Disney vs. DeSantis: Dissolving Theme Park's Self-Government Won't Be So Simple
Late in April, a short special session of the Florida Legislature voted to dissolve the Reedy Creek Improvement District, a previously little-known entity that functions as the Disney Co.'s private government in central Florida.
For more than 50 years, the district has allowed Disney to oversee various services for 27,000 acres of central Florida that are home to the company's theme parks.
The dissolution, widely understood to be part of a larger political quarrel over the "Don't Say Gay" law between Disney and Florida Gov. Ron DeSantis, leaves in its wake a raft of unresolved issues, experts told Bisnow this week.
One uncertainty is the fate of more than hundreds of millions in bonds issued by the district. Also, there is the potentially longer-term issue of whether Orange and Osceola counties will be permanently on the hook for providing services currently provided by Reedy Creek.
"I'm not sure there's ever been an instance where a special district was dissolved without a specific plan in place about how the debt and the services provided by the district would be divided between local governments," said Shepard, Smith, Kohlmyer & Hand associate Jacob Schumer, who is based in Orlando.
That kind of uncertainty is a recipe for legal challenges, he added, and at this stage of the game, a number of legal challenges are possible. That is especially true if the Florida legislature doesn't re-instate the district or devise some other solution that would satisfy everyone involved.
Considering the heated political circumstances that prompted the Florida legislature to end Reedy Creek, coming up with such a solution might be problematic.
"It was a way for Gov. DeSantis to appeal to his conservative base, and get more attention nationally, to get his name recognition up among Republican voters all across the country," said Aubrey Jewett, an associate professor in the political science department at the University of Central Florida, whose specialty is Florida politics.
The governor's office didn't reply to queries from Bisnow about the matter.
"About an hour before the special session was supposed to start, the governor made an announcement that he was expanding the session to include the dissolving [of] Reedy Creek," Jewett said. "So there was no warning, and a few days later, bing-bang-boom, it was done, with hardly any research about the financial implications to the government or anything else."
The governor’s office released a statement not long after DeSantis signed the bill stating that “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.”
No specifics were offered.
Legal challenges to the dissolution could come from a number of quarters, Schumer said.
Assuming there are no changes to the dissolution plan, Disney may have a First Amendment retaliation lawsuit, asserting that the state punished it for exercising its free speech rights, he noted. In such a case the state might argue that it was within its rights, as the original creator of the special district, to dissolve it.
Though possible, a First Amendment lawsuit is less likely than legal action by Reedy Creek bondholders to prevent the dissolution law from going into effect, Schumer said, and it is possible that some county taxpayers will bring lawsuits as well.
"It's hard to guess what private actors are going to do, but since every bondholder theoretically has the ability to sue, I'd expect at least some of them to want to make a case — stepping in to say, this isn't OK," Schumer said. "As it stands right now, the district's debt is going to be dumped on Orange and Oceola counties."
Currently, Reedy Creek has about $79M in outstanding utilities revenue and refunding bonds and $766M in outstanding ad valorem tax bonds, according to Fitch, which recently stated that the bill posed a "significant risk to the credit quality of these districts, including Reedy Creek Improvement District."
Reedy Creek didn't respond to a query from Bisnow, but the district did release a statement not long after the legislature acted to dissolve it, attempting to re-assure bondholders that Florida law mandates that even in cases such as this, they will be paid.
"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 ... 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 says.
Though Reedy Creek is unique in that a major entertainment conglomerate controls it, many of the powers vested in the district can be found in other special districts in Florida, according to Jewett.
"For instance, we have a lot of Community Development Districts, which are formed to finance, build and maintain infrastructure for new development, and, like Reedy Creek can issue tax-free municipal bonds to raise money," Jewett said.
The district also has the power to "issue general obligation bonds, revenue bonds, assessment bonds or any other bonds," according to the 1967 charter.
Under Florida law, there are also fire protection districts, utility districts (water, sewer, electricity), drainage districts, mosquito control districts, transportation districts for roads and bridges, sanitation districts for solid waste, and environmental districts to protect the land.
Most other states provide for these kinds of special districts as well.
"Still, the combination of powers given to Reedy Creek isn't found in any other special district in Florida, and there are also a few powers you won't find anywhere else," Jewett said.
More prosaically, those exceptional powers include the ability of Reedy Creek to have its own building code and building inspections, but Reedy Creek also has at least one very unusual power, at least by 21st-century standards: the ability to develop a nuclear power plant.
In the 1960s, part of Disney's plans for Reedy Creek included residential development, and that was seen at the time as a forward-thinking option for local energy production.
The ability to bring suit might be delayed, however, considering the long lead time — over a year — before Reedy Creek is actually scheduled to sunset.
"The biggest legal hurdle in my mind is that the dissolution doesn’t occur until June 1, 2023," said Lewis, Longman & Walker shareholder Chris Lyon, who is based in Tallahassee and has represented special districts as an attorney and lobbyist for nearly 20 years. "I’m not sure that any legal case on the debt issue is ripe until that date."
As for the argument that a referendum is required to dissolve the district, Lyon said that he doesn't think that holds water, because the legislature made a specific exception from that law, which it is entitled to do.
In debating the bill, Rep. Randy Fine, a Republican, said that it supersedes a requirement under Florida law that specifies the voters in a special district need to sign off on its dissolution.
To which state Rep. Dotie Joseph, a Democrat, responded, according to CNN: "I think to change the law that exists you would repeal it, not just put another one that contravenes it, but what do I know? I'm just a lawyer."
A stakeholder vote on the dissolution might be off the table, but that doesn't mean the interested parties — Disney and the state — won't negotiate, though so far Disney has remained mum on its plans.
"Pragmatically speaking, I would imagine Disney/Reedy Creek would like to end this dispute and work with the governor and legislature to re-enact the district simultaneous to the dissolution date — which the law allows — rather than continue the fight by going to court," Lyon said.
"What is most likely to happen is a renegotiation," said Eleanor Wilking, an assistant professor at Cornell Law School studying tax policy.
"There are strong incentives on both sides for them to reach a deal, and for Reedy Creek, or something very similar, to be re-established," Wilking said. "The political pressure is going to come from constituents and representatives in central Florida who don't [want] a sudden property tax hike, however much that turns out to be."
There have been back-of-the-envelope calculations about how much the end of Reedy Creek might cost the two counties, but no hard numbers yet, Jewett said.
"I think the governor and the legislature now realize that this looks bad politically, so I expect some kind of action on the matter before long," Jewett said.
"Dissolving Rey Creek is going to affect taxpayers regardless of how they decide to do it," state Sen. Linda Stewart, a Democrat who represents part of Orange County, told Bisnow. "It's inevitable. It wasn't broken to begin with, so we don't know why the state is changing it, other than the difference of opinion on a social issue between Disney and the governor."
Stewart said the final numbers haven't been calculated yet but she believes at least $1B is a useful shorthand. The bill for Orange and Osceola county taxpayers will be at least that much, if not more, should Reedy Creek really be dissolved, she says.
"The amount of a property tax increase is of course based on the value of your home or commercial property," Stewart said. "So for an Orange County homeowner, it could be anywhere from $1,200 to $2,200 more a year, every year. It would probably be more for commercial property owners."
Other calculations put the increases for property owners at considerably less than that.
Disney makes annual payments to the Reedy Creek Improvement District of $105M for operations and $58M for debt on bonds, which is $163M a year that would be shifted to local taxpayers, according to media outlet WESH.
Using that figure, a median-priced home in Orange County would pay $156 to $208 a year more if Disney's government is ultimately dismantled, WESH estimates.