- Wes De Silvestro
If you’ve been following the political news cycle as of late, you may have noticed that Governor Ron DeSantis and the Florida Legislature revoked Disney’s ability to self-govern via a special district last week in a bill that’s set to take effect in June 2023.
There’s already been plenty of coverage about this special district—the Reedy Creek Improvement District (RCID)—and the implications of dissolving it for Florida taxpayers. But what I haven’t seen is a thorough introduction to special districts, their role in municipal finance, or how Disney and the nearby local governments surrounding the District might respond to the impending dissolution.
Weirdly, this is one very niche area of public finance that I happen to know quite a bit about, so I decided to write a quick primer on special districts and why in Disney’s case, Reedy Creek is actually an example of a very smart, innovative governance solution. Hopefully, along the way, you’ll gain an understanding of what role special districts play in local governance, and why the Republicans’ revocation of the District is not likely to be that consequential to Florida taxpayers in the end.
What are local governments and how do they raise revenue?
To start, let me give you a little introduction to local governments and how they fund themselves.
In the US, we adhere to a federalist system, meaning we break up governmental power into three broad levels: federal, state, and local. Each level has different responsibilities and sources of revenue, but it is that last prong of the federalist ladder that’s responsible for maintaining most of the tangible infrastructure we interact with on a day-to-day basis. Local government—which we usually bump into in the form of the cities and counties we inhabit—is typically1 responsible for managing boring infrastructure like roads, parks, police/fire departments, public transportation, garbage collection, etc.
Among local government geeks, we call cities and counties general-purpose local governments because they provide a diverse set of services to their constituents and have broad legislative authority within their incorporated bounds. Generally, any power not previously restricted at the state or federal level is fair game for these governments to wield.2 That’s why we see cities join international groups like the Global Covenant of Mayors and tackle novel challenges like climate change, issues that previously fell outside of the municipal domain.
In contrast to their general-purpose counterparts, we also have special-purpose local governments which are charged with accomplishing a specific, predetermined function.3 We most commonly see them used to build, finance, and maintain a narrow type of infrastructure like fire & rescue services and airports. But special-purpose governments can be created to do anything—so you often see some interesting and diverse governments created to meet local needs. For example, my home state of Florida has dozens of mosquito control districts which you’ll only find in a handful of other states.
Technically, public school districts are a type of local government too, specifically special-purpose in nature.
All local governments—at least in Florida (but the process is very similar in almost all other states)—fund themselves through taxes, intergovernmental transfers, and fees. When we think about local government, we tend to think property taxes, but they actually only constitute about a third of revenue for most general-purpose local governments around the country. Intergovernmental transfers from the state & federal government as well as fees charged for services (think permitting fees, water utility bills, etc.) make up the rest. Because special-purpose governments often backstop a public utility such as a water, sewer, or sanitation services provider, most receive the bulk of their revenue from fees charged to residents in their service area.
It’s worth noting that local governments are overlapping—while you can only be a legal resident of a single state government at a time (and everyone in the US falls under the federal government’s purview), you can belong to multiple local governments simultaneously. In a state like Florida where there are almost 2,000 special-purpose entities, you might pay taxes to upwards of a dozen different local governments a year. Thankfully, the tax collector handles all of the accounting, math, and complexity of distributing money into the appropriate hands behind the scenes.
A screenshot of an Orlando Costco's 2021 property tax bill. They're paying just over $400k to six different local governments in the area. You can view the full tax bill here (yes, all property tax bills are a public record!).
The Reedy Creek Improvement District
All the contention surrounding Disney and Florida Republicans at the moment has to do with a special-purpose government, called the Reedy Creek Improvement District (RCID), that was established for Disney way back in 1967 before they built Disney World.
RCID was created at the request of Walt Disney himself after he had experienced challenges with the local government environment in Anaheim, CA while building Disneyland. One quirk with RCID is that Florida underwent a major state constitutional revision in 1968, a year after the District was established. As a result, RCID was grandfathered into a variety of powers that we don’t typically grant to special-purpose governments today, including the ability to build and maintain a nuclear power plant!
Like other special districts in Florida, RCID can raise revenue through property taxes, issue bonds backed by this revenue stream, and then use the proceeds to pay for expensive capital investments like roads, stormwater drainage systems, electric utility infrastructure, and so on. What’s unique about it is that its purpose is not limited to a narrow type of infrastructure like most other special-purpose governments, but instead oversees a very broad set of governmental powers. Reedy Creek looks and functions like a general-purpose government even though it’s technically incorporated as a special-purpose one.
