Tuesday, April 26, 2022

Florida’s Contractual Obligations To Bond Holders Block Repeal Of Disney’s Special Taxing District

Ever since Florida 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 today, 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.

The elimination of RCID as a Legal Entity does Not eliminate the District’s $2 billion Bond Debt and would instead Transfer it to Orange and Osceola Counties and their Tax payers.

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, when it goes into affect in 4/2023.

Two Central Florida Local Government Attorneys, raised Objections about the Complexity of unwinding RCID; another One is now speaking out on this issue of RCID’s Bond Debt. 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 Vollect 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.

On Apr. 22nd, 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.

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.

NYC Wins When Everyone Can Vote! Michael H. Drucker

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