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Dissolution of Disney’s Special District Could Mean $1 Billion of Debt for Taxpayers

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Disney store sign | Image by Ink Drop

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A Florida bill passed last week that strips the Disney World theme park of its special district status may have far more repercussions than anticipated. The change could burden Florida taxpayers, potentially with more than $1 billion of Disney bond debt.

On April 21, the Florida House of Representatives passed a bill abolishing Disney’s special improvement district. Signed into law by Governor Ron DeSantis, Senate Bill 4-C abolishes most independent districts established before 1968. The law goes into effect on June 1, 2023.

The action escalated Governor DeSantis’ attack on the company for its opposition to Florida’s Parental Rights in Education policies, dubbed the “Don’t Say Gay” bill.

As a result of the Reedy Creek Improvement District’s establishment in 1967, Disney World exercises complete control over government services like fire and emergency response, water, utilities, sewage, and infrastructure in the district.

Reedy Creek, which comprises Disney’s four theme parks, two water parks, and a sports complex, covers 25,000 acres in Osceola and Orange counties. A total of fifty-three persons lived in Lake Buena Vista and Bay Lake in 2020, all of whom were either Disney representatives or workers.

Reedy Creek’s government services are financed in part by Disney, which levies a tax on itself. Orange County tax collector Scott Randolph estimates that Reedy Creek collects approximately $105 million in general income each year. Because Reedy Creek is an independent tax district, its tax revenues are collected in addition to local tax obligations rather than as a replacement for them.

Randolph says when the special district dissolves in June of 2023, the additional revenues it collected will vanish, resulting in additional costs for the county and local taxpayers.

“If Reedy Creek goes away, the $105 million it collects to operate services goes away. That doesn’t just transfer to Orange County because it’s an independent taxing district. However, Orange County then inherits all debt and obligations with no extra funds,” Randolph tweeted.

Florida State Representative Randy Fine (R-Palm Bay), who has worked on the legislation, told CNBC on Thursday that he disagrees with that assessment of the situation.

Fine explained that Disney and five other special districts were created before the Florida constitution. He added Disney’s current status includes “weird” measures that give the company the ability to do things such as take land outside of its district, build a power plant without state oversight, and bypass zoning and safety laws. Legislative members found the provisions insensible.

Citing other attractions such as Universal Studios, Busch Gardens, and Sea World, which do not have special privileges like Disney, Fine argued Disney’s special privileges make for an “unfair market.”

In addition, Fine claimed that Reedy Creek’s dissolution would not raise taxes for Palm Bay’s taxpayers, saying Disney’s tax revenue would go to the local government to pay for the services in the district.

“Those taxes will continue to be paid,” said Fine. “They will just be paid to Orange and Osceola county instead of this special improvement district. The taxpayers could end up saving money because you’ve got duplicative services that are being provided by this special district that are already being done by those municipalities.”

According to Randolph, Disney taxes itself approximately $53 million per year to service Reedy Creek’s debt obligations. If Reedy Creek dissolves, that tax assessment will go away, leaving the two county governments, Osceola and Orange, to inherit the Reedy Creek bond debt — estimated at somewhere between $1 billion and $1.7 billion.

Senator Gary Farmer (D-Fort Lauderdale) attempted to include a review of the bond debt in the bill,  but the amendment failed.

According to Farmer, the bond debt could exceed $2 billion, and tax authorities are increasing their estimates as they learn more about Reedy Creek’s outstanding liabilities. Farmer estimated that the county’s taxes could increase by as much as $1,000 per taxpayer.

“This is a very real impact, the extent of which we don’t fully understand yet,” Farmer said. “If the counties are left holding the bag, the state might have to come to their aid,” Farmer added. “So it’s not even just a tax issue for these two counties. It affects every taxpayer in the state of Florida.”

According to tax experts, for the counties to collect additional revenue from Disney to pay off the bond debt, they would have to create a special tax district. Even if they established a new special ‘Disney’ tax district, its tax rate would be capped lower than the current district rate, meaning Orange and Osceola counties would take on Reedy Creek’s debt but have less revenue to pay it off.

In addition to the tax figures listed above paid to the Reedy Creek Improvement District, Walt Disney World has continued to pay real estate taxes to the local county districts. Between 2015 and 2020, Disney paid more than $280 million in real estate taxes to Orange and Osceola counties.

The Walt Disney Company’s special governing district in Florida responded to the dissolution, claiming that the state would be liable for the district’s $1 billion in outstanding debt. The New York Times reports that Reedy Creek has a $355 million annual budget. It owes $977 million, which would be transferred to the counties as well.

According to the resort complex’s governing board, when Florida established the Reedy Creek Improvement District decades ago, the state promised to protect the district’s debt holders — and not change the district’s status until all debts were paid.

Reedy Creek claims that when the act passed, Florida made several promises to bondholders, including:

  • Not restricting the district’s ability to “fulfill the terms of any agreement made with the holders of any bonds or other obligations.”
  • Not limiting bondholders’ rights or modifying the arrangement until all bonds, costs, and expenses “are fully met and discharged.”

Jacob Schumer, an attorney at Shepard, Smith, Kohlmyer & Hand in Maitland, Florida, said the company is correct.

“Under the constitution, a State cannot essentially promise bondholders that it will honor the debt and then get rid of the district that took on the debt,” Schumer told WMFE-FM. In the event of a lawsuit, Schumer believes the State’s case would fail.

Despite the plan to revoke its standing by June 2023, the Reedy Creek district stated it would “explore its options while continuing its current operations.”

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