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MEMORANDUM
Office of the City Manager
DATE: SEPTEMBER 30, 1996
To: MAYOR AND CITY COUNCIL
FROM: DEPUTY CITY MANAGER
SUBJECT: TRANSMITTAL OF INFRASTRUCTURE & PARKING FINANCE
AGREEMENT FOR THE DISNEYLAND RESORT, THE ANAHEIM
RESORT AND THE CONVENTION CENTER EXPANSION
Transmitted for your review and consideration, is the document that culminates negotiations between the City of Anaheim and The Walt Disney Company to accomplish the revitalization of the City' s tourist serving infrastructure and in turn secure and expand the industry that funds City- wide programs and services.
The purpose of this Agreement is simple; namely, to identify the respective obligations of the City, the Authority, Disney and The Walt Disney Company for financing and constructing public improvements within the Anaheim Resort Area. These public improvements will satisfy existing and future needsof the City, enhancethe areas visual appearance, improve the operation of public services, and provide for the expansion of the Disneyland Resort and Convention Center.
The Agreement puts into writing the " financial framework" that has been under discussion for six years, that was formally unveiled this past July, that has been extensively covered in the media and presentedto hundreds of City residents and business people. It is consistent with the " negotiating criteria" set forth by the City Council and will:
Secure ... funds to accomplish:
a. basic resort program
b. Convention Center expansion
c. complete Resort revitalization
City' s position as a premier destination resort in a highly competitive market which is key to City' s overall economy.
Enhance ... revenuesto General Fund for City- wide use
Protect ... the City from risk through:
a. debt insurance
b. growth of Disney generatedrevenuesby CPI regardless of industry trends.
In simpleterms, thisAgreement, in conjunctionwith theDevelopmentAgreementand EIRAddendumalreadyapprovedby thePlanningCommission, will workasfollows:
1. Disneywill commit to build a secondthemepark, 750 initial hotel rooms, anda retail, dining and entertainment center.
2. The City Council will considerandact on the aforementioneddocuments.
3. The DevelopmentAgreementandEIR Addendumwill providethe land useassurances necessary to commence construction.
4. The FinancingAgreementwill leveragetwo streamsof cashto supportdebt (moneys to commencetransferat projectopeningandcontinuefor approximately36 years):
Disney incrementabovea base, the baseannuallyadjustedupwards; and Existing 3% of TransientOccupancyTax rate presentlydirectedto the Resort.
5. This cash flow will support an estimated $ 395 million in debt.
6. The debtwill be augmentedby:
4.5 yearsof TOT cashflows alreadydirectedto Resortprojects; funds being held to replace Car Park # 1;
construction debt interest earnings; and
already pledged federal, state, regional and enterprise moneys.
7. Total public fundsto be investedin the CombinedAnaheimResortwill equal $ 545 million.
8. Debt paymentrisk will be minimizedby bond insuranceon all debt, from a AAA ratedfirm, accomplishedthroughDisneycredit enhancements. The City' s sole and exclusivedebtobligationislimitedtotheactualfundsgeneratedannuallyfrom3% of TOT and the Disney increment. Any revenueshortfallswill betherisk of Disney, the bond insurer and/ or buyer.
9. Paymentof anyincreasedCity operatingcosts (resultingfromadditionalvisitors) and net fundsfor City-wide programswill comefrom inducedhotelroom occupancies, sales and property taxes. Fundsfor City-wide use (e.g. police, fire, streets, etc.) are projected to increase 60% ( from $ 10 to $ 16million annually).
Thefinancialaspectsoftheforegoingaresummarizedintheattachedproposedfinancing structure.
Toeaseunderstandingof theAgreementskeyprovisions, asummaryof terms and provisions has been prepared and is also attached.
CONCLUSION:
ThisagreementwillbesubmittedforCityCouncilconsiderationatthemeetingof October8, 1996in conjunctionwith thePlanningCommissionapprovedDevelopment Agreement and EIR Addendum. Between the initial distribution of this agreement on Monday, September30 andits inclusionin the October8 agendapackage (released Friday, October 4, 1996), City staff, consultantsandattorneyswill beconductingtheir final reviewsand "clean-ups" to insurethe full, completeandaccuratedocumentationof this transaction.
