Over just the last few months, the situation with Disney World’s Reedy Creek Improvement District (RCID) has greatly changed.
The RCID is a special district under which Disney World has operated since its creation in 1967. The RCID essentially allows Disney World to act as its own county and have a great deal of control and direction over decision-making for the land on which it operates in Orlando. The RCID is now set to be dissolved in 2023 due to a bill that was recently passed by the Florida House of Representatives and Senate, and then signed by Governor Ron DeSantis. But the dissolution the RCID could encounter a big roadblock when it comes to the RCID’s debts.
According to WESH 2 News, the RCID has been “reassuring investors.” Specifically, the RCID has posted a message regarding bonds and the need to pay debts.
The message from the RCID was posted on the website of the Municipal Securities Rulemaking Board, as noted and linked to by the Miami Herald. The statement from RCID was posted prior to the Bill’s passage in the House of Representatives and prior to the signing of the bill by the Florida Governor.
As the Miami Herald points out, Reedy Creek “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.”
But, for the RCID, “[t]he current tax rate is three times higher than the maximum amount allowed by cities and counties.” (Miami Herald)
In the statement, the RCID acknowledges that, pursuant to the Bill, RCID would be “scheduled for dissolution on June 1, 2023.”
The statement goes on to note that “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.”
They then discuss how within the Reedy Creek Act, the state of Florida had pledged to the holders of any bonds issued by the RCID 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 (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. “
Because of these pledges, RCID said that it 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 other words, as WESH 2 News puts it, RCID has reminded its investors that Florida has basically “pledged to fulfill the terms of any agreement made with bond holders.” Basically, “the state had a contractual obligation not to interfere with the district until the bond debt is paid off.” (Miami Herald, citing attorney Jake Schumer)
Bloomberg Tax posted a piece about this recently as well, it was written by attorney Jacob Schumer. In it, the author notes, “there’s a much more basic reason Florida can’t dissolve Reedy Creek—it promised bond purchasers that it wouldn’t.” So, they’d have to pass something to address this situation.
Schumer notes that the bill that dissolves RCID doesn’t say what should happen to its debts, but another statute does provide direction. According to that statute’s terms, the county would assume the district’s debts — that would cause Orange and Osceola county to absorb “upward of $1 billion in bond debt.” (Bloomberg Tax)
According to the Bloomberg Tax piece, “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.”
Schumer also notes how the dissolution of the RCID could cause problems under the contracts clauses that exist in both the Florida constitution and U.S. Constitution. They note, “By dissolving Reedy Creek, the legislature essentially rewrote the promises made in the district’s bond offerings. 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.” (Bloomberg Tax)
In terms of the situation overall, there’s still a lot up in the air. Orange County, Florida Mayor Jerry Demmings noted, “A lot is undetermined at this point. What I say to everyone is, don’t panic at this time. You know, let’s wait on all of the details, and we’ll just have to see how this all shakes itself out.” (WESH 2 News)
Mayor Demings has previously indicated the dissolving the RCID could strain the budgets of Orange and Osceola Counties. Analysts have in fact discussed how stripping Disney World’s power could cost residents and counties.
Scott Randolph, the Orange County tax collector, said “Orange County gets Reedy Creek’s assets, debts and obligations…Unless they want to cut services and cut spending elsewhere, they’re going to have to find a way to absorb $163 million.” Randolph shared that the “average increase in taxes would be $200-$250 per year for the median household until the bonds are paid off.” (Miami Herald)
But, Florida Governor Ron DeSantis’ office has issued a statement indicating that it doesn’t expect tax increases to local residents because of this bill. According to his office, “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.” (WESH 2 News)
Additionally, DeSantis has indicated, “Under no circumstances will Disney not pay its debts,” but he has not specified how that will happen. (Miami Herald)
Scott Randolph, the Orange County tax collector, has shared that he predicts that there will lawsuits (including from bondholders) “alleging the state illegally impaired the contract.” (Miami Herald)
Could Florida handle this issue another way? According to attorney Schumer, they could argue that their pledge was invalid. But Schumer said, “states usually aren’t in the business of arguing that their own promises are bad.” (Miami Herald)
Schumer also pointed out that Florida could pass a law that acknowledges Disney’s right to the bonds. Then the state could take the assets using eminent domain and pay off the bondholders with those assets. But Schumer said that there could be complications with this as Disney could give certain assets to the municipalities that were created along with the RCID (Lake Buena Vista and Bay Lake). (Miami Herald)
Another suggestion came from Representative Randy Fine, who sponsored the bill to dissolve the RCID. He suggested 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 there could be complications there too in terms of getting Lake Buena Vista and Bay Lake to approve the creation of this taxing unit. (Miami Herald)
According to the RCID website, the Board of Supervisors for the RCID is set to have their next meeting on April 27th, 2022. The agenda online does not appear to list anything specific to the Bill and its implications, but there are line items for “other business” and more.
We’ll continue to keep an eye out for more information on this matter and let you know what we find.