How Florida’s own pledge to Disney’s special district could backfire
Florida Republicans’ efforts to strip Disney of its special self-government power over the company’s opposition to the so-called “Don’t Say Gay” law could backfire amid concerns of a large debt owed to the state.
Florida created Walt Disney World’s special district in 1967, and the state pledged not to alter its status unless all debts owed to the state are paid off — a promise that could place a hurdle in front of Gov. Ron DeSantis’s (R) move to strip the area of its special status.
DeSantis signed a bill on April 21 to dissolve the Reedy Creek Improvement District (RCID), a special taxing district that allows Walt Disney World to oversee its property as a quasi-governmental agency.
With the dissolution of the district comes nearly $1 billion in bond debt to Florida, which DeSantis administration officials say taxpayers will not be stuck paying.
The conflict between Disney and the state’s lawmakers has devolved into a legal battle in which Reedy Creek claims the state cannot dissolve the district because of the pledge it made to protect the special district’s bondholders.
What does the pledge state?
The district filed a statement with the Municipal Securities Rulemaking Board on April 21, citing the debt pledge in the Reedy Creek Act as its defense to stopping DeSantis’s move.
The pledge promises 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 the statement, the district said it will continue to “explore its options while continuing its present operations” in light of the pledge.
What would happen to the debt?
The bill dissolving RCID does not explicitly say what should happen to its debts, but another state statute outlines that the counties — Orange and Osceola — would assume the district’s debt along with the rest of its assets.
Jacob Schumer, a municipal attorney in Maitland, Fla., said that since RCID has unique taxing powers, it is in a better position to pay its own debt, and it would place a burden on the Orange and Osceola taxpayers if the state broke its own pledge.
RCID — like other local governments — is authorized to issue multiple types of bonds, but the most important ones are those that are paid via property taxes and the utility system revenue, which can be fixed at higher rates than those of county governments, according to Schumer.
“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,” Schumer wrote in Bloomberg Tax. A mill is an annual charge one-one thousandth of the property’s value.
“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,” Schumer continued.
He also highlighted the Supreme Court case Von Hoffman v. City of Quincy to show how Florida would be violating its pledge. The ruling “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.”
How could this affect the rest of the state?
Fitch Ratings issued a warning Thursday that DeSantis’s move could weaken the financial standing of other county governments.
While the agency said it expects the state to work with the bondholders of RCID, it warned that “the failure to do so could alter our view of Florida’s commitment to preserve bondholder rights and weaken our view of the operating environment for Florida governments.”
Fitch said it does not expect the state to continue dissolving special districts. However, when agencies rate reliability of government bonds, it looks at how the state respects property rights and promises to bondholders.
“I would say that the whole point of bonds is that they’re supposed to be very stable and very reliable and if Florida simply did nothing to rectify the issue for bondholders, that would be a real shock to the system,” Schumer said, noting the Fitch report.
The agency also noted the dissolution potentially “impinges creditors’ rights.” Even if Florida does re-ratify RCID by June 1, 2023, as it says it could in the bill, prolonged uncertainty with respect to the dissolution process could also still “lead to a downgrade of the RCID ratings.”
“The Governor’s Ready-Fire-Aim culture war continues to backfire and fall on the backs of working Floridians, not only with the new tax burdens in Central Florida but now we’ve learned that our statewide bond rating and creditworthiness are at risk,” Florida Rep. Mike Grieco (D) told The Hill.
What is Florida’s government response?
The governor’s office said that details were forthcoming after DeSantis signed the bill into law.
“The plan for Reedy Creek will be shared in the next few weeks,” Christina Pushaw, a spokeswoman for DeSantis, tweeted Thursday.
But DeSantis is still adamant that Disney will be on the hook for their debt, saying Thursday on Fox News, “They’re going to follow laws. They’re not going to have their own government. They’re going to pay their debts, pay their taxes.”
However, taxpayers could become responsible for services Disney currently pays for, like the construction of a new road and other mandatory public services.
“If Reedy Creek goes away, the $105 million it collects to operate services goes away,” Scott Randolph, the Orange County Tax Collector, tweeted. “That doesn’t just transfer to Orange County because it’s an independent taxing district. However, Orange County then inherits all debt and obligations with no extra funds.”
Schumer told The Hill that counties may have to cut some services if they were forced to pay the bond debts.
How are other political figures reacting?
This new fight is giving Rep. Charlie Crist (D-Fla.), DeSantis’s potential opponent in the gubernatorial general election, new ammunition in his campaign ads.
“DeSantis wants to run for president and he’s whipping up his base by attacking Disney,” Crist says in the ad. “He doesn’t care that Disney brings thousands of tourists to Florida or that his bill would cause taxpayers millions. Ron, if you want to run for president, do it, but don’t make us pay your DeSantax.”
Former Trump campaign legal adviser Jenna Ellis offered to represent Disney in their case against the state, arguing that the government cannot retaliate against a corporation for free speech.
“Whether or not Disney ‘should’ have its special district isn’t the issue,” Ellis told The Hill. “Disney does have it, and the government cannot end that benefit out of retaliation against Disney exercising its rights and openly disagreeing with the government.”
Still, DeSantis is standing firm behind his action despite mounting legal questions and criticism, saying he doesn’t want a relationship with a company “admitting that your intention is to inject sexuality into the programming for these young kids.”
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