Attachments:
1. ProposedFinancingStructure
2. Summary of Agreement Terms and Provisions
3. InfrastructureandParkingFinanceAgreement
PROPOSED FINANCING STRUCTURE
Issuer ( Lessor): Anaheim Public Financing Authority
Lessee: City of Anaheim
Issue: Revenue Bonds ( Anaheim Public Improvement Project) Series 1997 Leased
Properties: ( 1) Convention Center, ( 2) Stadium, ( 3) Parking Facilities Principal
Amount: $ 560, 000, 000 ( not to exceed)
Denominations: $ 5, 000 and multiples thereof.
Series:
Series Lien Tax Status Net Proceeds
A Senior Tax - Exempt 96, 000, 000
B Senior Taxable 71, 000, 000
C Junior Tax - Exempt 228, 000, 000
D junior Taxable 0
Total 395, 000) 000
Security: ( 1) Senior Bonds: payable from and secured by a first claim on abatement Lease Payments (" Lease Payments") to be made by the City of Anaheim from its GeneralFund limited in amount to the following revenues: (a) 3% City-wide TOT; and (b) Incremental growth in Disney's TOT, Disney's salestax and Disney's property tax ( over a baseline amount); in addition, bond insurance by a AAA rated municipal bond insurer.
2) junior Bonds: payable from and securedby a secondclaim on abatementleasepaymentsto bemadeby the City of Anaheim from its General Fund limited to the revenues described in ( a) and ( b) above; in addition, bond insuranceby a AAA ratedmunicipal bond insurer.
3) CashReserveFund or Surety Bond for the separateseriesReserve Funds; and
4) ExcessRevenuesafter payingdebtservicewill beusedto defease, call or purchasebondsin the following order (1) taxableSeriesB andD bonds, ( 2) tax- exempt Series C bonds and ( 3) tax- exempt Series A bonds.
Credit
Enhancement: SeriesA andB: BondInsurancesecuredby LeasePayments.
SeriesC and D: Bond Insurancesecuredby LeasePaymentsand Walt Disney Credit Enhancement.
Principal
Amortization: July1, commencing2001through2037withescalatingdebtservice.
Interest: Not - to -Exceed: Fixed Rate 6.75% ( tax- exempt) and 8. 50% ( taxable).
CurrentInterestBondspayablesemi-annually.
Capital Appreciation Bonds (" CABs") payable at maturity.
Capitalized
Interest: Through July 1, 2001 (interestearningsat the arbitragebond yield flow to the construction fund).
Debt Service
Reserve Funds: Funded with surety bond, or cash funded ( if cash funded, interest earnings at the arbitrage bond yield flow to the debt service fund).
Construction
Fund: An initial depositof $395,000,000plus interestearningsat the arbitrage bond yield.
Senior Bonds
Initial Size: Sizedand issuedat such time or times to provide 1.50X debt service coverage of projected revenues in 2001.
Amortization: Debt service is increased at 1% per annum.
Protections to
Achieve
Projections: The Walt Disney Company will covenantto provide guaranteesfor the timely completion of all revenue producing facilities—including the proposedhotelandthemeparkasoutlinedin thefeasibilitystudy.
City of Anaheimentersinto contractsfor the City improvementswith contractorliquidateddamagesprovisionsandcontractorsuretybondsto ensure timely completion.
Junior Bonds
Initial Size: Sized and issued at such time or timesto fund the "gap" between the necessarytotal size of the issue and the Senior Bonds.
Amortization: DebtServiceis increasedto matchtheexpectedrevenuestream.
Form of
Guaranty: See Credit Enhancement.
Attachment # 2
SUMMARY OF MAJOR PROVISIONS
FINANCE AND DEVELOPMENT AGREEMENTS
Section Reference
DA - Development Agreement
FA - Finance Agreement
1. Opening Day DisneyProject
Disney is to build a new themepark, 750new hotel rooms FA Exhibit M on OpeningDay, anda retail, diningandentertainment
centerof 200,000 squarefeet includingmovietheatreuses.
Theretail, entertainmentanddininguseswill beconsistent
with the resort nature of The Disneyland Resort.
2. Project Benefits
A.
TheCityandDisneywill combineeffortstobring
about a revitalization of the entire Anaheim Resort
Area andfinancepublic improvementsrequiredfor
the Anaheim Resort area -wide improvements and
the Convention Center expansion and the
Disneyland Resort Project.
