The continued closure of Disneyland, a major economic driver for Anaheim, California, has weakened city revenues and resulted in the downgrade of its issuer rating to A1 from Aa1 by Moody’s Investors Service.
Moody's also revised its outlook to negative from stable and downgraded the rating on $196.4 million in senior lease revenue bonds it rates to A2 from A1.
The ratings agency cited the city’s weakened financial position saying it “remains significantly challenged due to the pandemic.”
The city’s hotel bed tax revenues came in 75% below forecast at $21.4 million for the first half of the 2021 fiscal year, and sales tax revenues were 24% below expectations at $75.7 million, according to city documents.
The city forecast a $114 million deficit for fiscal year 2021 during budget hearings in December and discussed borrowing to close the gap.
Walt Disney Co.
Disneyland has been closed since March, but the Anaheim City Council voted 6-1 last week to support a state assembly bill sponsored by Assemblywoman Sharon Quirk-Silva, D- Buena Park, that would change the reopening guidelines for theme parks. The bill would allow large theme parks to reopen in the moderate tier instead of the minimal one.
Unlike large amusement parks, such as Disneyland and Knott’s Berry Farm, small ones are currently allowed to reopen at 25% capacity in the moderate tier. The bill, introduced by Quirk-Silva and Suzette Martinez Valladares, R-Santa Clarita, would allow all theme parks, regardless of size, to do the same.
The safe reopening of Disney parks is essential for the city’s economic recovery as thousands of people could return to work and small businesses near the park could rebound sooner, Anaheim Mayor Harry Sidhu said.
Restrictions on travel and tourism have resulted in a steep decline in hotel bed taxes and sales tax resulting in a $114 million deficit for fiscal 2020-21 that if realized would deplete the city’s general fund reserve, Moody’s wrote. Nearly half of the city’s general fund revenue comes from bed taxes and sales tax, according to the ratings agency.
The city
Though city leaders are considering a range of budget solutions, there is limited time to execute those options within the current fiscal year, Moody’s said. The city also anticipates a $75 million deficit for fiscal year 2021-22, according to budget documents.
“The recovery to fiscal stability will be difficult and prolonged given the magnitude of the current and out year budget shortfalls,” Moody’s wrote.
The A1 issuer rating takes into consideration the large local and regional economy and Moody’s expectation that its tourism industry, anchored by Disneyland, will start to recover in 2022 and remain a vital economic engine for the city, analysts wrote.
The city is buffered by its substantial assessed value driven by property taxes, which Moody’s said are poised for favorable growth and the solid income levels of residents and the city’s low debt burden.
