COVID-19 and the severe recession it spawned abruptly ended what had been one of California’s longest-running and most powerful economic booms.
California’s unemployment rate more than quadrupled as millions of jobs vanished in the partial economic shutdown ordered by Gov. Gavin Newsom. Seven months later, the economy has rebounded a bit as restrictions have eased, but economists see full recovery taking years.
The recession has eaten into family finances, permanently shuttered many small businesses, and hammered the state’s budget and those of hundreds of cities and other local governments.
Among the many casualties has been one of California’s bedrock economic sectors, dubbed “travel and leisure” — encompassing hotels, restaurants, resorts, theme parks, sports arenas and other facilities.
The sudden and steep decline in their patronage not only threatens countless billions of dollars in private investment but billions more that local governments have wagered on becoming venues for tourism and entertainment.
The syndrome is illustrated by what’s happening in two of the state’s larger cities, Anaheim and Sacramento.
Disney Announced Layoffs of 28,000 U.S. Workers
Anaheim is, of course, the home of Disneyland. For decades visitors to the archetypal theme park have poured untold billions of dollars into the local economy through hotels, restaurants and other services. Seeking to capitalize even further, 23 years ago Anaheim issued $518 million in bonds to expand its convention center and construct other projects tied to construction of an adjacent theme park, Disney’s California Adventure.
Repayment of the bonds, which would total at least $1 billion including interest over 40 years, hinged on continued high tourist traffic. But the Disney facilities have been shut down for months as part of the state’s response to the COVID-19 pandemic.
Disney officials, including CEO Bob Iger, have been sparring with the governor over reopening and Iger even resigned from Newsom’s coronavirus response commission.
“We don’t anticipate in the immediate term any of these larger parks opening until we see more stability in terms of the data,” Newsom said at one point. “….We feel there’s no hurry to put out guidelines, and we continue to work with the industry.’’
Disney announced layoffs of 28,000 U.S. workers and joined other theme parks in saying Newsom was “unreasonable.”
The governor finally agreed to appoint a team to study reopening Disneyland and other tourist venues, but they have already missed peak summer season and the future is uncertain.
No One Knows How Long the COVID-19 Pandemic Will Last
Anaheim made its September bond payment but is dipping into a reserve fund. Moody’s, the big credit rating organization, describes the situation as a “credit negative” for Anaheim.
The troubled status of Anaheim’s tourist-oriented bonds is mirrored in Sacramento, whose officials also want to make their downtown a convention-hotel-sports-entertainment mecca.
The city issued about $600 million in bonds to finance its share of a new arena for the Sacramento Kings basketball team and expand a convention center complex, with repayment contingent on money generated by those facilities, including downtown parking fees.
But the Golden 1 Center has been closed for months due to COVID-19 and hotels are seeing only a fraction of their normal business. City Treasurer John Colville said in an August report that bond repayment revenues will have a $16.2 million shortfall by the end of the year, and the city’s general fund will be on the hook for the Golden 1 bonds.
“At this point, no one knows how long the COVID-19 pandemic will last,” Colville said.
There’s a lesson in the Anaheim and Sacramento situations. Making immense financial commitments based on rosy assumptions of revenues from entertainment patrons can endanger a city’s fiscal stability.
CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to Commentary.