Florida Gov. Ron DeSantis on Monday signed the bill to rename the Reedy Creek Improvement District that ends the Walt Disney Co.'s governance of the special district. He also named a five-member state-controlled board to run the renamed Central Florida Tourism Oversight District.
Municipal
Ben Watkins, director of Florida's Bond Division, told The Bond Buyer earlier this month that bondholders shouldn't be worried about the changes.
"The main point is that this is a change primarily in name only," he said. "There will be no impact on debt whatsoever. It will be the same entity, same security. There's going to be no impact on outstanding debt."
The
Disney had voiced strong opposition to the state's Parental Rights in Education Act, which critics called the "Don't Say Gay" bill. The law bans public school instruction about sexual orientation or gender identity for children through the third grade.
"Allowing a corporation to control its own government is bad policy, especially when the corporation makes decisions that impact an entire region," DeSantis said at the bill signing ceremony. "This legislation ends Disney's self-governing status, makes Disney live under the same laws as everybody else, and ensures that Disney pays its debts and fair share of taxes."
Additionally, it ensures municipal bond debt will be paid by Disney, not Florida taxpayers, DeSantis said.
And in keeping with the
DeSantis, along with Senate President Kathleen Passidomo and Renner, announced their plan to introduce anti-ESG legislation the prior week.
"By applying arbitrary ESG financial metrics that serve no one except the companies that created them, elites are circumventing the ballot box to implement a radical ideological agenda," DeSantis said.
The text of the bill states: it will be prohibited for any issuer to issue ESG bonds; to enter into a contract with any rating agency whose ESG scores for the issuer will have a direct, negative impact on its bond ratings; or to use public funds or moneys from a bond issuance to pay for the services of a third-party verifier to certify that the bonds may be designated as ESG bonds; or to use a second-party opinion or a verifier's report as to the compliance of proposed ESG bonds with ESG standards and metrics and complying with post-issuance reporting obligations.
"Florida's investment decisions should be based solely on financial or pecuniary factors, not political virtue signaling through radical ESG investment strategies," Renner said in a statement.
The proposed legislation comes after DeSantis and trustees of the State Board of Administration removed ESG considerations from state investment decisions.
"When financial institutions use ESG to make investment decisions, they drive up the cost of living, undermine our national security and bypass our democratic process," Renner said. "Those with the responsibility of investing state dollars, like state employee pension fund managers, have a primary fiduciary duty to act in the sole financial interest of their client."
Rating agencies came under fire in the legislation for using ESG in their analyses.
In December, Renner wrote the three credit rating agencies which rate Florida's debt demanding they "drop the politics and return to objective, financial criteria, universally recognized to measure a state's credit rating."
Renner said the same ideologies that have "pushed indoctrination at the expense of education" have also co-opted Wall Street with political demands branded under the ESG umbrella.
Florida's general obligation bonds are already gilt-edged, holding triple-A ratings from Moody's Investors Service, S&P Global Ratings and Fitch Ratings.
Cumberland Advisors President and CEO John Mousseau said ratings were an important investor tool.
"We can't possibly emphasize enough how misguided and unfortunate this stance is," Mousseau wrote. "Cumberland Advisors, like many other money managers, relies on bond ratings from rating agencies such as Moody's, Standard & Poor's and Fitch in evaluating bonds for purchase or sale in our clients' portfolios. The rating agencies are relied upon not only by money managers like us but also by financial consultants, individuals, as well as institutional investors, and of course by issuers."
Analysts at Municipal Market Analytics agreed.
"If enacted, [the law] would actually seem to prohibit, starting in July, most state and local borrowers' use of most publicly available ratings," Matt Fabian, partner at MMA, and Lisa Washburn, managing director, said in a market note. "Specifically, the bill would ban any state or local borrower from entering into a contract with any rating agency whose ESG scores for such issuer will have a direct, negative impact on the issuer's bond ratings."
MMA said the move could be seen as attempt to make the rating agencies give Florida bond issuers more favorable treatment, seeing as they are vulnerable to climate change risks.
"The bill also bans the issuance of 'ESG bonds,' which the authors define broadly enough to include 'environmental bonds marketed as promoting an environmental objective,' and, 'sustainable development goal (?) bonds.' The terms here are sufficiently sweeping and cryptic so as to create major validation challenges for bond counsel and underwriters," MMA said.
"In MMA's opinion, the most likely outcome for this bill is either a adjustment or elimination of its rating agency language, the former perhaps in a way similar to the state's rephrasing of its Reedy Creek intentions from the initial 'dissolve' to the eventual 'rename and change the board of' the district, once the legal and economic realities of the state's non-impairment language needed to be addressed," MMA said.
"MMA also thinks there is nearly a zero chance that the rating agencies, which have bolstered resources and related technology at considerable cost, would back down on their implementation of ESG analytics," the analysts wrote. "The growing investor and regulatory demand for such information far outweighs — particularly in the longer term — the nuisance that Florida's proposed anti-ESG bill will cause in the short run, at least until its provisions are weakened to be of little consequence."
Mousseau said the law would hurt the state in the long run.
"The bottom line is that legislation like this hurts capital markets — for investors, for underwriters, and most importantly for issuers," he wrote. "Given that Florida is now the third-largest state by population in the United States, with people continuing to move to Florida for reasons of lifestyle, opportunity, and tax structure, municipal finance will play an ever greater role in the growth of the state. Why handicap that growth?"
