Supreme Court Totally Reverses Strand on Rehearing

In Strand v. Escambia County, (opinion on rehearing), the Florida Supreme Court reconsidered its earlier decision and reversed it entirely.

Under the new decision, local governments, school boards, special districts, etc., can issue bonds that may be repaid in all or part with ad valorem tax monies without a referendum approval so long as the covenants clearly state that the ad valorem taxing authority is not being pledged to pay the bonds; that is, that the bondholders cannot sue to force the government to raise or levy ad valorem taxes to repay the bonds.

In separate opinions, it validated bonds issued by Community Redevelopment Agencies that are payable with tax increment financing funds City of Parker v. State, and Bay County v. Town of Cedar Grove. The Cedar Grove case is particularly interesting because the tax revenues involved are levied only be the County, but fund a CRA within a city that doesn't levy ad valorem taxes (go figure!)

I'm sure there will be LOTS of analysis in coming days, so I just wanted to flag the case right away. It certainly involves the most significant reversal on rehearing by the Fla Supreme Court I've ever read.

Illegal Exactions Protected by Bond Validation

In Frederick et al v. Northern Palm Beach County Improvement District et al, the District Court upheld the circuit court's dismissal of claims raised by various homeowners who claimed that they were subjected to unconstitutional exactions.

The homeowner's predecessors in interest (the developer) cut a deal with the county to set up an improvement district to fund not only the roads internal to the project, but also to build a major section of arterial road. While the project was still under the developer's control, an assessment was levied (for 20 years) against property in the development and the bonds were validated.

None of the other developments who benefit from the improved major road were assessed. Later, homeowners subject to the assessment -- understandably annoyed when they realized they were paying for infrastructure for the entire area, and effectively subsidizing the other developments-- sued to establish that the assessments were illegal because they were not proportionate to the impacts of the paying development.

The circuit court dismissed, holding that the statute of limitations had run the validation of the bonds precluded later challenges to the assessments. The District Court affirmed, holding that the homeowners were bound by their predecessor's knowledge of the date of the validation/action.

In the case now before us, we must balance the interests of the Homeowners in
receiving notice of the exclusive nature of the Unit 18 assessments against the
public policy concerns highlighted in H&B Builders. Weighing these competing
interests, we find that, on these facts, the Homeowners interests are outweighed
by the need of the District for certainty in creating water management plans and
funding those plans. As a result, the approval and creation of the assessments
and impact fees here by the District provided sufficient notice to then existing
and future homeowners of their obligations. This is true even if the assessments
and impact fees were improperly levied. See Ves Carpenter, 422 So. 2d 342;
Spring Lake Improvement District, 814 So. 2d 1077.

So, clearly, sue before you buy - or at least be sure that your developer did.

Holy Cow! Fla. Supremes Say Oops (kind of) in Strand

Wow! Three weeks after issuing Strand v. Escambia County, and after numerous motions for rehearing poured in because of the implications of the decision on existing non-validated bonds and obligations, the Supreme Court issued this revised opinion AND granted rehearing.

The revised opinion expands protections for bonds and obligations already issued (especially critical to CRAs) and also COPS (certificates of participation) already issued by school boards under the Sarasota School Board case.

Here's the language from the order on rehearing, the likes of which I have never seen:

Having issued a revised opinion, the Court defers ruling on the Appellee's Motion for Rehearing and Clarification until after the below scheduled oral argument.
The Court's order dated September 20, 2007, previously setting oral argument, is hereby vacated. Oral argument on rehearing is hereby scheduled at 9:00 a.m., Tuesday, October 9, 2007. A maximum of twenty minutes to each side is allowed for the argument, but counsel is expected to use only so much of that time as is necessary. The motion to expand time for oral argument, filed by Escambia County, Florida, is denied. Parties and amici curiae on each side shall agree on the division of time for each respective side prior to oral argument, but not more than one attorney may speak on behalf of each category of interest.

The revised opinion removes any issue with regard to bonds issued or validated prior to this opinion becoming final and they are unaffected. Additionally, the revised opinion removes any issue with regard to certificates or obligations issued in reliance upon State v. School Board of Sarasota County, 561 So. 2d 549 (Fla. 1990), and they are similarly unaffected. Therefore, the Court will not entertain any arguments related to bonds previously issued or validated or any arguments related to certificates or obligations issued in reliance upon State v. School Board of Sarasota County.