B. The City andDisneyrecognizethat the construction Fiscal project of a new Disney theme park and related facilities impacts analyzed will create significant opportunities for economic and presented in growth in the City of Anaheim, the Southern Economic and California Region and California. Planning Systems
report dated
September 24,
1996.
C. A new Disney theme park will provide the
opportunity for new hotel and retail growth in the
AnaheimResortAreawhichwill providenewCity
general fund revenuesintended to offset incremental
City costs associated with growth.
D. A new Disney theme park, together with the new
DisneyhotelroomsandthenewDisneyretail,
dining and entertainment center, will provide new
City generalfund revenuesto fund public streets,
ThissummaryisprovidedfortheconvenienceoftheCityCouncilandnumbersofthegeneralpublicandisnotintendedtomodifyorbeusedin theinterpretationof anyprovisionof theactualagreementsbetweentheparties.
Section Reference
DA - Development Agreement
FA - Finance Agreement
landscaping, storm drains, sewer, water and public
parking. These improvements will provide an area -
wide benefit for the Anaheim Resort Area as well as
provide City infrastructure to support the new
Disney theme park, new Disney Hotels, new hotels
in the Anaheim Resort Area, the Convention Center
and the entire City of Anaheim.
3. Timeframe for Completion of Construction
The Disneyland Resort and Convention Center Projects are FA 1. 69 plannedto becompletedby June30, 2001, includingthe FA 3. 1 various public infrastructure improvements.
4. Public Infrastructure
Public Infrastructure to be built in connection with The FA Exhibits B, Disneyland Resort Project includes the expansion of the F & G ConventionCenter, the landscapingof the AnaheimResort
Area, improvements to streets, sewers, storm drains, and shared -use parking facilities.
5. City Commitment as to Lease FA 1. 61
A. The City will utilize a leaserevenue bond structure
to fund public infrastructure. Transfer of the
revenues for payment of bonds issued for the public
infrastructurewill beginJanuary1, 2001.
Transferred revenues in excessof the amounts
required to pay each bond payment shall be applied
to early repaymentof bonds, repaymentof any
advancesby Disneyandthento the City' s general
fund. Revenues to be used for the bonds shall be
the aggregateof the following amounts:
1) TOT revenues - All of the incremental
TransientOccupancyTaxes (TOT) revenues
received from Disney hotels above the
amounts received by the City in the Base
Year (City Fiscal Year 1995) increased
annually by the greater of 2% or the
percentage increase in CPI.
ThissummaryisprovidedfortheconvenienceoftheCityCouncilandmembersofthegeneralpublicandisnotintendedtomo&fyorbe usedin the interpretation of anyprovision of the actual agreementsbetweenthe parties. 2 Section Reference
DA - Development Agreement
FA - Finance Agreement
2) Sales Tax - All incremental sales tax from
new and existing point- of- sale locations on
DisneyPropertyaboveamountsreceivedby
the City in the BaseYear increasedannually
by the greater of 2% of the percentage
increase in CPI.
3) Property Tax - All incrementalpropertytax
amountsreceivedby the City from Disney
Propertyaboveamountsreceivedby theCity
in BaseYear increasedannuallyby 2%
which is the state constitutional limit on
property tax increases.
4) Other Revenues - City will transfer 3 of the
15percentagepointsof City-wide TOT
revenues.
5) Base Year - Base Year to be City Fiscal
Year 1995. Base Year will be increased on
an annual basis by the greater of 2% or the
percentage change in the Baseline Index.
B. Thetotalamountof publicimprovementsnecessary FA Exhibits B, to support the Anaheim Resort, The Disneyland F & G
Resort and the Convention Center improvements are
estimated to be $ 450 million and are identified on
Exhibits, exclusive of improvements funded from
federal, state, regional or enterprise sources
approximately $ 95 million). Disney and the City
have each agreed to complete specific improvements
to bring about completion of the entire program.
The Authority will issue bonds for the
improvements to achieve total construction proceeds
not to exceed $ 395 million. Bond proceeds shall be
distributed to each improvement program. The City
has agreed to commit $ 55 million of additional
funds to complete the improvements. The
additional funds will be generated from the 3 %
TOT during the years 1995-2001, bond interest
earnings, and other reserve funds allocated to these
improvements.
