by Ray Keating
April 27, 2022
Hold on a minute. I’m confused. I thought Republicans were against debt relief. For good measure, I was under the impression that Florida Governor Ron DeSantis, a Republican, was less than thrilled with the Walt Disney Company.
But if that’s all true, then why have DeSantis and Florida Republican state legislators at least opened the door to massive debt relief for Disney, as well as a possible big tax cut for the House of Mouse? Hmmm, does this mean that DeSantis secretly loves Disney?
Well, let’s not get carried away.
In reality, what DeSantis has done is lash out at the Walt Disney Company in the hopes of stirring up and ingratiating himself with parts of the Republican Party base. However, being governor of the third largest state in the nation means – or should mean – that you don’t irresponsibly treat businesses, residents and the Florida economy as your personal political playthings. But then again, DeSantis is trying to position himself as the next Donald Trump, so…
As a quick reminder, DeSantis and Disney disagreed on Florida’s House Bill 1557. And yes, it was incredibly dumb for Disney to stake out ground on this issue when it has nothing to do with its business. But Disney CEO Bob Chapek caved to some vocal activists in his company, and the result has been a mess for the company. (See DisneyBizJournal’s previous analyses on this here, here and here.)
However, even if one disagrees with Disney’s decision on this – which I strongly do, by the way – that doesn’t in turn mean that one should support the charge led by DeSantis to use legislation to punish a company that he disagrees with on an issue. Nonetheless, that’s exactly what DeSantis along with Republicans in the Florida state legislature did when passing legislation that will dissolve Walt Disney World’s Reedy Creek Improvement District as of June 1, 2023.
Reedy Creek was created in 1967 and allowed Disney to effectively self-govern the 25,000 acres the company purchased to create Walt Disney World. That means that Disney, through the District, controls essential services like infrastructure, electricity, water, sewage, zoning, solid waste and recycling, building codes and approvals, and a fire department. It’s a unique set up pertaining to a unique situation. Reedy Creek covers two towns, Bay Lake and Lake Buena Vista, with about 50 residents today who own the land and actually elect their own mayors and city councils. These residents obviously are Disney employees.
So, let’s review the rather lengthy list of problems with this egregious act by DeSantis and GOP state legislators.
First, government punishing a company for the stance it takes on a political issue flies directly in the face of the First Amendment. You know: “Congress shall make no law … abridging the freedom of speech…” Indeed, this act is a deeply disturbing act by government that should outrage everyone, including all of those Republicans who used to talk about how much they loved freedom and abhorred big, abusive government.
Second, the U.S. Constitution also prohibits bills of attainder (Article I, Section 9, Clause 3). That is, legislative acts cannot be used to punish a particular individual or entity. As explained in the case United States v. Lovett, legislative acts are prohibited that “no matter what their form … apply either to named individuals or to easily ascertainable members of a group in such a way as to inflict punishment on them without a judicial trial…” Again, I remember when Republicans at least spoke about the need for separation of powers. Of course, the response is that this bill covers a few other districts created before 1968 as well. That, of course, is a farce, as the intent has been made clear by the governor and state lawmakers that this legislation is meant to punish Disney.
Third, contracts matter, but the law dissolving the Reedy Creek District ignores the binding contract that the state has with holders of Reedy Creek bonds. As explained in an analysis at Bloomberg Law:
In authorizing Reedy Creek to issue bonds, the Florida legislature included a remarkable statement—included in Reedy Creek’s bond offerings—regarding its own promise to bondholders: “The State of Florida pledges to the holders of any bonds issued under this Act that it will not limit or alter the rights of the District 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 herein … until all such bonds together with interest thereon, and all costs and expenses in connection with any action or proceeding by or on behalf of such holders, are fully met and discharged.”
As noted later in the Bloomberg piece:
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. Instead of a unified utility system with special powers to charge various fees, supported by special taxing powers, utility revenue bonds will be jointly managed by two counties subject to additional taxing and spending restrictions.
Both the U.S. and Florida constitutions place strict limitations on the government’s ability to impair its own contracts. Under the U.S. Constitution, a state can only impair an existing contract if the impairment is reasonable and necessary to serve an important government purpose. As early as 1866, the U.S. Supreme Court held that once a local government issues a bond based on an authorized taxing power, the state is contract-bound and cannot eliminate the taxing power supporting the bond. The Florida Constitution provides even greater protection from impairment of contracts.
Fourth, this bondholder language points to a host of problems regarding bonds and taxes. As the Bloomberg piece, as well as other analyses, points out, “The bill dissolving Reedy Creek doesn’t say what should happen to these debts, but another statute does: By default, the local general-purpose government—the county—assumes the district’s debt, along with all of its assets. This means that theoretically, Orange and Osceola counties will inherit upward of $1 billion in bond debt.” Other reports put the amount of Reedy Creek debt higher.
