Court reverses bond financing decision – public vote now unnecessary

Court reverses bond financing decision – public vote now unnecessary

By Deborah Nelson
September 19, 2008

Last year, Florida’s Supreme Court said special district projects funded by property tax bonds fall under a Constitutional requirement for public vote.

Yesterday, less than a year later, Justices changed their minds.

Justice R. Fred Lewis, who disagreed with the reversal, suggested that “pandering” by opposing interests may have played a role in the Court’s change of heart.

In the original, September 2007 Dr. Gregory L. Strand v Escambia County, et. al., decision -- commonly called ‘The Strand Decision,” justices ruled that Escambia County must ask voters before issuing (debt) bonds to pay for a Perdido Key area road expansion.

Florida’s Constitution requires a public vote on bond issues to pay for new (capital) construction projects, like roads or baseball stadiums.

Issuing bonds allows government to borrow money and pay it back with interest. Bond debt can stretch out over decades and incur millions in interest payments.

But governments can get around the Constitution by creating special “Tax Increment Financing” or TIF districts. Governments can also filter bond debt by creating and funding public-private “Community Redevelopment Agencies” which then incur the actual debt.

TIF districts pledge future increases in property tax revenues created by new projects to pay off the debt incurred to build them.

If predicted new revenues don’t materialize, governments generally take bond debt service payments from other accounts.

For example, in 1989, the City of Boca Raton issued $68 million in bond debt to refurbish the City’s Mizner Park area. The public approved the project in a referendum.

If TIF revenue and lease fees don’t cover bond payments, the City of Boca Raton is required to make up the difference with public service fees.

Boca Raton has paid a total of $21.7 million thus far to make up shortfalls, according to the Community Redevelopment Agency’s 2007 Annual Report.

“The City of Boca Raton has advanced substantial funds to the [Boca Raton Community Redevelopment Agency] based upon interlocal agreements in order to cover a number of unforeseen events which have occurred with respect to the redevelopment program,” the Report notes.

That includes $7.7 million in bond debt shortfalls, plus $9.2 million in park maintenance and related interest, $712,000 for operations and $3.9 million worth of accounting, legal and other services.

Escambia’s plan did not actually require the County to levy new property taxes to plug shortfalls – a key point in the reversal, according to the majority opinion text.

Last year’s unanimous Supreme Court decision overturned a Circuit Court ruling that Escambia County could pay for the road expansion by establishing a TIF district to finance it. Justice Kenneth Bell, who hails from Pensacola, wrote that opinion.

Bell, who steps down from the Bench Oct 1, recused himself from the new reversal decision.

According to spokesperson Craig Waters, Bell recused himself because he’s returning to Pensacola and hopes to work for a law firm in the area. Many local law firms deal with bond issues similar to the Strand case, Waters said.

The Supreme Court’s reversal now affirms the original Circuit Court ruling that governments can bond TIF District projects out without public vote.

Justices R. Fred Lewis and (in part) Peggy A. Quince disagreed with the new decision.

“…the county and the amici calling for rehearing have simply pandered, postured, and expressed a self-serving desire to thwart the democratic voice of Florida’s citizens contrary to the text of the Florida Constitution,” Lewis wrote in his dissent.

Lewis argues TIF financing is subject to Constitution referendum requirements because it ultimately uses property tax dollars to service capital improvement bond debt.

“Escambia County cannot circumvent the referendum requirement because its bond-financing scheme inevitably requires that it pay for its debt with ad valorem tax revenue,” he noted.

“The local-government shell game, which is played to avoid the Florida voter, should not be sanctioned by this tribunal. Unfortunately, we have done so today by improperly expanding this game to the very “capital projects” addressed in article VII, section 12.”

Lewis contends the original precedent (State v Miami Beach Redevelopment Agency, 1980) the court is now using to affirm Escambia’s argument does not apply to capital projects like new roads.