BRADENTON, Fla. — The Florida Supreme Court has handed down a ruling that reaffirms the use of certificates of participation in the state, according to attorneys.
In a 48-page ruling last week, justices validated the South Florida Water Management District’s request to issue up to $650 million of COPs to finance the purchase of U.S. Sugar Corp.-owned land to support restoration projects for the environmentally sensitive Florida Everglades.
While the district currently has no plans to issue the COPs now since it recently paid cash for a scaled-back purchase of U.S. Sugar-owned land, the ruling gives the district the opportunity to use COP financing in the future to purchase additional acreage, said Randy Hanna, managing shareholder at Bryant Miller Olive LLP, the district’s bond counsel.
“It’s a good victory for the district,” Hanna said. “It was a good, strong opinion where six members of the court reaffirmed the validity of certificates of participation in Florida.”
The long-awaited Supreme Court decision was based on the district’s previous plan to finance the purchase of 73,000 acres from U.S. Sugar and purchase an option to buy additional land in the future for up to $650 million.
The justices ruled that the district could not use COP financing for a purchase option, but they upheld state laws that allow the district to convey land and sell land as surplus.
The district, which covers all or portions of 16 counties in south Florida including the Everglades, has been trying since 2008 to purchase U.S. Sugar’s 180,000 acres. Finalizing the deal was delayed because it was challenged by U.S. Sugar competitors and the Miccosukee Tribe of Indians, who said the purchase did not serve a valid public purpose.
As the economic downturn took its toll on property values that provide a substantial amount of the revenue base for the district, the size of the deal was downsized.
The district on Oct. 12 moved ahead with a scaled-back purchase and paid $194 million in cash for 26,800 acres of land from U.S. Sugar.
The cash purchase included a 10-year option to buy the remaining 153,000 acres owned by U.S. Sugar — some of which may be financed.
Though the Supreme Court ruling ratifies the fact that the district can use COPs for the purchase of land and that it serves a public purpose, district board chairman Eric Buermann said the validation — for now — is moot because of the recent cash purchase and the ongoing economic downturn.
“Going forward, it’s nice to know we have additional capacity” to sell COPs, he said. “But the realities of the marketplace are that we don’t have bonding capacity to allow that to happen because our revenues were down 30% in the last two years and they are projected to be down another 20% next year.”
“That pretty much brings financing [for the district] to a grinding halt,” Buermann said.
But for other Florida issuers, such as public school districts that rely on COPs to finance school construction, last week’s Supreme Court ruling is significant for future financings, said Hanna, whose firm has worked on many COP deals.
“I do think it’s important because what it does is reaffirms the use of COPs,” he said. “I think it provides stability in the law.”
In a friend-of -the-court brief filed on behalf of the district, two nonprofit public school associations said schools across the state had plans to issue $2.15 billion of COPs over the next five years.
The brief was filed to ensure there was no erosion of the precedent affirming the legality of COPs, said Robert Nabors, an attorney with Nabors, Giblin & Nickerson PA who represents the school groups. “It’s pretty clear now that precedent is not going to be eroding,” he said.