After Taking On Disney, Desantis Is Now Aiming At Wall Street

The fight between Florida Governor Rick Scott and Disney could be the launching pad for a presidential campaign in 2024, as it is a cautionary tale for corporate America.

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It has been reported that Ron DeSantis is warning corporate America to get on board, or else...

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Designed as a message for Republican voters across the country, the 44-year-old governor's message could serve as the springboard for a presidential run by Florida in 2024. Aside from the potential repercussions on Wall Street, there is also the possibility of repercussions on the $4 trillion municipal bond market.

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Disney Co. representatives have chosen to meet every month in the Magic Kingdom in order to oversee the day-to-day operations of the Reedy Creek Improvement District, including the approval of building permits, issuing debt, and making sure the lights at Cinderella's castle are on. They have been meeting on a monthly basis since the early days of the district.

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There is a strong expectation that DeSantis will shortly sign a bill that will give him as well as future governors control over the board overseeing local functions for Disney's parks after almost 60 years of its corporate oversight.

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As retaliation for Disney's criticism of a law he signed limiting elementary school teachings about gender identity, the new law is the culmination of DeSantis' vendetta against one of his state's largest employers. Essentially, it is part of a larger strategy to bolster his national presence by harping on what he regards as liberals' so-called woke agenda, which supports environmental, social, and governance principles as a way to assert their power.

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“He's using Disney as a way to show other companies that he'll punch back if they criticize him,” said Mac Stipanovich, a longtime Republican operative in Florida who quit the party when former president Donald Trump took over. “It’s all a performance and will only get louder if he runs for president.”

DeSantis vs. Disney's Special Tax District

It appears that so far, DeSantis has shown more bark than bite to critics. In case the government does decide to run for president in 2020, he will have to figure out a way to outmaneuver Trump, who is already starting to throw insults at Mar-a-Lago, if he does so.

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Right now, however, his attacks on the financial sector are becoming more widespread.

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There were reports last week that DeSantis was planning to propose legislation that will forbid the state and its local governments from using environmental, social, and governance criteria when issuing municipal bonds. It is unclear how much of an impact the new bill will have, given that the governor did not provide many details about the initiative. In December, it was announced that Florida plans to pull about $2 billion from BlackRock Inc., the world's largest money manager and Wall Street's biggest champion of environmental, social, and governance policies.

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“It is a distortion of a government that is owned, controlled, and governed by its citizens. You are not accountable to them, and they are not accountable to us,” DeSantis said about major Wall Street banks in a recent press conference. According to him, he plans to bring forth new laws that would prohibit state deposits from being made in banks that "pursue a woke agenda," among other measures. “How long ago did you bail out these big banks? ”

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The targets DeSantis chooses are carefully chosen. With the backing of finance billionaires like Ken Griffin and Thomas Peterffy, the governor is making sure to tout his pro-business credentials, offering tax cuts and other incentives to financial firms moving to his state, while slamming parts of Wall Street that are not universally popular.

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Florida's governor isn't the only one using this strategy.

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There has been a growing trend among Republicans in Congress and other states to exploit social and cultural issues to fire up conservative voters. As a result of allegations that Citigroup Inc. discriminated against the firearms industry, the bank has been banned from the Texas municipal bond market, a claim that the bank has denied. 

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Several states, including West Virginia and Kentucky, have published blacklists of Wall Street firms that have "boycotted" fossil fuels, threatening divestment from companies such as JPMorgan Chase & Co. and HSBC Plc over their actions. There has been a strong pushback in the House of Representatives against proposed SEC climate disclosure rules, which have been characterized as a "far-left social agenda" that is "tone-deaf and misguided."

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Despite the fact that most of these attacks have thus far caused little to no financial damage to most companies, they can turn into a nightmare of public relations and an incentive to stay quiet about important issues of the day.

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In this regard, there is no better example than the feud between DeSantis and Disney's Reedy Creek district in which this has played out most clearly.

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Historically, Disney's Florida theme parks have been governed as an independent government by a five-member board and staff, which has jurisdiction over the 38.5 square miles (90.7 square kilometers) of land that houses Disney's theme parks.

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There are a number of rules and regulations specific to Reedy Creek's construction process, making it easier for Disney to get things done without wading through the bureaucratic channels of multiple government agencies.

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The purpose of special districts is to provide specific, focused services for a particular reason. The reason that they are created is to avoid overburdening the tax base with services that are not being used by the taxpayers. Reedy Creek was a small town that was run by a district that was responsible both for the general operations of running a small city that gets millions of visitors each year, with functions such as building highways, providing emergency services, and maintaining sidewalks, as well as providing water and electricity to the community.

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It is estimated that there are tens of thousands of these districts throughout the country, including over 1,800 districts in Florida. As a result of the high degree of control Disney wields over Reedy Creek's governance as well as the fact that the district is symbiotically related to the company, This makes Reedy Creek's district unique in the Disney system.

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According to a spokesperson for Governor DeSantis, until Governor DeSantis acted on the issue, the Walt Disney Company maintained sole control over the district. As a result, the corporate kingdom had become unaccountable and ungoverned.

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Aside from issuing over $1 billion of bonds, the district sold them to the likes of BlackRock and Goldman Sachs Group Inc. and was the kind of entity that was only known to rating companies and muni-bond collectors.

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DeSantis shook investors and credit rating agencies when he weaponized this area of municipal finance.

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According to Michael Rinaldi, who is the head of local government ratings at Fitch Ratings, there is always the potential for unintended consequences when it comes to new legislation, so we are not out of the woods yet. "This credit was never a concern before last year."

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The governor slammed Disney for opposing the bill he signed last year that restricts instruction about gender identity and sexual orientation in kindergarten through third grade as a result of Disney's opposition. When Disney was under the leadership of Bob Chapek, the company stated in a press release that the bill "should never have been passed and should never have been passed into law" and that they would fight to have it repealed by the legislature or thrown out by the courts.

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Disney brought back former executive Bob Iger to replace Chapek as chief executive officer in November of last year. Over the past year, Walt Disney World has said very little about Reedy Creek, apart from a statement issued by Jeff Vahle, the company's president, in this article, and over the past year the company declined to comment.

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“We are looking forward to the future and we are ready to work within this new framework, and we will continue to innovate, inspire and bring joy to the millions of guests who come to Florida each year to visit Walt Disney World,” Vahle said after the legislation passed.

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Despite Reedy Creek's obligation to its outstanding bonds, along with Reedy Creek's renaming and the way its board of directors is appointed, the new law keeps Reedy Creek's obligations to its outstanding bonds intact, leaving Reedy Creek's revenue streams to continue. There is a possibility that the new board could levy new taxes or complicate the approval process for projects like roads and parking garages if it is elected.

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It is the governor's appointments to the board that will determine Disney's bottom-line impact over the next few years.

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“As long as the appointees are friendly, there will essentially be no change at all. Disney could suffer if they are unfriendly," said Jacob Schumer of Shepard, Smith, Kohlmyer, and Hand. He said the new board could raise tax rates, propose projects Disney doesn't want, and complicate approval processes.

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There is also uncertainty as to whether DeSantis's crusade against BlackRock will have any meaningful impact on the outcome of this election. Based on a review of public records, it has been revealed that the asset manager was not the one who invested Florida’s money in ESG investments in the first place. Therefore, prohibiting BlackRock from doing it from now on would have a very small impact on the company's future operations.

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The Battle Between Governor DeSantis And Disney's Special Tax District

In a statement at the time, BlackRock indicated it was committed to complying with Florida's authorities' mandate to prioritize financial performance consistent with their investment objectives in a timely manner.