Being a governmental entity, RCID has a process for electing a board of supervisors, holding public meetings, responding to public records requests, etc. In practice though, the District is controlled by a single taxpayer and voter: Disney Parks, Experiences and Products, Inc., AKA Disney. Control over the District is effectively vested in Disney because votes are doled out according to the percentage of land one owns within the incorporated area. Because Disney owns essentially all non-public land in the District (upwards of 70% according to one, slightly dated report), its representatives always win District elections and control the Board’s authority.
Now, this is where misunderstandings around the District started to crop up online. And based on everything I’ve said so far, that’s not unexpected nor that unreasonable. A lot of people reacted this way: “You’re telling me that Disney gets to run its own special government in Florida to achieve greater operational flexibility, and the government is functionally undemocratic and only responsive to the demands of Disney itself?!”
Yes. That’s exactly what I’m saying. But it’s not as bad as it looks.
Because Disney owns essentially all of the land in the District, they’re merely taxing themselves and using the proceeds to pay for their infrastructure needs. No one really lives in Reedy Creek, so there is no large population of Florida taxpayers to form an opposing coalition that would subsequently and swiftly be crushed by the Disney lobby. One news report even claimed that less than 40 people are actual residents of the District, and every single one of them is an employee or former representative of the company.4
Why Reedy Creek is smart and responsible governance
Now, suppose we lived in an alternate universe where the Reedy Creek Improvement District was never authorized by the Florida Legislature. The cost of providing all of the infrastructure that Disney relies upon would fall upon the general-purpose government within that given land area. In this case, that would be the two counties in Central Florida that Disney World occupies: Orange and Osceola County.
Currently, those counties don’t compete for the provision of services within Reedy Creek. RCID taxes and funds its own public infrastructure needs almost entirely using Disney’s balance sheet. RCID is best thought of as an accounting mechanism to give Disney greater operational control and flexibility in maintaining the upkeep of its parks.
And doing so isn’t cheap. In fiscal year 2022, RCID plans to collect just short of $165 million in property taxes to bankroll its work. Local governments in Florida have a legal cap on how much they can raise property taxes to support themselves, and that cap is three times higher within RCID than in the rest of the state (another legislative peculiarity unique to the District). The standard cap is 10 mills5, but RCID already taxes Disney at well above that: 13.574 mills in total.
A look at the ad valorem taxes (legalese for "property taxes") that RCID plans to collect in FY22. See the full budget here.
So in a parallel universe where RCID didn’t exist, Orange and Osceola County would be responsible for footing the entirety of Disney’s infrastructure bill. That means the $165 million in anticipated 2022 property taxes would be collected from all taxpayers in those two counties, of which Disney would constitute now a smaller percentage of the total pool. And because property taxes must be assessed at an equal rate for all property owners absent a special district or separate taxing unit, Disney’s tax liability would be diluted over a much larger tax base.
This is why it’s ridiculous to call RCID a “tax break” for Disney, even though that’s precisely what Florida Republican lawmakers have said over the past few weeks. Some liberal pundits have (correctly) claimed the opposite: dissolving RCID would be the real tax break for Disney because the tax burden and cost of administering all that infrastructure would now fall on the general-purpose government in the area (in this case, both Orange and Osceola County as RCID stretches into both counties).
This would be a terrible outcome for Central Florida taxpayers. RCID’s 2022 budget indicates that not only does the District collect $165 million in annual property taxes, but it holds $954 million in outstanding bond debt. Of that, $803 million is in general obligation bonds. In public finance speak, that means the bondholder can legally coerce the local government that issued the bond to raise taxes to meet the debt service requirements on those bonds.
Even if Orange and Osceola County wanted to ramp down the quality of infrastructure service provided to Disney to reduce its costs (which would also be a terrible idea from an economic development and tourism perspective), its hands are tied by this bond debt. Given current tax rates in these counties, property taxes would have to increase as much as 25% to accommodate the increased infrastructure costs.6
Now, why this all sounds very bad—I do think that the local politicians and activists have overplayed this scenario a bit. It is factually true that dissolving Reedy Creek would shift a massive tax and debt burden onto non-Disney taxpayers; however, it’s unlikely a doomsday scenario like this would ever happen.
