For all of Florida Governor Ron DeSantis’ vengeful orchestration of legislation stripping The Walt Disney Company of its special status as the quasi-governmental rulers of the Reedy Creek Improvement District where its Disney World empire and associated properties are located, it now looks like the hastily-passed retaliatory new law will be extraordinarily difficult to actually implement anytime before 2029.
The reason? Apparently, DeSantis failed to take into account contractual promises to bond purchasers issued by the Disney-controlled Reedy Creek Improvement District.
Like any special district in Florida — typically a government arrangement set up to operate a storm drainage system or hospital complex — Reedy Creek can raise funds through bonds to fund the building of roads, power systems, and water management projects, among other necessary public amenities. It can also use its power to levy property and other local taxes to help pay back those bondholders.
Unlike other districts, however, Disney’s Reedy Creek district is “exempt from all Orange County and Osceola County regulations regarding building, zoning, construction, safety, sanitation, and more,” as Bloomberg reports, and can levy taxes up to three times higher than those county governments.
The problem with DeSantis’ legislative act of revenge on Disney for failing to support Florida’s recently-enacted — and abominable — “Don’t Say Gay” bill is the fact that many of the Reedy Creek Improvement District’s contracts with bondholders specifically rely on the district’s unique powers.
As Bloomberg explains the situation:
“In authorizing Reedy Creek to issue bonds, the Florida legislature included a remarkable statement—included in Reedy Creek’s bond offerings—regarding its own promise to bondholders: “The State of Florida pledges to the holders of any bonds issued under this Act that it will not limit or alter the rights of the District to own, acquire, construct, reconstruct, improve, maintain, operate or furnish the projects or to levy and collect the taxes, assessments, rentals, rates, fees, tolls, fares and other charges provided for herein … until all such bonds together with interest thereon, and all costs and expenses in connection with any action or proceeding by or on behalf of such holders, are fully met and discharged.”
You see, the bill dissolving the Reedy Creek Improvement District fails to outline what will happen to these still-outstanding debts, leaving existing legislation to govern the outcome, and suddenly Orange and Osceola counties where the district is situated look like they will become liable for over $1 billion in debt from the bonds — debt that taxpayers in those counties will now have to shoulder. The fact that the district spans two counties also means that difficult negotiations over how much debt each county assumes would have to be overcome.
Bloomberg analyzes DeSantis’ problem thusly:
“In case it was not obvious, dissolving Reedy Creek “limited” and “altered” its ability to improve and maintain its project and collect its various charges and taxes, and thus Florida would be violating its pledge to bondholders by dissolving Reedy Creek. However, even without that explicit language, the bill dissolving Reedy Creek would have problems under contracts clauses of the Florida and U.S. constitutions.”
“By dissolving Reedy Creek, the legislature essentially rewrote the promises made in the district’s bond offerings. Instead of bonds backed by a special district with the power to levy up to 30 mills in taxes, the property tax bonds will be backed jointly by two governments that can only generate a maximum of 10 mills in taxes. Instead of a unified utility system with special powers to charge various fees, supported by special taxing powers, utility revenue bonds will be jointly managed by two counties subject to additional taxing and spending restrictions.”
Further complicating any solution by the state of Florida to resolve the issue by simply paying off all of the existing bonds, a 2018 utility revenue bond prohibits any pre-paid redemption until October of 2029.
Bloomberg‘s analysis concludes that it is legally impossible for Florida to dissolve Disney’s special improvement district status before that last bond is paid off which would be in 2029 at the earliest, hopefully a time when Governor Ron DeSantis is just a poorly remembered nightmare from the distant past.
Original reporting by Jacob Schumer at Bloomberg Tax.