ThissummaryisprovidedfortheconvenienceoftheCityCouncilandmembersofthegeneralpublicandisnotintendedtomodifyorbeusedin theinterpretationof anyprovisionof theactualagreementsbetweentheparoles. 3 Section Reference
DA - Development Agreement
FA - Finance Agreement
C. The term for the bond financing will be 40 years FA13. 2 from date of issuance with payment of the bonds to FA 4. 10 commence 2001. In the event Disney is required to
pay any amounts on any City bond under its credit
enhancement, there will be an extended
reimbursement period of 10 years to repay such
amounts.
6. Disney Credit Enhancement
Debt issued by the Authority will carry bond insurance FA 1. 38 from a AAA ratedfirm, accomplishedthroughDisney FA 4. 3 credit enhancement. The City' s sole and exclusive debt obligation is limited to the amount of actual funds
generated annually from 3 % of TOT and the Disney
increment. Any revenue shortfalls will be the risk of
Disney, the bond insurer and/ or buyer.
Disney and the City will work in good faith to achieve FA 4. 12 bond proceeds in the amount of $ 395 million which are the maximum proceeds estimated under current market
conditions. A reduction in proceeds due to adverse market conditions will reduce proceeds on a pro rata share for each improvement program. Notwithstanding the
foregoing, if market conditions cause total proceeds to be reduced below $ 360 million the resulting proceeds allocated to Disney managedimprovementswould be reducedby $20
million and the proceeds allocated to City managed
improvementswould be reducedby $15 million. Under
these market conditions, the City has the right to terminate the financingagreementunlessDisneyelects, in its sole
discretion, to providethe City with bondproceedssuchthat the total amount of reduced proceeds to the City does not exceed $ 15 million.
7. Shared Parking Use
The City and Disney acknowledge that theme park peak FA 6. 0 periods and convention peak periods are largely counter- cyclical, and cost efficiencies can be achieved through a shared use of the parking facilities. Therefore, the parties agree to a shared use of parking facilities.
Thissummaryisprovidedfor theconvenienceof theCityCouncilandmembersof thegeneralpublicandis notintendedto modifyor be usedin the interpretation of anyprovision of the actual agreementsbetweentheparties. 4 Section Reference
DA - Development Agreement
FA - Finance Agreement
8. Tax Limitation
Disneywouldbeexemptfromanadmissionstax, parking FA 1. 45 tax or other tax ( e.g_, parking tax on theme park parking) FA 4. 18 which principally impactsrevenuesgeneratedby Disney
during the constructionof the OpeningDay Projectandfor
a fifteen (15) yearperiodafter OpeningDay.
Disney' s credit enhancementof debt is basedon the
specific economics in the framework and therefore the
economics must remain stable and consistent.
9. NeighborhoodImprovements/Housing
Neighborhood Improvements/Housing requirement to be a FA Exhibit B 5M payment; requirement to be included on improvement
list. City will deem the payment satisfaction of the
neighborhood improvements/housing condition of approval.
The City will mergethesefundswith existing
redevelopmentfundspreviouslysetasidefor housingin
areas surrounding the Anaheim Resort.
10. Project Vesting
A. The project shall be vested for a period of 40 years DA 6. 2. 1 from the date of execution of the Development
Agreement.
B. Notwithstandingthe foregoing, vestingof hotel DA 6. 2. 1 development shall be limited to 1,800 new hotel
rooms for a period of 20 years.
11. Other Obligations
A. Standard City Services: City will provide standard DA 3. 2. 9 municipal services upon the same terms as provided
elsewhere in the City. No guarantee as to level of
service.
B. Right of Way Acquisition: Disney will dedicate at DA 3. 1. 3 no cost to City property required for the public
improvementswhich is ownedby Disney. Exercise
Thissummaryisprovidedfor theconvenienceoftheCityCouncilandmembersofthegeneralpublicandisnotintendedtomodifyorbe usedin the interpretation of anyprovision of the actual agreementsbetweenthepatties. k
Section Reference
DA - Development Agreement
FA - Finance A¢ reement
of eminent domain is subject to Resolution of
Necessity in City' s sole discretion.
12. Voluntary Tax Rate Reductions
City voluntary tax rate reductions (i. e. TOT, salestaxes) FA 4. 15 will not reduce lease payments which would reduce
available funds to pay debt. Federal, state or court
mandated reductions or offsets are not " voluntary." If there is a federal/ state or court mandated reduction, the parties agree to work in good faith to identify any
substitute flows.
