fail to understand is that individuals’ earnings are tied, ultimately, to their productivity, along with the demand for and supply of various skills, knowledge, and experience.
The ills of a higher minimum wage perhaps have never driven home more publicly than in this case, with a prominent company like Disney making rather dramatic decisions in response. Think about how burdensome such regulations then are for small businesses. Let’s hope Anaheim voters are wise enough to vote “no” on November 6 regarding this wage mandate ballot measure.
Disney’s decision to give back its taxpayer subsidies certainly is a historic moment in the annals of taxpayer handouts. At the same time, it’s another example of just how costly government regulations are for businesses, their workers, and consumers.
In the end, the most productive policy environment for any city, state or nation is simply to keep tax and regulatory burdens light, and stop subsidies, thereby encouraging businesses to invest, innovate and expand in order to serve consumers, with economic, job and income growth being counted among the results.
Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels, with the two latest books being Reagan Country: A Pastor Stephen Grant Noveland Heroes and Villains: A Pastor Stephen Grant Short Story. He can be contacted at email@example.com.