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Florida’s $ 1 billion Disney question

When the Florida Republicans passed a bill to remove Walt Disney Co.

DIS – 3.17%

In the midst of a debate over how to teach gender and sexuality in schools from its special tax privileges in April, they did not answer a key question: Who is responsible for repaying nearly $ 1 billion in municipal debt to build roads, walkways and other infrastructure around Disney. World?

Florida law requires that bondholders pay for Disney’s special tax district, known as Reedy Creek. A separate law creating Reedy Creek promised bondholders that the state would not interfere with their tax collections. One of the sponsors of the bill is considering re-introducing an irrigated version of Reedy Creek to release the legal disorder.

Those caught up in the fight include municipal bond investors, firefighters and the global media and marketing companies behind Star Wars, Avengers and ESPN $ 210 billion.

Many bonds have fallen in price on mutual funds managed by Goldman Sachs Asset Management, AllianceBernstein and other companies. 2028 Reedy Creek bonds maturing in 2028 traded at 87.5 cents a dollar on Thursday and Friday, down from about 100 cents in January, according to data from the Municipal Securities Regulatory Commission. The two major rating companies have marked bonds for a potential decline, saying it is unclear who owes the money to investors.

Since 1967, the company has effectively governed the Florida theme park, which includes Disney theme parks, and has been able to manage Walt Disney World with little bureaucracy. WSJ’s Robbie Whelan outlines a special tax range expected to be disbanded next year under a new Florida law. Photo: AP

“It’s pure speculation right now,” said Michael Rinaldi, head of assessments for local U.S. governments at Fitch Ratings. “We have no information.”

Gov. Ron DeSantis, a spokesman for Reedy Creek, said a plan was being developed in Reedy Creek and could be made public in the coming weeks. Mr. DeSantis, a Republican, told Fox News in an interview Thursday night that “the bonds will be paid for by Disney.”

The Reedy Creek Improvement District is a 40-square-mile area that includes Disney’s Orlando theme parks, hotels and resorts. There are tens of thousands of special districts in the U.S. that are usually run by local councils and formed by order of property owners who want to pay taxes beyond what they owe to the city or county for additional services like mosquito reduction.

Reedy Creek is unusual because almost all of the property is owned by a taxpayer, Disney, who effectively finances and controls his government. Reedy Creek operates outside of building and zoning regulations and uses Disney property tax revenues to manage the local fire department and other services. About $ 60 million of the district’s $ 20 million budget in 2021 was used to pay off the debt on bonds issued to finance roads and a pedestrian bridge, among other projects.

Florida Gov. Ron DeSantis said “the bonds will be paid for by Disney.”


Photo:

Ellen Schmidt / Associated Press

Founded by Florida lawmakers more than 50 years ago at the behest of Disney, Reedy Creek was an easy destination for Florida lawmakers because it was opposed to the Florida Parental Rights Education Project. Nicknamed “Don’t Say Gay,” the law passed in April prohibits school children from teaching in the classroom on gender identity and sexual orientation to the third grade, and is restricted to older students.

After Disney vowed to push for the repeal of the law under pressure from staff, Florida lawmakers, at Mr. DeSantis’ request, introduced, heard and approved a bill to dismantle Reedy Creek within three days in mid-April. The dissolution will take effect on June 1, 2023. A Disney spokesman declined to comment. A Reedy Creek spokesman did not respond to a phone call.

State law mandates that when a special district is dissolved, the responsibility for paying its debt lies with the local government in the area. In the case of Reedy Creek, there are four: Orange County, the largest part of Reedy Creek, which includes the cities of Osceola County and Bay Lake and Lake Buena Vista.

Reedy Creek said in a statement to the Municipal Securities Regulatory Commission, a self-regulating body that regulates the bond market, that it “hopes to explore its options as it continues its current operations.” The statement also mentioned the 1967 law promise to Reedy Creek bondholders that the state would not change its ability to collect taxes.

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Florida Rep. Randy Fine, a Republican who backed the bill in the state House of Representatives, said the obligation will not exist after the new law goes into effect next year. He said additional court or legislation could help determine how to distribute the debt among local governments. However, he said it would be another option for lawmakers to reintroduce a less powerful version of the Reedy Creek Improvement District to manage debt.

In that scenario, “it remains a Reedy Creek that continues to hold on and pay for it,” Mr. Fine said, but the legislature may retain other powers that the district currently has, such as the ability to issue additional protected debt. Through a promise to return to state law.

Mr. DeSantis’ office said in a statement that when he signed the Reedy Creek bill he did not expect residents to raise taxes. However, the influence of local governments can extend beyond having to assume debt payments.

Orange County Mayor Jerry Demings, a Democrat, was reviewing the bill at a news conference, saying Reedy Creek covers the cost of district police, firefighters and 911 services. Taking these operations without additional revenue “would be a disaster for our budget,” he said. Osceola County said in a statement after the bill was approved that it is “assessing changes in Osceola’s costs.”

Some municipal bond portfolio managers and analysts have expressed concern that partisan policies are seen as entering the arcane world of debt repayment commitments.

Matt Freund, head of fixed income strategies at Calamos Investments LLC, which holds a small portion of a Reedy Creek bond issued in 2020, expressed confidence that the debt would be repaid.

“It remains to be seen how Florida’s impact will affect the broader municipal financial industry,” Freund said.

Write to Heather Gillers at heather.gillers@wsj.com

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Florida’s $ 1 billion Disney question

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