Photo by Olga Thompson/Walt Disney World Resort via Getty Images.
Ever since Gov. Ron DeSantis (R-FL) signed the bill repealing the Reedy Creek Improvement District (RCID), the special taxing district operating on the 25,000 acre parcel the Walt Disney Company owns in Central Florida, there has been a lot of discussion of various ways Disney might challenge the bill, chiefly on First Amendment grounds. A new statement issued by RCID brings to light a simpler and direct obstacle to repealing the district’s existence: the state’s contractual obligations related to RCID’s bond debts.
Last week, this reporter wrote a deep-dive analysis of the repeal of RCID for Mediaite, including the looming consequences thereof, not just for Disney but for the Central Florida economy as a whole. Specifically, the elimination of RCID as a legal entity does not eliminate the district’s $1 billion bond debt and would instead transfer that to Orange and Osceola Counties.
Florida law prohibits counties from treating taxpayers differently by charging different tax rates unless there is a special taxing district specifically authorizing such differential treatment, so Orange and Osceola would have to spread that debt payment across all of their taxpayers. Orange County Tax Collector Scott Randolph estimated that this would raise taxes in his county between $2,200 and $2,800 per family of four.
Two Central Florida local government attorneys were cited in the previous Mediaite article raising objections about the complexity of unwinding RCID; another one is now speaking out on this issue of RCID’s bond debt. In an article for Bloomberg Tax, Jacob Schumer of the firm of Shepard, Smith, Kohlmyer & Hand pointed out the “contractual impossibility of unwinding” RCID.
RCID is structured to operate in many ways like a local government entity, and like many cities and counties across the country it borrows money for ongoing infrastructure development by issuing bonds. This type of debt is usually viewed as very secure by the lenders due to the real property that secures it and the transparency of the district’s governing rules and financial records, meaning RCID can borrow money in this way with a low interest rate.
Further adding to the stability of RCID’s bonds is a pledge the state of Florida made within the 1967 statute that created the district and granted RCID its powers, including issuing bonds. As Schumer wrote:
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.”…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.
Schumer highlights the well-established case law on this issue, going as far back as a 1866 U.S. Supreme Court case, Von Hoffman v. City of Quincy, which “held that once a local government issues a bond based on an authorized taxing power, the state is contract-bound and cannot eliminate the taxing power supporting the bond.” There is “even greater protection” within the Florida Constitution blocking the state from breaching its contractual obligations to maintain the authorization for RCID’s existence.
RCID issued a statement to their bondholders that points to the same obligation by the state to “not limit or alter the rights” of RCID to fulfill its bond obligations and “not in any way impair the rights or remedies of the [bond] holders” until the bonds, along with interest, costs, and expenses, are fully paid. The statement was filed in accordance to RCID’s compliance requirements related to publicly-traded bonds.
“In light of the State of Florida’s pledge to the District’s bondholders,” the statement concluded, “Reedy Creek expects to explore its options while continuing its present operations, including levying and collecting its ad valorem taxes and collecting its utility revenues, paying debt service on its ad valorem tax bonds and utility revenue bonds, complying with its bond covenants and operating and maintaining its properties.”
On Apr. 22, New York-based Fitch Ratings issued a notice regarding RCID’s bond rating, placing it under a “negative watch,” signaling a potential rating downgrade, in direct response to the bill DeSantis signed. “Fitch believes the mechanics of implementation will be complicated, increasing the probability of negative rating action,” the notice said.
The full statement from Reedy Creek Improvement District reads as follows:
STATEMENT RE SPECIAL LEGISLATIVE SESSIONOn April 20, 2022 in a special legislative session called by Governor Ron DeSantis, the Florida Senate passed a bill (S 4C), providing for the dissolution, effective June 1, 2023, of any independent special district established by special act of the Florida legislature prior to the effective date of the current Florida Constitution, which was November 5, 1968. The Florida House of Representatives is expected to vote on an identical bill (HB 3C, and collectively with S 4C, the “Bill”) today which, if passed by the House, is expected to be signed into law by the Governor at the end of the special session on April 22, 2022. Reedy Creek Improvement District (“Reedy Creek” or the “District”) was established as a public corporation of the State by Chapter 67-764 Laws of Florida, effective May 12, 1967 (the “Reedy Creek Act”). Pursuant to the Bill Reedy Creek will be scheduled for dissolution on June 1, 2023. The Bill further provides that any special districts dissolved as a result of the Bill (including the District) may be reestablished on or after June 1, 2023 pursuant to the requirements and limitations of Florida’s Uniform Special District Accountability Act, which provides, among other things, that unless otherwise provided by law, the dissolution of a special district government shall transfer title to all of its property to the local general purpose government, which shall also assume all indebtedness of the preexisting special district.In the Reedy Creek Act the State of Florida has pledged to the holders of any bonds issued by the District:(1) that it will not limit or alter the rights of the District (a) 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 in the Reedy Creek Act, and (b) to fulfill the terms of any agreement made with the holders of any bonds or other obligations of the District; and (2) that it will not in any way impair the rights or remedies of the holders, and that it will not modify in any way the exemption from taxation provided in the Reedy Creek Act, until all such bonds together with interest thereon, and all costs and expenses in connection with any act or proceeding by or on behalf of such holders, are fully met and discharged.In light of the State of Florida’s pledge to the District’s bondholders, Reedy Creek expects to explore its options while continuing its present operations, including levying and collecting its ad valorem taxes and collecting its utility revenues, paying debt service on its ad valorem tax bonds and utility revenue bonds, complying with its bond covenants and operating and maintaining its properties.
This article has been updated with additional information about the filing of RCID’s statement and to more accurately describe RCID’s bond debt.