The dissolution of the Reedy Creek Improvement District (RCID, or District) raises important questions for municipal bonds. In this hyper-partisan environment, there is increased danger that state governor/legislative actions could impair bondholder rights.
Special districts have been around in the U.S. since the 19th century. Many are small geographically and do tend to have higher levels of default when they are smaller than RCID and fail to build out as planned. According to the U.S. Census Bureau 2017 (latest) survey of government units, there were 38,542 special district governments out of a total of 90,075. The state of Florida had 1,139 special districts of a total of 1,712 government units. We provide some random thoughts and reading links to help frame discussion around this issue.
Interestingly, in response to a query about the purpose of special districts, we came across this definition of special districts – from the Illinois Association of County Board Members and Commissioners. (Illinois had 3,204 special districts of 6,918 total in 2017.). In it, the Association states: “Special purpose districts are most often created to provide services that counties, municipalities, and townships are unable to provide due to financial constraints.” Would Orange County have supported the infrastructure build-out the Magic Kingdom?
What might happen now that the RCID has been dissolved? Professor Chris Goodman wrote in the LSE Phelan US Centre daily blog that the “tax levy that supports the RCID is also eliminated upon dissolution”. Goodman states in this blogpost that “the RCID taxes itself about double the average property rate of Orange County, FL.” Goodman is assistant professor of public administration at Northern Illinois University.
Presumably, if Orange County (and Osceola, too) absorb the outstanding debt (about $1 billion), they also absorb the sizable taxable assets – but would their current tax rates and tax structure be sufficient to cover the assumed debt? And would Orange County now be charged with re-doing its governing structure to include Disneyworld’s police, fire, sanitation, water management services, pay and pension policies? According to the Orlando Sentinel (paywall possible), RCID reimburses Orange County for the law enforcement protection the county provides. At the moment there is a great deal of uncertainty among the District’s employees about their future.
Billy Hamilton, who writes a column for TaxNotes (paywall likely) “State Tax Merry-Go-Round” entitled “Will Performative Tax Policy Overtake Actual Policy?” (Hamilton is the deputy chancellor and CFO of the Texas A&M University System). In the article, he discusses the concept of “performativity” or performative actions (in the context of politics here) “whose main appeal is that they resonate with those who don’t know – and possibly don’t care to know – the facts but like the idea.” He continues, “They’re political junk food. Appealing, delicious, but utterly lacking in substance.” According to the Orlando Sentinel article cited above, “There was no economic analysis of the bill dissolving Reedy Creek and five other smaller special districts.”
Out of curiosity, we took a dive into the original development of Disneyworld. The original act establishing the District states, in the enumeration of rights and responsibilities, “…exempting properties, easements and rights of the District from eminent domain by other public or private bodies or agencies except with concurrence of the Board of Supervisors…” Did the governor’s and legislature’s actions violate the original act? Does the state’s dissolution supercede? Is it possible to consider this an eminent domain action, a “taking” without “just compensation”? And with the swipe of a pen, doesn’t the Governor’s action constitute a significant tax increase on the residents of Orange and Osceola Counties (something he and his colleagues are existentially opposed to)? Moody’s changed its outlook to “developing” while Fitch changed its outlook to “negative watch.”
In a separate commentary in the Orlando Sentinel , April 28, 2022 titled: “Will the right’s mob get its pound of flesh from Disney?”. Editors raise a number of interesting counterpoints. They comment on the concept of “freedom” that was aroused by the Supreme Court’s decision in Citizens United v. Federal Election Commission giving corporations First Amendment rights. On the other hand, editors mentioned that Florida’s lieutenant governor said everything could go back to normal “if Disney simply changed its politics”. Further, they mention that in Florida, others among the 1,000+ special districts were given similar exemptions on zoning and taxation. Indeed, as we commented in the last post, special districts are often created by private sector developers looking for public sector infrastructure financing and special rights to support a specific purpose.
William E. “Joe” Potter was the original engineer and logistical planner of the early construction and design. He’s since been inducted into the archives of “Disney Legends”. He was a retired US Army major general and graduate of West Point, Massachusetts Institute of Technology and the National War College. President Eisenhower had appointed him to serve as governor of the Panama Canal Zone and later became executive vice president of the 1964-65 World’s Fair in New York. We cite Potter’s qualifications by way of showing the level of care and expertise Disney pursued when creating the infrastructure for Disney World.
New York City’s World’s Fair site was also originally a wetland, developed with bonds and headed by master builder Robert Moses. Dubbed with the official theme “Peace Through Understanding” a Bloomberg commentary said the fair “ended up with an overwhelmingly corporate message”. The fair showcased Westinghouse, Kodak, General Motors, Ford, RCA and Johnson Wax. However, we point out that early expos and fairs were an entertaining form of communicating changes in technology, industrial advancements and products to a consuming public. Interestingly, a Pepsi-Cola/UNICEF pavilion at that fair sported a well-known ride, now relocated to Disneyland, and themed “it’s a small world”.