Why dissolving the District is not that straightforward
First of all, there are a lot of reasons to believe that the Florida Legislature and DeSantis screwed up procedurally and this will get thrown out by the courts.
The most obvious concern is of the First Amendment variety. Florida Republicans only targeted Disney in the first place as a form of retaliation for them speaking out against the state’s “Don’t Say Gay” bill. The Supreme Court has expressly recognized the free speech rights of corporations, particularly when it comes to political speech. Even if revoking the special district privilege is legally sound, it’s hard to not view the impetus of this as a massive First Amendment violation.
Beyond that, there are contractual obligations that some people have pointed out. The Florida Legislature previously pledged to leave the District’s authority alone until all bond obligations were fully discharged. Independent of the constitutionality of this whole thing, these contractual commitments may impair or at least slow down the Legislature’s ability to ax RCID.
But even if the dissolution of Reedy Creek did go through, there are substantive grounds to assume this whole thing is nothing more than political theater. The reason? It’s politically infeasible to imagine 1.8 million Floridian residents having to bear the brunt of Disney’s infrastructure expenses—it’d be political suicide for the Florida Republicans that initiated the move.
Thankfully, there are a lot of ways that the local government, Disney, and/or the state government could restructure the tax burden to effectively recreate the structure of the RCID situation that exists today.
The most obvious solution lies in the fact that while Reedy Creek might be going away, not all of Disney’s legal control over local government is going with it. Disney, leveraging RCID’s legislative authority, has established two cities within the District’s boundaries over the last half-century: Bay Lake and Lake Buena Vista. Again, these aren’t cities where people are intended to live; they’re better thought of as accounting/legal mechanisms to manage Disney’s infrastructure and governance needs. Even if RCID’s dissolution were to go through, the bulk of the (valuable) land within the District’s boundaries is contained within these two municipalities. You can see this on the map below:
A map of the Reedy Creek Improvement District. Notice the District is split up into three areas: the City of Bay Lake, the City of Lake Buena Vista, and unincorporated land. Collectively, all three of these parts of the District cross into both Orange and Osceola County.
These cities, despite being established using the District’s authority, won’t be going away if the dissolution goes through. And while Reedy Creek’s balance sheet is designated to be transferred over to Orange and Osceola County, Disney may be able to transfer the District’s assets over to these two municipalities before the June 2023 sunset date. They might also choose to annex the unincorporated land within the District into these two cities before 2023, effectively giving them continued control over Reedy Creek even when the District is gone. Because cities in Florida have broad powers under home rule, this approach will leave Disney with flexibility similar to what they currently possess under the Reedy Creek setup.7
If Disney doesn’t want to take that approach, there’s room for them to cooperate with Orange and Osceola County as well to avoid a disaster for taxpayers. The Counties can establish what’s called a municipal service taxing unit (MSTU)—essentially an accounting mechanism that allows local governments to draw an arbitrary district and collect additional taxes within that area. In this case, they might choose to draw an MSTU over the former bounds of Reedy Creek, allowing them to tax Disney at the requisite level to support the costs associated with taking over the District’s balance sheet.8
Orange County’s Tax Collector, Scott Randolph, suggested that this would be an unworkable solution given that it requires prior consent (i.e., a vote) on behalf of the affected entities. In other words, Bay Lake and Lake Buena Vista would have to agree to allow the MSTU to be established. However, I think there’s good reason to expect Disney would consent and follow along. They’re facing serious pressure from their bondholders to clean up this situation ASAP, and while most Florida residents will probably see this whole affair as Republican-initiated, Disney is unlikely to go entirely unscathed in a PR battle if a tax hike does land on taxpayers’ bills.
But suppose that Disney doesn't consent to an MSTU being created, what option would Orange and Osceola County have then?
In that case, both counties could levy a special assessment which would allow them to assess a charge against certain properties based on a specific benefit provided to those properties. There’s a straightforward legal argument to be made that all existing infrastructure within Reedy Creek is very specifically tied to the needs of the corresponding properties in those areas. Thus, if Orange and Osceola County were to take over the administration of that infrastructure, they might consider it to be a “special benefit” to Disney-related properties alone, and thus have the legal basis to levy a special assessment.
This is a novel legal strategy that I don’t anticipate either of the Counties needing—but I spoke with a Florida attorney that’s Board-certified in City, County, and Local Government Law and they agreed this approach is entirely legal. Plus, it kills two birds with one stone:
- It doesn’t require a vote of the affected landowners, meaning there’s no risk if Disney doesn’t cooperate. Both Counties can still levy the charge if need be.
