Cost Cut Study by Disney Halts Talks on Resort

Negotiations between the Walt Disney Co. and city officials have slowed to a standstill on the proposed $3-billion Disneyland Resort because the entertainment giant has gone back to the drawing board to cut costs, possibly by doing the project in phases.

City Manager James D. Ruth said Thursday that Disney officials told him they were studying whether it makes sense to downsize the project.

“We’re waiting for them to come back and tell us what they’ve found out,” he said.

Kenneth P. Wong, a senior vice president for Disney Development Co., acknowledged that the two sides have “stepped away from the hot-and-heavy, locked-in-a-conference-room” type of negotiations, but continue to meet and discuss the project.

“We’ve gone as far as we can with a certain set of approaches, and we need some new approaches,” Wong said. “We’ve decided to take a fresh look at the whole thing. We wanted to make a clean start and we are also looking at where we can reduce or even phase the project costs.”

Mayor Tom Daly said: “There is a lull in the negotiations. It would seem there is some fine-tuning of the project taking place.”

Disney officials previously confirmed that they intended to slash the number of hotel rooms to be built for the resort by more than 2,000. Now the company is apparently considering other reductions because the project is on the edge of being financially infeasible.

Disney officials, however, dispute that they are downsizing the project. Instead, Wong said that they are “phasing” construction of the resort and that the project could “start as something smaller and grow to something bigger.”

One issue that remains unresolved, negotiators said, is a development agreement that will spell out how the project will be financed and who will pay for what. Disney has repeatedly said it needs up to $800 million in public assistance to commit to the project.

Ruth said the protracted negotiations over financing of the project have “halted” in recent weeks because of Disney’s internal evaluation of the project. He said the city continues to meet with Disney negotiators to get updates on their planning.

“This is just a time for a re-evaluation and reassessment of the magnitude of the project,” Ruth said. “We think it’s fine and makes perfect business sense. We’re still very optimistic about this going forward.”

Disney’s review of its project has caused yet another setback in the much delayed project, which was once hailed as potentially one of Southern California’s largest private construction endeavors. It has also been counted on to invigorate area tourism and revitalize the sagging local economy.

The company, however, has refused to commit to building the massive resort, which as originally proposed included a 5,000-seat amphitheater, a lushly landscaped shopping district, a hotel district and a new theme park next to Disneyland, to be called Westcot.

The resort project is at least two years behind its original schedule, and city officials say they have no idea when Disney might move ahead.

“I think all of us felt that by now there would have been a commitment from Disney, whether it was the original plans or for a scaled-down version,” said Councilman Bob D. Simpson, director of a local hotel and motel association. “I guess there is a lot of disappointment that they have not done that. It’s really too bad. I really don’t know why it’s been stalled so long.”

A reduction or even a phasing of the project could significantly lower the potential revenue that city and Disney officials have estimated the resort would bring. Also, a smaller development could defeat the project’s goal of being a “destination resort” where tourists would spend several days.

Any downsizing is also certain to displease hotel and motel owners who have been asked to go along with an increase of 2 percentage points in the city’s hotel bed tax to pay for street, sewer and other improvements to revive the area around Disneyland.

The city on Tuesday approved the new 15% bed tax, third highest such tax in the nation. City officials said that even if Disney doesn’t go forward with the resort project, the tax is needed to pay for a $172.5-million revitalization of the city’s tourism and convention center areas.

Many hotel owners have hinged their economic hopes and future expansion plans on the Disney project. But until Disney moves forward, their plans remain on hold as well, according to several hotel owners surveyed this week.

Ruth said discussions on the development agreement will resume once Disney officials have a clearer idea on what they plan to build.