Here's the guts of the revisions to the opinion:

Also, our decision in this case does not affect bonds that were validated prior to this opinion becoming final. See Miami Beach, 392 So. 2d at 895; County Comm’rs v. King, 13 Fla. 451 (1869). As this Court has stated, “after validation, the courts will protect even the purchasers of unconstitutional bonds.” Miami Beach, 392 So. 2d at 895 (citing Giles J. Patterson, Legal Aspects of Florida Municipal Bond Financing, 6 U. Fla. L. Rev. 287, 289 (1953)). Moreover, our decision in this case does not affect bonds that were issued prior to this opinion becoming final. In other words, this opinion does not retroactively apply to bonds and obligations that have been issued based on the authority of the precedent from which this Court now recedes.

Accordingly, we reverse the trial court’s final judgment in this case and hold that Escambia County does not have authority to issue the subject bonds without a referendum. In so doing, we recede from Miami Beach.8

8. Our receding from Miami Beach does not impact the ultimate holding of State v. School Board of Sarasota County, 561 So. 2d 549 (Fla. 1990), or the validity of similar certificates of participation issued or to be issued in reliance thereon. See 561 So. 2d at 552 (explaining that like the agreements this Court authorized without a referendum in State v. Brevard County, 539 So. 2d 461 (Fla. 1989), the agreements at issue in School Board of Sarasota County do not “matur[e] more than twelve months after issuance”).

[emphasis added by RL]

The local government community and school boards all over the state have been in a panic over whether the original decision left existing bonds in limbo, and I heard last week that pretty much the entire body of TIF bonds had been de-rated by S&P due to the decision (and the fact that these generally don't get validated).

I'll say it again - WOW!

Fla Supremes Make REALLY Sure We'll Have Lots of Special Assessments - No Bonds for TIFs w/out Referendum

In my "local government law" class in law school - and in studying for the bar - I learned that you can't pledge ad valorem tax revenues for bonds without a referendum. I also learned the exception - you could pledge TIF revenues or combinations of revenues, so long as the core "ad valorem" taxing power was not implicated in the pledge.

Not any more. In Strand v. Escambia County, the Florida Supreme Court drove a stake into the heart of the Miami Beach case that established the "TIF exception" and loosed an arrow (not yet struck) into the "combination of revenues" exception established in the Sarasota County School Board case.

Not surprisingly, a local government had taken the TIF exception (carved out for CRA type improvements) to an extreme, funding a major road improvement ($135M) for Perdido Key solely from TIF-backed bonds. The TIF "area" is the "Southwest Escambia County Improvement District"-- which does NOT appear anywhere in the opinion as an MSTU/MSBU; instead it appears that the County tried to use its home rule powers to simply create a TIF-type area from whole cloth to segregate general-fund ad valorem tax dollars into the bond payments. [I'm sure I'll here from the principles if I've got this wrong or if the Court missed it.] The Court invalidated the bonds as being in violation of Article VII, s. 12.

The Court did a very scholarly job of reviewing the bad history of ad valorem-backed bonds in Florida and the two main "exception" cases. It also discussed (cogently) the Volusia County case that held that the County couldn't pledge a hodge podge of non-ad volorem revenues to back a bond if it appeared that the county might have to raise ad valorem taxes to replace the pledged revenues. The Court concluded that the Miami Beach and Sarasota School Board cases went too far and reeled them back in.

So, in the span of two weeks we find out that local governments get huge discretion to issue bonds backed by special assessments and have little or no discretion to issue bonds backed by ANY kind of ad valorem revenues. Two results are pretty much automatic:

1) HEELLLOOOO MSTUs and Special Districts with special assessments. I'm guessing we'll see lots and lots of these because its the only way left to raise funds to pay for infrastructure.

[Well, maybe we won't see so many in the short run. After over 25 years of Republican preaching about "no new taxes" and government waste, the citizenry thinks that it can get better roads and other infrastructure for free. It's all new development's fault, just use impact fees to do it, and if they don't work, screw around with concurrency to create moratoria and then make them pay for everything just to be able to do anything. In that climate, we probably won't see cities and counties establishing responsible ways to pay for infrastructure until they lose a few major cases.]

2) Bye, bye CRAs!!! No bonding for TIF revenues from CRAs, so why bother - straight into special assessment districts. First they lose the power to condemn for redevelopment, and now they lose the ability to bond TIF dollars - the two useful functions of CRAs are now pretty much toast.