- There’s no millage cap on special assessments because they’re not technically a tax. Thus, both Counties can extract the exact amount of revenue required to maintain the same infrastructure, whereas an MSTU might fall short and require an extra vote of the electors to raise the cap.
The downside of both the MTSU and special assessment approach is that the burden of administering the infrastructure will still fall on the County. This is a bad governance outcome for everyone involved, but thankfully it won’t mean catastrophe for taxpayers. The real annoyance will be Disney’s to deal with—they’ll lose all the operational flexibility self-governance entailed, yet pay the same amount of taxes each year. This might mean that public infrastructure considerations for their theme parks would go from being a second thought to a potentially difficult, even NIMBY-prone political situation that must be fought for each fiscal year.
But, the most probable outcome is that the Florida Legislature just steps in and cleans up this situation in the next legislative session. A cynic might even say that they never intended to fully dissolve Reedy Creek in the first place—they just wanted to give Disney a good scare and perhaps force them to reestablish the special district with a more limited set of powers. Reincorporation of the District would achieve the timely political theater that DeSantis so desires, as well as allow the Legislature to take away unrealistic authority vested in the District. For example, they might strip away that ability to build nuclear power plants, a cause of great controversy in 2019.
Why the dissolution sets a terrible precedent
Granted, while my take is that the tax implications for Floridians are probably overstated because of the political risk involved, I don’t want readers to leave this piece thinking I feel the dissolution is not that big of a deal overall. This was a dumb move by DeSantis and the Florida Legislature.
First of all, our state government should not be utilizing its legislative authority to choose winners and losers based on the exercise of free speech rights, particularly because they disagree with the content of the speech. There’s a thin line between eroding that norm and descending into crony capitalism.
Secondly, even if you think Disney is dumb for having taken a political stand and should be punished accordingly, this was a terrible way to do it. There are plenty of other avenues by which DeSantis and friends could have attacked Mickey Mouse and Co. like boycotting going to the parks or refusing to pass additional tax breaks earmarked for the company.9
Instead, they chose to dismantle a vital legal entity that bankrolls almost a billion dollars in debt and maintains infrastructure for literally the state’s most vital resource in terms of its tourism-based economy. It’s hard to find exact numbers, but a 2011 report from Disney claimed its Florida operations are responsible for 1 in 50 jobs in the state and upwards of 2.5% of total state GDP. Contrast that with the Florida Senate staff analysis of the legislation authorizing the dissolution which predicted an “indeterminate fiscal impact” on the private sector and nearby general-purpose governments. Is messing with one of your state’s economic juggernauts really that indeterminate of a thing?
The trouble for Florida is that serious damage has already been inflicted regardless of how this situation turns out. The state has effectively sent a message to potential investors—whether that be prospective bondholders, F500 companies, or startups looking to relocate—that it can and will leverage its legislative authority to participate in expedient political theater at the expense of consistency and predictability in the local economic environment. Fitch, a major credit rating agency, just placed Reedy Creek on “negative watch,” reflecting the fact that investors are worried about the potential ramifications of the District’s impending dissolution. And Reedy Creek’s officials have already gone into overdrive trying to reassure investors that they will be able to maintain their debt service obligations and not to be worried.
And while I do think the Legislature has zero intention of shifting that debt service onto general taxpayers or that it intends to erode bondholder confidence in Disney and the District, this whole affair is going to be pretty expensive for everyone involved. Disney is going to spend millions of dollars on lawyers, lobbyists, and PR officials trying to litigate, lobby, and squirm their way out of this. And the Florida Legislature (as well as Orange & Osceola County) will be preoccupied with the fallout too, distracted from working on other issues that would actually serve the common good and move the state forward. The State will also be on the hook for legal fees associated with defending the law or even paying damages to bondholders, should it come to that.
Some concluding thoughts
I suspect some people will leave this piece and still think that independent of the political retaliation, it is kind of absurd Disney has this level of ability to self-govern. They might even think it’s unfair that Disney alone gets this privilege and wonder why other major corporations are excluded from similar structures of self-governance in the state. And I’d probably be inclined to agree with them!
