Gov. Ron DeSantis’ battle with The Walt Disney Co. could involve breaking a promise Florida made to bondholders, opening the door to lawsuits from investors and complicating the GOP’s push to punish what they call a “woke” corporation.
DeSantis signed legislation on Friday to abolish the Reedy Creek Improvement District on June 1, 2023. That special district effectively allows Disney to self-govern its theme park and resort properties in Central Florida.
A promise to Reedy Creek’s bondholders could stand in his way, said Jacob Schumer, a Maitland attorney specializing in local government.
[ RELATED: What happens after Disney World’s Reedy Creek is abolished? ]
Florida pledged to bondholders that the state would not “limit or alter the rights” of the district to levy and collect taxes and raise revenue through fees and other means. That language is in the Reedy Creek Improvement Act of 1967 and documents issued to bondholders.
“It is a promise,” Schumer said Tuesday. “It is absolutely binding.”
In an analysis for Bloomberg Law, Schumer concluded, “Florida simply cannot promise to prospective bondholders that it won’t interfere with Reedy Creek, and then dissolve Reedy Creek. If Reedy Creek is ever dissolved, it would be a monumental and complicated enterprise even on a years-long timeline. … [T]he dissolution will have to wait until all of its bonds are paid in full.”
Reedy Creek has about $766 million in outstanding property tax-backed bonds and $79 million in utilities revenue bonds, according to Fitch. The ratings agency put Reedy Creek on a “negative watch,” meaning it could issue a downgrade that would make the bonds worth less. Fitch cited a “lack of clarity” on the dissolution plan as one of the reasons it was issuing the advisory.
The maturity dates of the bonds span into 2038.
DeSantis signed legislation abolishing Reedy Creek and five other smaller, lesser-known special districts during a campaign rally-style event in South Florida, escalating his feud with the theme park giant after it opposed the so-called “don’t say gay” law signed by the governor last month.
Lawmakers spent three days last week on the matter, rushing the bills through with no economic analysis.
The governor’s office does not have a written plan on how the dissolution will proceed, but it expects to release more details in coming weeks, Christina Pushaw, a DeSantis spokeswoman, wrote in an email.
In news conferences, DeSantis has insisted Disney will pay more in taxes, and debts and costs would not be shifted to local taxpayers. Financial experts, however, say Orange and Osceola county taxpayers could face higher bills to cover the district’s debts.
Reedy Creek’s debts include projects to build roads, parking facilities and other infrastructure for tourists visiting Disney World. The entertainment giant is the primary landowner in the district and pays almost all of the roughly $164 million a year in property taxes the district collects.
The governor’s office indicated it is working on additional legislation that could create a special taxing district to replace Reedy Creek.
Reedy Creek issued a statement to its bondholders mentioning the Legislature’s action and the state’s promise to bondholders.
“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,” the statement read.
[ RELATED: GOP candidates gather at Disney World to protest company’s stance on ‘don’t say gay’ law ]
Other experts agreed that abolishing Reedy Creek would create a legal problem for the state. Chris Goodman, a professor at Northern Illinois University, said dissolving Reedy Creek would be a complicated undertaking, and it’s unclear how it would be accomplished because policymakers didn’t provide any guidance.
“The timetable, regardless of what happens, is a mess,” said Goodman, who studies special districts. “The change in law has no implementation plan.”
Fitch expects Reedy Creek’s properties and indebtedness to be transferred to Orange County and to a lesser extent Osceola County, or a successor agency. Orange County Tax Collector Scott Randolph has said Central Florida residents could see their taxes increase by as much as $250 a year to absorb those debts and the costs of running Reedy Creek.
Stanley Langbein, a law professor at the University of Miami, said dissolving Reedy Creek creates a legal problem for the state, but it could try to reach an agreement with bondholders.
“The state can say we will make the bondholders whole, but we still have our power to abrogate the whole agreement with Reedy Creek,” he said.
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Transferring the debt to another local government could still create issues for bondholders because Reedy Creek is authorized to levy a higher property tax rate than cities or counties, Schumer said. That means bondholders would have less assurance the debt would be repaid.
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“It impairs the contract because it makes the bond worse,” Schumer said.
Vanguard Group is the largest Reedy Creek bondholder, according to financial data from Bloomberg Terminal. A Vanguard spokesman declined to comment, citing a policy to not comment on specific holdings.
Northern Trust Corp., the No. 2 bondholder, didn’t voice concern in a statement it issued.
“We don’t believe the credit quality of our holdings in Reedy Creek bonds will be negatively affected by its dissolution,” said Tim McGregor, practice lead of muni funds for Northern Trust Asset Management.
Paul Boudreaux, a professor of law at Stetson University, said he expects a multitude of legal questions will need to be answered if lawmakers don’t reverse their decision to dissolve Reedy Creek.
“It certainly does pose a potential complication — how the abolition of the district fits in with the obligation of the contracts,” he said.