13. Period for Financial Deal Commitment
Disney will committo proceedingwith theproject, subject FA 4. 1. 2 to acceptablebondfinancingterms, uponCity Council
approvalof the developmentagreementandfinancing
agreement. Disney will have 6 months to complete a third party feasibility studyandmarketstudyrequiredto sell the bonds and to provide an estimate of the bonds which can be issued. Disney and the City may terminate its
obligation to proceed with the project in the event of a significant adverse change from the financial market
conditions assumedin the study.
14. Entitlements, Permits, andInspectionsExpediting
A. Disney will pay standardbuilding permit feesand DA 3. 4. 2 charges for permits and inspections. Should the
Opening Day Project submittals be of a size and
scope that provides an opportunity to realize
economies of scale, the City agreesto work in good
faith to evaluate and implement alternative fee
arrangements for such fees and charges which in no
event shall result in a payment less than the actual
costs incurred.
B. The City and Disney agree on the benefits of DA 3. 4 ( 3. 4. 3. 1) establishing pre-set time limits for processing and
review. The City will add staff and consultants at
Disney's requestandexpense (includingactualCity
Thissummaryisprovidedfor theconvenienceoftheCityCouncilandmembersofthegeneralpublicandisnotintendedtomodifyorbe usedin the interpretation of anyprovision of the actual agreementsbetweentheparties. overhead costs) to expedite processing and meet the
agreed schedule.
C. Expedited dispute resolution procedures related to
entitlements processing, permit approvals and
inspections will be established.
15. Mitigation of Land Use Amendments
Any voluntary City decision to amend, provide variances relating to or voluntarily refraining from enforcing the height restrictionsshallresult in the City mitigating, or causingto bemitigated, the directcosts (excluding
compensation for lost profits) associated with quantifiable and identifiable adverse impacts on The Disneyland Resort Project.
16. Transfer Limitations on Theme Parks
Any transferwhereDisneyretainsmajority control or
licenses the Disney brand on the theme park shall be
permitted. City consent shall be required for transfers where Disney does not retain majority control or brand
license. Suchconsentshallnot be unreasonablywithheld
where transferee meets established criteria to be agreed upon by the parties.
17. City Remediesfor DisneyFailure to Complete
City remedies applicable to an abandonmentof the project will be limited to liquidated damages in the amount of the bonds. Disneymustalso, at the electionof the City, either demolishor completeanyDisneypartially -constructed
improvementslocatedon City property. For partially -
constructedimprovementson Disneyproperty, Disneywill
complete, demolish, or secure the improvements. The City would also retain its rights to enforce statutory/code rights and conditions of approval.
City remediesapplicableto a defaultby Disney dueto
delay in completionof the OpeningDay Project shallbe
limited to paymentof outstandingamountsnecessaryto
servicethe bondsby Disneyuntil themepark opening.
Section Reference
DA - Development Agreement
FA - Finance Agreement
DA 3. 4. 4
FA 2. 4
DA 6. 8
FA 10. 0
FA 8. 1.4
FA 8. 1. 6
Thissummaryisprovidedfor theconvenienceoftheCityCouncilandmembersofthegeneralpublicandisnotintendedtomodifyorbe usedin the interpretation of anyprovision of the actual agreementsbetweentheparties. 7 Section Reference
DA " Development Agreement
FA - Finance Aereement
18. Disney Remedies for City Default
Disney will haveonly theright of SpecificPerformancefor FA 8. 2. 3 City obligations during the term of the development and financing agreements.
19. Utility Service
Partiesare currentlynegotiatinglong-term rateandservice agreement, the terms of which will be determined prior to execution of the agreement.
20. Additional Considerations
Disney will establisha programto provide hiring DA 3. 1. 4 opportunities for Anaheim residents.
21. Sales Tax During Construction Period
Disney and the City will work together in good faith to FA 4. 16 include in construction contracts clause which identifies Anaheim as the point of sale for purchases of materials and supplies to additionally benefit the General Fund.
Thissummaryisprovidedfor theconvenienceof theCityCouncilandmembersof thegeneralpublicandis notintendedto modifyor be usedin the interpretation of anyprovision of the actual agreementsbetweentheparties.
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