Some of the District’s powers—like the one authorizing them to build nuclear power plants—were irresponsibly granted in the original charter and should be removed. But in general, delegating the boring infrastructure stuff to be paid for and handled by literally the only entity that will be benefiting from said infrastructure makes a lot of sense. Furthermore, Disney is pretty far out from the population centers of Orange and Osceola County—providing public infrastructure increases in cost the further out you get from an urban center (especially when that infrastructure must fit the needs of the country’s largest single-site of employment with 77k employees!). It doesn’t make sense for the County to provide that infrastructure because it’d end up inevitably subsidizing the cost for Disney at the expense of other taxpayers.
But what about Universal Studios, you might respond. Why don’t they get a special-purpose government to do as they wish?
To which I would respond: if it’s in the public interest, why not give them one too? RCID actively reduces taxpayer expenses, significantly improves economic development and tourism within the area, and saves the nearby counties a ton of administrative burden. If there is another gigantic landowner (mind you, Disney owns 50x more land than Universal and employs three times as many people on-site) with unique infrastructure needs that would otherwise burden unaffiliated taxpayers, why not grant them a special-purpose government? Of course, we can do so with more limited powers than RCID currently has and be a bit more careful about the regulatory oversight available to the corresponding general-purpose government in the area, but why not pursue public-private partnerships like this more often?
Maybe the real lesson from this whole Disney debacle is that we need more innovative governance setups like the Reedy Creek Improvement District, not fewer. And, when you have a smart setup that works, don’t tear it down for the sake of some cheap political points.
Thanks to Jamy Dinkins for reading drafts of this.
I say “typically” because this is an oversimplification in some areas. Obviously, there are federal and state-managed roads too—but probably most of the roads you drive on regularly are administered by your city and/or county. ↩
This too is a simplification. In reality, each state’s constitution restricts the type of powers delegated to general-purpose local governments. Most states are “home rule” states, meaning all remaining powers not vested in the federal and state government are passed downward. However, some states adhere to “Dillon’s Rule,” only granting powers that are expressly listed in the state’s constitution and/or statutes. Florida is a home rule state, in case you were wondering. ↩
Because their authorities are predetermined, all special-purpose local governments (like the soon-to-be-discussed Reedy Creek Improvement District) operate like a Dillon’s Rule government. That is, they only have the specific powers granted to them by the general-purpose governments and/or state government that created them. ↩
This news report is from a 1989 edition of the Orlando Sentinel. I’m sure more people live in Reedy Creek today, but the point still stands: you’re within the bounds of the District (and therefore fall under RCID’s authority) if you are an agent, representative, or close affiliate of Disney. Reedy Creek is Disney World and vice-versa—there aren’t really any independent taxpayers living in the District. Even Golden Oak, a luxury subdivision that markets itself as being a “resort-style community” nestled near Disney World, does not actually fall within the boundaries of RCID. ↩
A mill is one tenth of a percent. So if your property taxes are assessed at a millage rate of 5 mills, then you are being charged at a rate of 0.5% of the taxable value of your property. ↩
This number is taken from an estimate by the Orange County Tax Collector, Scott Randolph. It’s on the high end though because it’s based on shifting 100% of the tax burden onto Orange County’s budget, when in reality, it’d be split between both Orange and Osceola County (but not evenly—the bulk of assessed property value, and therefore taxes, is on the Orange County side). ↩
You might also wonder why Disney doesn’t just choose to privatize and take over Reedy Creek’s balance sheet directly. While this may be an option, they’ll lose all of the advantages that come with operating infrastructure through a local government. Namely, the fact that municipal bonds are tax free, whereas corporate bonds are not. Thus, the cost of capital for all that infrastructure investment is considerably cheaper for a local government to finance than a private corporation. ↩
Note that MSTUs eat into the 10-mill property tax cap that was previously discussed, so there are concerns that Orange and Osceola County wouldn’t be able to raise enough revenue before they hit the cap. However, it’s possible to raise the cap through a vote of the electors—in this case, Disney affiliates would just have to vote again to approve a slightly higher taxation rate within the MSTU. ↩
Obviously, they didn’t choose those avenues precisely because the goal here was loud and far-reaching political theater. However, I suspect they may have miscalculated and that their plan backfired. Floridians really love Disney, and I just don’t think targeting it in this way was a particularly good look, especially given all the negative news that has come out since with regards to the potential tax implications. Just because my nerdy analysis shows the political risk is too high and can be remedied via legal means doesn’t mean the average Central Floridian won’t be worried about their tax bill and pissed at DeSantis during an election year. ↩