Giving an update on Disney and a measure passed today by the Florida legislature that would have a negative impact on the company. The legislation, which now goes to Gov. Desantis for his signature, would dissolve six special districts in the state as of June 1, 2023. One of those is Reedy Creek Improvement District where Disney World is based. It was created in 1967 to allow Disney to essentially function as its own municipality.
Implications?
- Florida Association of Special Districts leader David Ramba said “For Disney, the main effect is more red tape. Disney would no longer be able to grant itself permission to renovate buildings or to build a new road. Instead, park officials would have to go to the county governments for every request.” Which Ramba indicated was more of an annoyance than a threat to the parks. He also indicated that despite the legislation passing, legislators could simply reverse themselves during the next regular session in January, after election season ended.
- The dissolution of the district could inhibit Disney’s ability to borrow in the $4 trillion state and local debt market, impacting the company’s access to cheaper tax-exempt financing through that special district, and could potentially cost Disney more to finance projects w/in that district.
- Reedy Creek would likely be absorbed by the local government which would become responsible for things like sewer and road maintenance. In exchange, the counties would collect the tax revenue that Disney currently pays itself. Local governments would also absorb all of the district’s liabilities, including about $1 billion of municipal bonds currently outstanding, according to Bloomberg. Reedy Creek historically operates at a loss of approximately $5 to $10 million per year which Disney subsidizes.
- There is some uncertainty as to how this proceeds, some, including Disney executives, seem to have the view that the Legislature can’t dissolve the district without the approval of voters.
Below are some snippets from an article in the LA Times that gives a good summary of the situation…
Why does Disney have these special powers?
“When brothers Walt and Roy Disney were looking to create another theme park on the East Coast, they took with them lessons from operating Disneyland in Anaheim, where it opened in 1955. Dealing with local regulations and government building inspections was a hassle. Disney wanted a way to achieve its sprawling ambitions without being so encumbered by municipal bureaucracy. The original idea for Epcot, in fact, was that it would essentially function as its own city.
And so the company worked with lawmakers to establish the Reedy Creek Improvement District. Walt Disney died in 1966, the year before the Reedy Creek law passed and a few years before Walt Disney World Resort opened in 1971.
The district, spanning roughly 40 square miles in both Orange and Osceola counties, provides everything from fire protection and emergency medical services to water systems, flood control and electric power generation. Its boundaries include four theme parks, two water parks, a sports complex, 175 miles of roadway, the cities of Bay Lake and Lake Buena Vista, utility centers, more than 40,000 hotel rooms and hundreds of restaurants and retail stores, according to its website. A five-member board of supervisors, elected by landowners, governs the district.
Its creation allowed Disney to transform acres of uninhabited pasture and wetland into a massive driver of tourism.
The powers granted were broad, making it much easier to move forward on building something like, say, the 183-feet tall Cinderella Castle, experts said. The district’s charter left open the possibility of Disney building its own airport or nuclear power plant if it wanted to. This was done to anticipate whatever needs might come up.
“They knew they were going to have one shot at these powers, because Florida needed Disney more than Disney needed Florida,” said Richard Foglesong, author of “Married to the Mouse: Walt Disney World and Orlando.” “They could get these powers at the opening, but they weren’t confident that they could add to their powers down the road. And so it was understandable that attorneys, I have no doubt, said, ‘Let’s get all we can now.'”
How would Reedy Creek be dissolved?
“Though the Florida Legislature is moving rapidly, the end of Reedy Creek wouldn’t happen immediately. Its dismantling would take effect June 1, 2023, along with that of a few other districts, giving Disney and the state about a year to resolve their issues. It also leaves the door open for special districts affected by the legislation to be reestablished.
Some lawmakers who oppose the move against Disney question whether the Legislature has the power to eliminate the company’s powers. Florida House Rep. Carlos Smith, who opposes the bill targeting Reedy Creek, tweeted an image of a section of a Florida statute indicating that dissolving an active special district would require the votes of landowners in Bay Lake and Lake Buena Vista. Disney holds the vast bulk of the voting power.”
How would this affect Floridians and Disney?
“Some lawmakers say the decision, if it takes effect, could create a significant financial hit for the counties affected by the Reedy Creek district. Disney finances the services the district provides, which would normally be paid for by local municipalities. Disney effectively charges itself property taxes to finance these services. For law enforcement, Disney pays the Orange County Sheriff’s Office.
If the district is dismantled, those responsibilities could fall to local municipalities and taxpayers, experts said. So could the district’s debt-load. The district’s long-term bonded debt totaled more than $977 million as of September, according to Reedy Creek’s annual financial report. State Sen. Stewart tweeted that removing the district “could transfer $2 Billion debt from Disney to taxpayers” and could have “an enormous impact on Orange & Osceola residents.”
“The fallout for Disney is also uncertain. While Disney pays for its own services in the district, it does get some benefits. It can issue municipal bonds, which get a lower interest rate than corporate debt. Disney is also exempt from certain fees and may save money by contracting local sheriff’s deputies, according to Foglesong. But the main benefit over the decades has been the flexibility the designation affords Disney.”
“They’d rather have it their way, where they can do things for themselves, rather than have to depend upon government,” Foglesong said.
Disney will probably fight back. It can’t pick up Walt Disney World and move it to a friendlier state, the way it can threaten to take the production of Marvel movies out of Georgia.”
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109