BRADENTON, Fla. - A Florida judge yesterday began a two-day bond validation hearing in the ongoing case in which the South Florida Water Management District wants to purchase U.S. Sugar Corp. land for $536 million.

The district, headquartered in Palm Beach County, plans to use certificates of participation to purchase the land to help restore the famed Florida Everglades. The size of the land purchase and cost of the project was recently scaled back because of the economy and declining property values.

The original validation complaint seeking to issue up to $2.2 billion of debt was filed last fall when the project initially called for purchasing 180,000 acres for $1.34 billion. Five opponents intervened, most contending the purchase does not serve a public purpose and that it is nothing more than a bailout for the sugar company.

Earlier this year, the deal was restructured to enable the district to initially purchase 72,500 acres for $536 million, with an option to purchase another 107,500 acres within 10 years. In addition to reducing the initial public investment by 60%, the new deal is expected to reduce annual debt service payments by an estimated $65 million.

The district's bond counsel, Bryant Miller Olive, filed an amended validation complaint concerning the restructured transaction. However, district officials are still asking for validation of up to $2.2 billion of debt to finance future projects.

Last week, Palm Beach County District Judge Donald Hafele held a hearing on a request brought by attorney Dexter Lehtinen on behalf of the Miccosukee Tribe of Florida to dismiss the validation suit.

Lehtinen said the validation complaint should be dismissed because of inconsistencies between the district's original and amended complaints about the costs of the project as well as the plan to seek validation of up to $2.2 billion of debt. Lehtinen also argued that a public referendum should be required before the debt is issued.

"I'm deferring [a ruling] as to whether or not the second revised complaint sufficiently defines and alleges a project as set forth in the requisite Florida statutes," Hafele said in a transcript of last week's hearing. "I'm denying the motion relative to the referendum issue because I believe that that is appropriate for trial argument, merit hearings argument, and not a motion to dismiss."

It is expected that no matter what the outcome of this week's hearing is the case will be appealed to the state Supreme Court.

Gov. Charlie Crist first unveiled Florida's largest single acquisition for environmental protection purposes just over a year ago. But in April of this year, the governor admitted that the recession had taken its toll on the Water Management District's ability to finance the deal, largely because of declining revenues and property values.

The district covers all or parts of 16 counties where property values have declined by an average of 16%. Property taxes will be part of the revenues that repay the debt.

Under terms of the restructured deal, closing on the sale of the property is to occur 90 days after the bond validation. However, the sale is dependent on whether the district is able to issue the debt.

The district has budgeted for the sale of 30-year COPs at an interest rate not to exceed 7.5%. However, the purchase agreement between the district and U.S. Sugar includes a clause that enables the district to back out of the sale if it cannot obtain "affordable" financing.

The South Florida Water District had approximately $538 million of outstanding COPs at the end of fiscal 2008, which are rated AA by Fitch Ratings, Aa1 by Moody's Investors Service, and AA-plus by Standard & Poor's.

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