October 5, 2022

Saluti Law Medi

Rule it with System

Disney’s special tax district suggests its repeal is illegal

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Disney World in Orlando has been the target of Florida Gov. Ron DeSantis’ retaliation for publicly opposing the “Parental Rights in Education” bill, also known as the “don’t say gay” bill.

AP

As Florida legislators were rushing through passage of a bill to repeal the special district that governs Walt Disney World last week, they failed to notice an obscure provision in state law that says the state could not do what legislators were doing — unless the district’s bond debt was paid off.

Disney, however, noticed and the Reedy Creek Improvement District quietly sent a note to its investors to show that it was confident the Legislature’s attempt to dissolve the special taxing district operating the 39-square mile parcel it owned in two counties violated the “pledge” the state made when it enacted the district in 1967, and therefore was not legal.

The result, Reedy Creek told its investors, is that it would continue to go about business as usual.

The statement, posted on the website of the Municipal Securities Rulemaking Board on April 21 by the Reedy Creek Improvement District, is the only public statement Disney has supplied since lawmakers unleashed their fury over the company’s vocal opposition to the “Parental Rights in Education” law, also known as the “don’t say gay” bill.

The statement, first reported by WESH 2, quotes the statute which says, in part, that the “State of Florida pledges…it will not limit or alter the rights of the District…until all such bonds together with interest thereon…are fully met and discharged.”

READ MORE: Rating agency warns Disney debt conflict could ‘weaken’ other Florida government bonds

Reedy Creek’s statement says, “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.’’

In essence, the state had a contractual obligation not to interfere with the district until the bond debt is paid off, said Jake Schumer, a municipal attorney in the Maitland law firm of Shepard, Smith, Kohlmyer & Hand, in an article for Bloomberg Tax posted on Tuesday and cited in a Law and Crime article.

The law passed by the Republican Legislature on a largely party-line vote, and signed into law by the Republican governor, either violates the contract clause of the Florida Constitution, or is incomplete, Schumer told the Herald/Times on Tuesday. If the Legislature wants to dismantle the Reedy Creek Improvement District, it has more work to do.

“It simply can’t go forward under the contract clause,’‘ he said. “They would have to pass something to address this.”

READ MORE: Florida’s Disney World has its own government? How Reedy Creek works, and what’s next

Schumer noted that the bill dissolving Reedy Creek doesn’t say what should happen to its debts, but another state law requires that by default the county assumes a district’s debt along with all of its assets when it is dissolved.

“This means that theoretically, Orange and Osceola counties will inherit upward of $1 billion in bond debt,’’ he wrote in the Bloomberg Tax article.

A promise of an undefined fix

After the governor signed the Reedy Creek repeal into law on Friday, the governor’s office released a statement indicating that more details are forthcoming.

“In the near future, we will propose additional legislation to authorize additional special districts in a manner that ensures transparency and an even playing field under the law,” the statement read. It would be up to the Legislature to take any action.

On Tuesday, the governor called a special legislative session to address property insurance for the week of May 23. However, the proclamation did not include the Reedy Creek Improvement District.

Neither the governor’s office, nor spokespersons for the House speaker or Senate president, would respond to requests for comment about how it intended to resolve the legal conflict.

When the state established the Reedy Creek Improvement District in 1967 as an independent taxing district controlled by Walt Disney World, it gave it the power to build roads, sewers and utilities as well as the authority to set its zoning laws, establish its police and fire departments, and regulate its construction.

The district can borrow money by issuing bonds to pay for services and that infrastructure and, while Disney must also pay property taxes to Orange and Osceola counties, the state also allows the Reedy Creek Improvement District to tax itself.

The current tax rate is three times higher than the maximum amount allowed by cities and counties, Schumer said.

Proponents of the bill “had some misconception that Disney’s getting some special property tax break for Reedy Creek,’’ said Scott Randolph, Orange County tax collector. “It’s not.”

Universal, SeaWorld have more tax breaks than Disney

In fact, the theme parks of Universal Studios and SeaWorld, which operate under dependent taxing districts, have more tax advantages than Disney because “if those taxing districts didn’t exist, that money would otherwise go to Orange County’s general revenue,’’ Randolph said.

He agrees with Schumer that the only way for the state to dissolve Disney’s special district is for the debt to be assumed by the county government.

“Orange County gets Reedy Creek’s assets, debts and obligations,’’ he said. But the cost of providing its services is $105 million a year and the cost of its debt services is $58 million a year and so if Reedy Creek is dissolved those assets and liabilities would be absorbed by Orange County’s $600 million budget, he said.

