I am uploading a special issue of Fiscal Stress Monitor from my “wayback machine” devoted to special districts. This, in response to some great discussion on Twitter about the de-districting of Reedy Creek Improvement District (RCID) in Florida. Special districts, generally, are driven by land development, economic development and involve real estate developers at their core. The motivating factor is almost always money. The RCID case is unique in that the state’s actions relate to social preferences and government officials’ desire to control corporate behavior based on social issues. This has also played out during COVID around closures, mask-wearing, etc. See this article about Disney in Florida on this point. As Eric Kazatsky from Bloomberg pointed out the district’s enabling act contains a non-impairment clause relating to bonds.
Non-impairment security features are helpful, but not the strongest of covenants, since the legislative body could always reverse (this is not a legal opinion). It’s not fully analogous, but we’re reminded of repeated changes by the Commonwealth of Puerto Rico’s legislature of the Government Development Bank’s enabling act — that was not for social reasons; rather attempts to maintain liquidity in the face of looming insolvency.
We hope we don’t see a trend of legislative action that impairs bonds due to social and political preferences. We did see something close to this a few years ago with the Tea Party’s refusal to increase the federal debt ceiling leading to a near default on Treasuries and consequent downgrade of the US government rating. That wasn’t specifically social, but tax and deficit related, reflecting the desire to reduce government’s role and sway over private citizens and private companies. Now, however, the trend seems to be going in the other direction. That is, elected officials looking for headlines to aggrandize their position with voters by extending their reach to increase control over corporate and individual citizens’ behavior (abortion, sexual preferences, firearms, fossil fuels vs. climate change, COVID masking and distancing, to name a few).
Back to special districts. The following special district report is quite ancient (as am I… haha) but discusses the link between real estate development and these quirky “government” entities.
Kind regards for a good weekend,
Natalie
