Reedy Creek Makes Economic Sense
Last week, Florida Governor Ron DeSantis signed into law a proposal that dissolves special districts that were established in the state prior to November 1968. The Walt Disney Company’s Reedy Creek Improvement District was created in May 1967 and gives Disney governmental control over the land covering their Florida resort. Back in 1967, this area wasn’t much more than uninhabited swampland, but the special district status placed Disney as the entity responsible for providing municipal services like power, water, and roads. It also exempts Disney from dealing with the legal red tape and some taxes for services that benefit the rest of the county.
The frustration with such special arrangements may be warranted if Disney were using this status to pollute nearby lakes and rivers. Because Disney is essentially the primary caretaker of the 39 square-mile area, they have a vested interest in ensuring their property is managed efficiently. To do this, Disney essentially taxes itself to raise funds to provide the resources it needs to run the parks and hotels. This includes not only roadways and sewage, but the company also operates management systems for police, medical, and fire emergencies.
Contrast that arrangement with the incentives facing Orange and Osceola counties, which provide services around the Disney resort. Those counties service close to 2 million residents and enumerable public and private businesses, all with varying interests and needs. Dissolving Reedy Creek places the service burden on neighboring counties that weren’t previously paying for Disney’s infrastructure. Orange County Mayor Jerry Demings told reporters that this would be a “net sum loss” for taxpayers, and goes on to say:
We’re trying to understand what the legislature is truly trying to do in this case, but I don't believe they have not adequately contemplated the ramifications of what they have proposed at this point.
Regardless of where you fall on the issue politically, the economic argument for the Reedy Creek district is fairly solid. Disney manages a number of public goods for their resort that would typically be provided by government agencies. Public goods are available to everyone in a region regardless of whether they pay for that provision and can be provided for an additional person at no additional cost. Public goods are usually administered by government agencies because they have the ability to tax those who benefit from the public goods. Not all government-provided services (like the post office) are public goods and not all public goods are provided by the government.
If governments provide public goods, like roadways, fire service, and sewage treatment, they must determine the socially optimal amount to provide the users. A private provider may not care to invest in the socially optimal level, which is likely much higher. For example, how often should a street cleaner come through neighborhoods to clean up debris? Any individual homeowner is likely to only pay for occasional service (if any at all) if they are forced to pay out of their own pocket. Their neighbors have an incentive to wait and free ride off the decision. One person’s decision to have the street cleaned provides spillover benefits to all of the neighbors. If everyone waits for someone else to do it then the street never gets cleaned, even if they all want the street cleaned.
A governmental agency, instead, can recognize that the entire neighborhood benefits from such a service and may be able to determine the socially optimal amount of service an area can provide relative to the cost of providing such a service. Hypothetically, these agencies conduct a cost-benefit analysis to estimate the costs and social benefits of providing a public good, but good data are hard to come by, especially for large and diverse populations. Some people may end up paying in taxes for something they don’t want while others pay much less than they would individually. From the government’s perspective, all that matters is the social costs and benefits, not the individual cost and benefits.
In the case of Reedy Creek, there is really only one person living in the district. There are a few dozen residents who officially live there, but those households are all Disney employees (and their children) who have been handpicked by the company to live there. Residents pay Disney $75 per month to live in these cities in exchange for providing the necessary votes required to pass bonds for the development district. In this situation, Disney knows what level of service would be efficient for the complex because they operate nearly all of it. This is one of the few times where the individual benefit and the social benefit are essentially the same.
If Reedy Creek is dissolved, neighboring counties will have to assume those responsibilities and determine the optimal amount of service the resort receives. Disney currently taxes itself to pay debt obligations associated with bonds that were used to finance the infrastructure. Orange County Tax Collector, Scott Randolph, took to Twitter to inform residents of the implications of dissolution:
If that debt is transferred to the neighboring counties when Reedy Creek is dissolved, homeowners in those counties would like “see property taxes jump by 20% to make up the difference. And even then, it probably wouldn't be enough to cover all the money that would be lost." Economists generally favor less government regulation and the privatization of government services, which is what the Reedy Creek Improvement District currently does. Dissolution is a move away from allowing private entities to determine what is best for their own private property.
Reedy Creek contains two cities that Disney controls: Bay Lake and Lake Buena Vista. Those cities have a combined population of about 53 people [Orlando Sentinel]
Reedy Creek operates and maintains 134 miles of roadways and 67 miles of waterways [Reedy Creek Improvement District]
Disney employed 77,000 workers before the pandemic and its property can hold 250,000 guests each day [Orlando Sentinel]
Walt Disney World operates a 270-acre solar farm, which is nearly twice the size of the entire Magic Kingdom [Good Morning America]
What you don't mention explicitly is how unbelievably efficient Disney is at doing almost anything. They don't have an expansive population base, and are therefore reliant upon customers to show up at Disney World to make money. If the sewers don't work, or if the water pipes are lined with lead, or if the fire department doesn't show up quickly and hotels burn down, Disney is going to lose customers. Consequently, they have a huge incentive to make their sewer, electric, water, fire department, police department, etc. great. By always letting the profit motive be their guide (like Jiminy Cricket) Disney proves the point that private firms can provide public goods at least as efficiently as the government. I bet, given the constraints of counties around the Magic Kingdom, the quality of those services will be diminished as a result of all of this. If the statistics you provide are even close to correct, there will not be a 20% increase in taxes. Those governments, and the citizens, won't put up with it.
The concerning thing to me, as someone who is conservative by nature, is how un-conservative DeSantis' move is. It is actually the action of someone seeking to expand the arm of the state. True conservatives (think classically liberal here) embrace free speech and open debate. They don't try to punish those who oppose them. I fear the term conservative is going through one of those transitional phases where the meaning mutates into its opposite.
before this post and related articles, i had a negative-ish view of disney's relationship with local public finance and policy--but then i was enlightened! now it's more like "i can't believe it works this well". not all private employers / entities tho....