“Unless they want to cut services and cut spending elsewhere, they’re going to have to find a way to absorb $163 million,’’ Randolph said. He estimates the average increase in taxes would be $200-$250 per year for the median household until the bonds are paid off.

READ MORE: Will Walt Disney World leave Florida if Reedy Creek is dissolved? There are offers

“By dissolving Reedy Creek, the Legislature essentially rewrote the promises made in the district’s bond offerings,’’ Schumer wrote. “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.”

That millage rate means $10 per thousand dollars in taxable property value rather than $30 per thousand.

MIA_DESANTIS_HIALEAH_DAV2
Florida Gov. Ron DeSantis addresses the crowd before signing HB 7, titled ‘Individual Freedom’ and also dubbed the ‘Stop Woke Act,’ during a press conference at Mater Academy Charter Middle/High School in Hialeah Gardens, Florida, on Friday, April 22, 2022. DeSantis also signed two other bills into laws, including a measure that would strip six special districts, including the Reedy Creek Improvement District where Walt Disney World is located, of their governmental powers, and one amending the “big tech” bill signed last year. Daniel A. Varela [email protected]

DeSantis says Disney won’t avoid paying debt, but not how

Gov. Ron DeSantis responded to the criticism that repealing Disney’s special district would become a burden for area residents.

“Some people are trying to say somehow that they would get a tax break out of not having their special district,’’ he said Monday at a news conference. “Trust me. Under no circumstances will Disney not pay its fair share of taxes.”

He added that Disney will also be required to pay all outstanding bonds, but he didn’t explain how it will happen.

“Under no circumstances will Disney not pay its debts,’’ DeSantis said.

Randolph calls the measure the “no lawyer left behind act,” and predicts that there will be many lawsuits, including one from bondholders, alleging the state illegally impaired the contract.

Orange County Mayor Jerry Demings told reporters Thursday that if Reedy Creek were to be entirely dissolved, it would be “catastrophic” for his county’s budget. Demings, the former county sheriff, noted that the district reimburses the sheriff’s office for any services rendered, including for the two tiny municipalities controlled by Disney that were created at the same time as Reedy Creek, Bay Lake and Lake Buena Vista.

In the current fiscal year, Bay Lake is paying nearly $11 million to the sheriff’s office, and Lake Buena Vista is poised to pay nearly $3 million.

“If that district goes away and they no longer pay for those public safety costs and it then has to fall to the counties’ other budgets, that’s a net sum loss for the rest of the taxpayers of Orange County — when we already have significant pressure on our county budget to provide for public safety,” Demings said.

So what options does the state have for untangling the mess?

“They could try to argue that this pledge was invalid, that they could not contract it away,’’ Schumer said. “I don’t think that would work. But states usually aren’t in the business of arguing that their own promises are bad.”

The state could also pass a different law which acknowledges Disney’s right to the bonds and then take the assets using its eminent domain powers and pay off the bondholders using those assets, he said.

But that poses another problem for the state, Randolph said.

By giving Disney a year to resolve this, the company could shed its assets by giving its power plant and its water utility to Lake Buena Vista and Bay Lake. Without those assets, Disney reduces its tax bill when the state dissolves Reedy Creek, he said.

“Disney has more power now to determine its tax bill than it did a week ago,’’ he said. “That’s what’s crazy to me. They want to punish Disney, but this is the furthest thing from that. You literally put them in the driver’s seat of how much they want to pay.”

Rep. Randy Fine, the Palm Bay Republican who sponsored the bill, suggested to legislators that the state could require and create a Municipal Service Taxing Unit to replace the Reedy Creek Improvement District and use that to collect taxes to provide services and pay the debt.

But Randolph said that won’t be easy because state law prohibits a county from creating a Municipal Service Taxing Unit without approval of the municipalities involved.

“Will Lake Buena Vista and Bay Lake approve?’’ he asked. “They could, but why would they? Disney’s in the driver’s seat one more time.”

Note: This story has been updated to reflect the estimated average increase per year for the median household in Orange County.

Note: This story was updated Wednesday, April 27, to clarify that the statement to investors was made by the Reedy Creek Improvement District.

Herald/Times Tallahassee Bureau reporter Kirby Wilson contributed to this report.

Mary Ellen Klas can be reached at [email protected] and @MaryEllenKlas

This story was originally published April 26, 2022 7:28 PM.