The bond issue remains
maybe.
This depends on what it means to "substantially" impair a contract. Ultimately, this will require a legal interpretation by sitting justices, if the bond issue makes it that far.
As a refresher, the bond issue originates from a statement released by RCID:
In light of the State of Florida’s pledge to the District’s bondholders, Reedy Creek expects to explore its options while continuing its present operations, including levying and collecting its ad valorem taxes and collecting its utility revenues, paying debt service on its ad valorem tax bonds and utility revenue bonds, complying with its bond covenants and operating and maintaining its properties.
The relevant part of the Reedy Creek Act reads:
Section 56. Pledge by the State of Florida to the Bond Holders of the District and to the Federal Government.-The State of Florida pledges to the holders of any bonds issued under this Act that it will not limit or alter the rights of the District to own, acquire, construct, reconstruct, improve, maintain, operate or furnish the projects or to levy and collect the taxes, assessments, rentals, rates, fees, tolls, fares and other charges provided for herein and to fulfill the terms of any agreement made with the holders of such bonds or other obligations, that it will not in any way impair the rights or remedies of the holders, and that it will not modify in any way the exemption from taxation provided in the Act, until all such bonds together with interest thereon, and all costs and expenses in connection with any action or proceeding by or on behalf of such holders, are fully met and discharged.
Let's consider what it means to
impair a contract:
This term applies to any law that will lessen the value or decrease the enforceability of a contract or an agreement.
Contract impairment is addressed by Art. I, § 10 of the U.S. Constitution:
no State shall pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts.
Several have referenced a
Bloomberg article written by Jacob Schumer. One of the cases referenced in his article is
Von Hoffman v. City of Quincy. In brief, the City of Quincy passed a law in an attempt to avoid paying bonds it had issued. The Supreme Court ruled against the City of Quincy, finding this to be a violation of Art. I, § 10.
From RCID's perspective, this means the State of Florida cannot pass a law to avoid paying RCID's bonds.
However, this same ruling also includes the following statement:
It is competent for the States to change the form of the remedy, or to modify it otherwise, as they may see fit, provided no substantial right secured by the contract is thereby impaired.
From a Constitutional perspective, the State of Florida has a right to alter bonds issued by RCID, as long as "no substantial right secured by the contract is thereby impaired."
I find it interesting that one of the cases cited by Mr. Schumer in defense of RCID explicitly states that Florida can alter bonds, as long as those alterations are not "substantial".
As has been noted, some of the bonds cannot be paid off early. However, as noted in a separate
Bloomberg article:
There are several ways of defeasing outstanding bonds including a tender, make-whole or refunding, the strategists wrote.
For example, if a bondholder is paid in full, including all due interest, does this result in a "substantial" impairment? What if the State of Florida simply assumes the bonds, using the exact same revenue source that RCID does to guarantee these bonds? Is this a "substantial" impairment?
The State of Florida has a Constitutional right to alter bonds in non-substantial ways. The Supreme Court says so. Also consider that a purpose of Art. I, § 10 is not to guarantee that RCID exists. It's to make sure that bondholders are paid in full.
Ultimately, this is a matter of legal interpretation. What does it take to "substantially" impair these bonds?
