ORLANDO, Fla. — Dissolving the Reedy Creek district could hurt Florida government finances and potentially strengthen The Walt Disney Co.’s balance sheet at taxpayers’ expense if leaders don’t solve a complex set of legal problems, according to industry analysts following the showdown.
Reedy Creek, which governs Walt Disney World, is set to be abolished on June 1, 2023, but questions are mounting about legislation Gov. Ron DeSantis signed a week ago setting that in motion.
Fitch Ratings signaled late Thursday that it might downgrade the bond rating of Florida’s governments if the state doesn’t resolve an issue with the district’s $1 billion in outstanding debt. A downgrade would mean the governments would face higher interest rates to borrow money.
The complex undertaking poses problems, including the potential violation of bondholder rights, an analysis by Municipal Market Analytics concluded. Analysts have little to go on because lawmakers didn’t provide a detailed plan for carrying it out.
“It is one thing for Florida to threaten one of its local units with rapid dissolution for purely political reasons,” MMA analysts Matt Fabian and Lisa Washburn wrote in a memo to investors. “It would be a very different thing for the state to knowingly walk away from or violate its own non-impairment pledge to bondholders. Doing so could very reasonably lead to rating downgrades of any state or local bond dependent on a contract with Florida and possibly Florida’s own bond ratings.”
In a statement to investors before the final vote, Reedy Creek pointed out a 1967 pledge in state law that Florida would not limit the district’s ability to collect taxes and raise other revenues to repay bondholders.
Given that promise, MMA expects further legislative action next year, noting that “while 2022 is an election year, 2023 is not” and “the can to be kicked down the road, or harsh current terms ... watered down.”
DeSantis said additional legislation will be proposed to ensure Disney lives “under the same laws as everybody else,” but his office has not provided a plan.
“The bonds will be paid by Disney,” DeSantis said Thursday night during a Fox News town hall meeting. “They will be paying taxes, probably more taxes. They will follow the laws every other person has to do, and they will no longer have the ability to run their own government, which they’re the only corporation in all of Florida, the only entity in all Florida, that has the ability to run their own government and do this.”
He told the crowd to “stay tuned.”
State lawmakers voted last week to abolish Reedy Creek without conducting an economic study. They rushed the bill through with only three days of deliberation, missing or ignoring the promise already in state law to bondholders.
DeSantis said another special district could be created that the state would oversee.
“They will continue paying money to run their operations,” DeSantis said. “And that will be true if the state is in charge of a district, if it’s dissolved to the locals, it doesn’t matter, that is going to continue to happen.”
Fitch Ratings placed Reedy Creek’s debt on a “negative watch,” meaning it could downgrade the district’s credit rating. It warned Thursday of consequences for other Florida governments if the state doesn’t ensure “timely repayment of RCID [Reedy Creek Improvement District] debt.”
“The failure to do so could alter our view of Florida’s commitment to preserve bondholder rights and weaken our view of the operating environment for Florida governments,” the Fitch memo read.
Fitch expects the state “to resolve the uncertainty in a way that ensures timely repayment of RCID debt, with reconstitution of the district as one option specifically offered in the bill.”
Disney wouldn’t suffer “any harm” from the dissolution of Reedy Creek and would likely see “an improvement in its bottom line and its balance sheet” if the district were dissolved, according to another analysis by Deutsche Bank.
Local taxpayers would absorb Reedy Creek’s $1 billion in outstanding debts, while Disney would no longer be on the hook for more than $100 million in property taxes it pays to provide services to Disney World, the bank’s analysts Bryan Kraft, Benjamin Soff and Connor Murphy wrote.
Disney’s stock price has tumbled in recent months, but that could harm the state financially, too. Florida’s state pension fund included 2.4 million shares of Disney stock as of March 31, valued at more than $250 million.
At the close of market on Thursday, Disney stocks traded for about $115 a share, down 26% from the start of the year. The stock reached a high of nearly $200 a share in March 2021 and has been on the decline since then.
While Disney has faced a barrage of negative press, investors have also been concerned streaming will not be as lucrative as traditional television. Disney has invested significantly in streaming, launching its Disney+ platform and gaining control of Hulu in 2019.
Disney will make its next earnings report on May 11.
The biggest downside for Disney if Reedy Creek is dissolved would be a loss of autonomy over its resort property, the Deutsche Bank analysts wrote. Reedy Creek allows Disney to bypass government red tape by having its own puppet government that oversees land use and essential public services for Disney World and surrounding properties.
“This could impact the overall quality of the experience Disney can deliver to its guests,” the bank analysts wrote in a memo first reported by Florida Politics. “However, we note that Disney does not have similar arrangements (to the Reedy Creek Improvement District) in its other theme park locations, and those locations seem to be doing just fine.”
DeSantis has been at odds with Disney over its stance on what has become widely known as the “don’t say gay” law. Disney has vowed to work to repeal or overturn the law, which prohibits classroom instruction on “sexual orientation or gender identity” in grades kindergarten through three or in a manner that is not “age appropriate.”
The company paused its political contributions in Florida, while DeSantis has blasted Disney as being a “woke” corporation.
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(Staff writer Steven Lemongello contributed to this report.)
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