Indeed, among the unknowns is the distinct possibility of hitting taxpayers in two local counties with big tax increases.
Disney already pays both sales and property taxes to localities, such as counties and school districts. In fact, CNBC reported, “Public records show Disney is the largest taxpayer in central Florida, paying over $280 million in property taxes to the counties between 2015 and 2020.” Also, as noted, Disney effectively pays taxes to itself with the Reedy Creek District, with Reedy Creek collecting $164 million annually from Disney to pay for services like road maintenance, utilities, fire protection, and so on.
GOP state lawmakers claim that Reedy Creek taxes will get shifted to the counties. But Disney taxes itself at a much higher property tax rate than is allowed by the state constitution. In fact, three times higher, as noted above. So, if Reedy Creek were dissolved, a massive amount of costs would be shifted to the counties, but Disney would pay less than it is now in taxes. CNBC noted:
Tax experts say that in order for the counties to collect additional revenue from Disney to pay the bond debt, the counties would have to create a new special tax district of their own. Even if they created a new special “Disney” tax district, the tax rate would be capped below that of the current district rate, leaving Orange and Osceola counties with Reedy Creek’s debt service but with less revenue to pay it off.
For good measure, government has little ability to control costs, so the bill to local taxpayers promises to be rather substantial, though, again, no formal analysis has been done at this point.
Plus, if the dissolving of Reedy Creek goes this route, bondholders no doubt will sue, and that will prove to be a costly legal battle paid for by taxpayers in service of Governor DeSantis’ political desires.
Hmmm, remember when the top issue for Republicans was tax relief?
Fifth, the legislation was created in haphazard fashion, to say the least. At the last minute, it was crammed into a special session. Legislators got to look at the bill for two days before it was rammed through without any substantive analysis as to the effects of the legislation, such as on taxpayers and the economy, nor does it spell out how the dissolution would actually work. Indeed, no one seems to have a clue as to how any of this would work. DeSantis and legislators promise to get around to that down the road. According to the Orlando Sentinel, “Not even the bill’s sponsors – Sen. Jennifer Bradley, R-Fleming Island, and Rep. Randy Fine, R-Palm Bay – could provide the intricate details of how Reedy Creek would be dissolved, saying the matter will be hammered out in the next year.” Sure, right, let’s not spoil this political opportunity to pander with potentially messy details. So much for slowing the mechanism of government to consider the full implications.
Sixth, there’s also the fact that state law requires a voter referendum by residents or land owners in a special district in order to dissolve that district. Obviously, Disney isn’t going to vote for that. But according to the Sentinel, Republican lawmakers claim that the new law trumps the old law. That is in dispute, and would lead to another costly legal battle.
Of course, the key benefit that the Reedy Creek District offers Disney is to avoid costly meddling and delays that come with being regulated by local governments. Walt Disney experienced those problems firsthand in California, and sought to avoid such an outcome in Florida. And if the Reedy Creek district actually is dissolved, Disney not only will face costly regulations that create delays and raise costs, but also local governments running various services that Disney has been doing. Disney has operated such services efficiently, you know, like a business does if it wants to succeed. When was the last time you hit a pothole in Disney World? Turning such operations over to government would mean diminished quality of service, as government is wont to do, along with increased dollar costs.
One might think that Republicans, who used to care about the economy, would be trying to figure out how they can expand the opportunity for more businesses to be able to do what Disney has in terms of more efficiently running various services, rather than punishing the company who has shown that, yes, business can do most things better than government. And again, with Disney doing the work and paying for it, taxpayers don’t get hit with the bill.
Geez, it’s almost like Governor DeSantis and his fellow Republicans in the state legislature didn’t really think this through, or they didn’t really care to think about anything other than political pandering. Go figure.
As for Disney, company corporate affairs officer Geoff Morrell was quoted by the Hollywood Reporter back on March 2, 2022, saying:
“Whatever Bob’s personal politics are, he’s not an activist and does not bring any partisan agenda to work. He sees himself first and foremost as the custodian of a unifying brand that for nearly a century has been bringing people together, and he is determined that Disney remain a place where everyone is treated with dignity and respect… He believes the best way we can help create a more inclusive world is through the inspiring content we produce, the welcoming culture we create and the diverse community organizations we support.”
That’s spot on correct. Chapek and Disney (and its shareholders) would have fared much better in this situation and would be better positioned going forward when other hot-button topics inevitably crop up with activists trying to pressure the company, if they had stuck with what Morrell explained. But Chapek caved, and the company has been dragged into the muck of politics in an era when the hard Left and populist Right thrive on division and controversy.
Ray Keating is the editor, publisher and economist for DisneyBizJournal.com, and author of the Pastor Stephen Grant novels and assorted nonfiction books. Have Ray Keating speak your group, business, school, church, or organization. Email him at email@example.com.
The views expressed here are his own – after all, no one else should be held responsible for this stuff, right?
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