As Florida lawmakers prepare to banish the letters ESG from their municipal bond lexicon, the once simmering feud between Gov. Ron DeSantis and the Walt Disney Co. boiled over into a public fight once again.
DeSantis responded Monday to Disney’s latest moves to circumvent the state’s takeover of the Reedy Creek Improvement District — having the current board mitigate the power of the incoming panel —saying he would take swift action against the company.
The renewed fight came in the wake of a long-running dispute between the governor and the corporation over the district that was taken over by the state earlier this year.
It started last April, when the Legislature approved a bill to dissolve all independent special districts created before 1968. The bill’s authors made it clear it was intended to punish Disney, which Reedy Creek was created to serve, for its foray into state politics.
Disney had voiced strong opposition to the state’s Parental Rights in Education Act, which critics call the “Don’t Say Gay” bill and vowed to fight to have it repealed. The law bans public school instruction about sexual orientation or gender identity for children through the third grade.
Reedy Creek, a special tax and governing taxing district for the land owned by Disney World in Orlando, was created in 1967 to help Disney develop the property into a theme park. It has the same authority as a county government and includes 39 square miles of land in Orange and Osceola counties.
It district was mostly funded by property taxes, with Disney accounting for 88% of its tax base. At the end of fiscal 2021, the Reedy Creek district had about $719 million in tax-secured debt and $185 million in utility debt outstanding.
The takeover law was written to include protection for holders of the special district’s almost $1 billion of outstanding municipal bond debt.
“No bond or other instrument of indebtedness previously issued by the district or any district project financed by bonds or other instruments of indebtedness shall be affected by this act,” according to the legislation. “The provisions of this act shall not affect existing contracts that the district entered into prior to the effective date of this act.”
DeSantis said that the new board would look at the property tax rates within the district, which effectively had been set by Disney.
“When you’re looking at paying these debts off, there’s about $1 billion in unsecured debt and we’d like to get that debt paid off as quickly as possible,” DeSantis said.
“They can definitely look at the millage rate in terms of the millage that’s being applied to property taxes and taking whatever revenue you’re getting and just accelerating that debt payment because once that debt is extinguished it makes it a lot easier to be able to deal with everything,” he said.
The district had been governed by a board of supervisors selected by the district’s landowners. Since Disney and its affiliates own most of the land, it effectively controlled the board. The new law gave the governor the power to appoint the district’s board members.
Then last month, the outgoing Disney-backed RCID board approved agreements with the company that would limit the powers of the incoming DeSantis-picked board by restricting their decision-making powers.
At a press conference Monday, the governor said he would push the Legislature to take actions that would nullify the agreements.
“These agreements are riddled with legal deficiencies, including failure to provide required notices, and are a blatant attempt by a private corporation to subvert the will of Floridians through shady tactics,” DeSantis said.
“Disney’s corporate kingdom is over — despite their repeated and futile attempts to circumvent the Legislature and the will of the people,” DeSantis said. “Their cheerleaders in the media thought that Disney ‘outsmarted’ the state, but the new control board uncovered their sloppy scheme, and the agreements will be nullified by new legislation that I intend to execute.”
The Central Florida Tourism Protection District (CFTOD) Board’s initial meeting is Wednesday and the board is expected to take action to declare the agreements null and unenforceable.
“The agreements themselves have a plethora of legal infirmities that render them void,” DeSantis said. “And I think that the board will find as such.”
DeSantis noted the Disney board tried to put restrictive covenants on district-owned land, after it had been suggested the new board could possibly use some land for other purposes, such as a state park, additional amusement parks or even a prison.
The board will look at some of the district’s utilities and decide whether it would be more efficient to sell the utility to a private entity that could operate it.
“Maybe the district could save some money on this and put that towards paying down the bonds and the debts,” DeSantis said.
Joseph Krist, publisher of Muni Credit News, wondered where this will end.
“Florida may have the statutory authority to abrogate an agreement, but what does that say for things going forward? Why couldn’t an anti-development administration do the same thing in reverse to somewhere like the Villages?” Krist pondered in an interview with The Bond Buyer.
“It’s old-fashioned politics and it all coincides with [DeSantis’] conservative media book tour so it is what it is,” he said. “For investors serious about ESG — this is the G. What do they do?”
DeSantis said, according to Florida law, the Legislature can revoke a development agreement “if the Legislature subsequently enacts legislation that precludes compliance with the agreement.”
The proposed legislation would prevent compliance with “poison pill” agreements, like the collusive agreements executed by Disney and the prior Disney-controlled RCID board.
After discussions with the leaders of the House and Senate, DeSantis said a bill will probably be introduced next week.
Separately, the state Senate is currently considering House Bill 3, which would prohibit municipalities from issuing environmental, social and governance bonds. The bill passed the House on March 24 in a party-line vote of 80 to 31.
The Republican-dominated Legislature will undoubtedly pass the bill before its session ends, but exactly in what form and containing what wording remains to be seen.
The bill also bans an issuer from paying for a third-party verifier who certifies that a bond may be designated or labeled as an ESG bond or using a rating agency whose ESG scores harm an issuer’s credit standing.
“This bill will ban using rating agencies whose ESG methodology will have what is perceived as a direct negative impact on the issuer’s bond ratings,” Neal Pandozzi, a partner at Bowditch & Dewey, said in a recent Bond Buyer podcast. “It prohibits the entering into the contracts with the rating agencies if their ESG scores will have a direct negative impact on this particular issuer’s bond ratings.”
Pandozzi said what concerned him the most about the way the bill was currently written was the broad language it used to describe ESG bond issuance.
The current definition of ESG bonds, he said, would also include bonds self-designated by the issuer as ESG labeled bonds as well as those designated by any third-party verifier.
“This definition concerns me for a number of reasons,” he said. “It also would also ban bonds that have been designated as bonds with an ESG purpose. And that feels very broad to me. So it’s not just the labeling, it’s bonds designated as having an ESG purpose.”
Having worked in public finance for most of his career as a lawyer, Pandozzi said, “I think you’d be hard pressed to find a bond that is issued by a governmental issuer that isn’t somehow tied to a social benefit, a governmental benefit, a climate benefit.”
“So I am concerned about the breadth of this definition and what it means in terms of banning bonds that again could be perceived as promoting an environmental objective, a social objective, and again, the notion of prohibiting public funds from for use in complying with post issuance reporting obligations … And that’s sort of why I’m focused on what the Florida Senate does with it,” he said.
If HB3 does pass the Senate, Pandozzi said, he hopes it would contain revisions to the language to narrow the focus.
“It’s one thing if as a policy position you want to ban the issuance of ESG labeled bonds,” he said, “but I would hope that whatever comes out of the Senate will be pared back so it doesn’t create what I view as a lot of ambiguity in terms of what you can and cannot issue in Florida.”
Also, a bill has been introduced in the Senate that would prohibit investment practices that sacrifice returns on investment in favor of advancing a political or social agenda.
SB302 would codify a state Board of Administration program that mandates state and local fund investments be based only on fiduciary factors and not on political, social or ideological agendas. It is currently awaiting a hearing on the Senate’s special order calendar.
DeSantis noted the Legislature is also looking at passing a debt-reduction programdebt-reduction program this session.
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“We have very low debt as a state. Our economy’s over $1 trillion and our debt’s about $20 billion, and we have a big surplus,” he said. “So we actually are going to launch … an accelerated debt repayment program so we’ll be able to pay down the debt even faster as we go forward.”
Additionally, he reiterated his call for lawmakers to ban the use of any central bank digital currency in Florida.