The Walt Disney Co. has canceled plans to build a 700-room luxury hotel near its Anaheim resort, citing the city’s elimination of a tax rebate agreement that would have saved the media giant $267 million over 20 years.

The cancellation of the hotel — what would have been the fourth at the resort — highlights growing tensions between the Burbank company and the city of Anaheim, once considered a reliable business partner for Disney.

“While this is disappointing for many, the conditions and agreements that stimulated this investment in Anaheim no longer exist and we must therefore adjust our long-term investment strategy,” Disney spokeswoman Lisa Haines said.

The conditions changed in August when the city notified Disney representatives that it was killing an agreement made last year to rebate 70% of the hotel’s transient occupancy tax back to Disney over 20 years — worth about $267 million. The transient occupancy tax is 15% of the overnight rate.

Anaheim officials say Disney was to blame for ending the agreement by changing the location of the proposed hotel after the deal was struck and the economic impact studies were completed.

Disney objected, saying the new location — in the resort shopping district — was only about 1,000 feet from the old one. Disney representatives say they have not decided what to do with the site of the proposed hotel, where several restaurants and shops were closed to make way for the project.

Business leaders and others in Anaheim lamented Disney’s change of plans, saying it will mean the city will lose out on adding hundreds of construction and hospitality jobs and much-needed tax revenues.

“This unfortunate outcome underscores just how important it is for the business community to have good city partners who understand economic development and the consequences of bad public policy,” said Lucy Dunn, president and chief executive of the Orange County Business Council, a business advocacy group.

Mayor Pro Tem Jose Moreno, who has been critical of tax breaks for Disney, said the city had no choice but to end the tax incentive deal for the hotel project when the location changed. He noted that Disney had the opportunity to reapply for the subsidy deal but did not.

Moreno acknowledged that the city has changed its attitude toward Disney and is now asking for more in return for tax benefits to pay for programs that benefit city residents.

“When people say we have changed our posture, we have,” he said. “We are now saying, ‘What about our kids?’”

Councilwoman Kris Murray, who supported the tax break for the Disney hotel, said Anaheim will take a big financial hit from the loss of the luxury hotel and she wants the city to repair its relationship with its biggest employer.

“We need to figure out a way to have a constructive partnership,” she said.

Hotel construction has been strong in California as companies try to take advantage of strong demand for leisure travel.
In Orange County alone, three hotels with 445 rooms opened in the first half of 2018, with nine hotels under construction and another 63 hotel projects in various stages of planning, according to a report by Atlas Hospitality Group. Of the 2,400 hotel rooms being built in Orange County, nearly 1,800 are in Anaheim.

“2017 was a record-breaking year for California hotel development, and as we predicted, 2018 is on pace to eclipse it,” the report said.