Rating Agency Wary as DeSantis Signs Disney Bill

By Dara Kam, The News Service of Florida

TALLAHASSEE — Gov. Ron DeSantis on Friday signed a bill aimed at dissolving a special taxing district that has granted Walt Disney World unique self-governing powers for more than five decades, even as a leading bond-rating agency cautioned investors about the proposed changes.

The bill (SB 4-C) targets the Reedy Creek Improvement District, which encompasses about 25,000 acres in Orange and Osceola counties on property in and around the “most magical place on earth.” The district has authority over issues such as land use and provides traditional functions of government, including fire protection and wastewater services.

DeSantis, who is seeking re-election and is widely mentioned as a potential 2024 Republican presidential candidate, came out swinging against Disney — one of the state’s largest employers and a major tourism draw — after the company vowed to fight a controversial law restricting education on sexual orientation and gender identity in schools.

The governor added two Disney-related measures to a special session this week on congressional redistricting. The Republican-controlled Legislature quickly took up the bills and passed them.

During a bill-signing ceremony Friday in Hialeah Gardens, DeSantis acknowledged that the measures were aimed at punishing Disney for defying him on the education bill, which was formally titled the “Parental Rights in Education Act” but was dubbed by opponents as the “don’t say gay” bill.

“We signed the bill, and then incredibly they (Disney officials) say we are going to work to repeal parents’ rights in Florida, and I’m just thinking to myself, you’re a corporation based in Burbank, Calif., and you’re going to marshal your economic might to attack the parents of my state? We view that as a provocation and we’re going to fight back against that,” the governor said at the campaign-style event.

The measure affects the Reedy Creek district and five smaller special districts: the Bradford County Development Authority, the Sunshine Water Control District in Broward County, the Eastpoint Water and Sewer District in Franklin County, the Hamilton County Development Authority and the Marion County Law Library.

The law would dissolve the districts on June 1, 2023, though it would allow the Legislature to re-establish the districts before then.

If it is dissolved, the Reedy Creek district’s debt obligations, revenues and responsibilities would be transferred to Osceola and Orange counties and the small cities of Lake Buena Vista and Bay Lake.

The legislative action prompted credit-rating agency Fitch Ratings on Friday to place a “rating watch negative” on about $1 billion in outstanding district debt.

The district has about $79 million in outstanding utilities revenue and refunding bonds and approximately $766 million in outstanding ad valorem tax bonds, according to an alert issued by Fitch. The district’s various debt ratings range from A to AA-, Fitch said.

“The negative watch indicates the ratings could stay at their present levels or potentially be downgraded,” Fitch said.

The negative watch “reflects the lack of clarity regarding the allocation” of the district’s assets and liabilities, “including the administration of revenues pledged to approximately $1 billion in outstanding debt,” following the dissolution of the district, Fitch said.

Fitch said the debt is expected to be transferred to Orange County and, to a lesser extent, Osceola County.

“Fitch believes the mechanics of implementation will be complicated, increasing the probability of negative rating action,” the agency said.

The Fitch alert, issued before DeSantis signed the bill later in the day, did not lower the district’s bond ratings but cautioned investors about future actions.

The message also touched on what is known as ESG, or environmental, social, and governance principles, which the agency ranks on a scale of one to five. Scores of one or two indicate “no impact on the credit score rating;” a score of three reflects minimal risk; and scores of four and five “indicate that the ESG risk is either an emerging risk or a contributing factor to the credit decision,” according to Fitch’s website.

Fitch revised the Reedy Creek district’s “general government” score on “rule of law, institutional & regulatory quality, control of corruption” from three to five “to reflect state actions to dissolve the district, which points to a substantially reduced degree of independence from political pressure,” the agency said.

“These actions potentially diminish government effectiveness and could prove harmful to bondholders, which has a negative impact on the credit profile and is highly relevant to the Negative Watch action,” Fitch said.

Meanwhile, S&P Global Ratings Agency on Friday did not issue a warning about the Reedy Creek district but acknowledged the district’s pending dissolution.

The legislation did not lay out a plan for exactly how the district’s debt obligations would be transferred.

During debate on the measure this week, Democrats warned that taxpayers in Central Florida could be on the hook to pick up the tab for the outstanding debt as well as utilities and other services.

Rep. Andrew Learned, D-Brandon, told The News Service of Florida that Fitch’s warning translates into “real world consequences” for DeSantis and Republican lawmakers’ culture wars. He noted that the credit-agency warning came even before the district is dissolved.

“That’s the main takeaway. We are all going to pay more now, just because of the threat. Nothing even has to change. Just the threat of it changing is going to raise prices and affect bond ratings. And that’s what’s happening,” Learned said.

But DeSantis brushed off such concerns Friday.

“We’re going to take care of all that. Don’t worry. We have everything thought out. Don’t let anyone tell you that somehow Disney is going to get a tax cut out of this. They’re going to pay more taxes as a result of that,” he said.

DeSantis on Friday also signed a separate bill targeting Disney that will remove an exemption for theme parks that was placed in a 2021 law seeking to punish social-media platforms that strip users from platforms or flag users’ posts.

A federal judge last year issued a preliminary injunction blocking the law from being enforced, saying it was “riddled with imprecision and ambiguity.”

An Atlanta-based appeals court is scheduled to hear arguments Thursday in the state’s appeal of U.S. District Judge Robert Hinkle’s decision.