BRADENTON, Fla. — The South Florida Water Management District yesterday unanimously extended a key contract deadline for its controversial plan to purchase land owned by U.S. Sugar Corp.
The purchase contract contains a number of deadlines and the district was supposed to have $650 million of certificates of participation validated by the court by March 31.
The COP financing will be used to purchase 72,500 acres of sugarcane land as part of the restoration of the Florida Everglades. The purchase will include an option to buy the remaining U.S. Sugar property consisting of 107,500 acres within 10 years.
But the validation process has been slowed by legal challenges. After months of delays and hearings, Palm Beach County District Judge Donald Hafel on Aug. 26 ruled the district had the lawful authority to sell the debt. But opponents appealed the decision to the Florida Supreme Court, which has scheduled oral arguments for April 7.
That led the district governing board to amend the contract yesterday and extend the validation deadline another six months, but not before board members sought assurance — which attorneys gave — that the contract protected their right to back out of the purchase if it was determined the district could not afford it. The district would be liable for payment of up to $5 million if it walks away from the deal.
Board member Jerry Montgomery also questioned the district’s ability to get financing, an apparent reference to a Feb. 17 memo from the district’s financial adviser noting that economic conditions have changed since the purchase contract was first approved in 2008.
“I want to make sure this board absolutely retains complete autonomy to make financing decisions and has the flexibility to move forward to see if we can figure out how to make this happen,” Montgomery said.
The board’s vote to amend the contract and extend the validation deadline does not ensure that the deal is going forward. The district is in a strategic planning process reviewing projects and its budget, which is projected to have deficits in 2011 and 2012 ranging from $89 million to $110 million, respectively, according to the Feb. 17 memo from financial adviser Public Financial Management Inc.
The memo stresses that budgeting factors such as the district’s multi-year capital plan, funding for operations and maintenance, debt coverage, and debt ratio policies will be scrutinized by rating agencies when rating the $650 million COP deal. The district currently has double-A ratings on its outstanding debt.
“Due to the instability in the financial markets, high credit ratings are more important than ever,” PFM said. “Financial costs can, and will, increase significantly for lower rated issuers.”
Many positive credit factors have turned negative since rating agencies reviewed the district’s capital plan in 2008, including taxable assessed values that continue to decline, according to PFM said. The firm noted that future growth in taxable value will likely be muted, the district’s ability to generate additional revenue could be affected by legislative actions, and weakened financial operations could limit the district’s ability to absorb debt.
The memo was widely distributed to media outlets in the week before Thursday’s vote by state Sen. Paula Dockery, R-Lakeland, who is running for governor.
In a letter to board chairman Eric Buermann on March 5 citing the PFM memo, Dockery said in light of declining revenue projections, “continuing to pursue this purchase is not just fiscally irresponsible, it is nothing short of reckless.”
And it gave other opponents of the U.S. Sugar deal new fuel to urge the district board to not approve the contract amendment.
Though the board approved extending the deadline, the financing could move forward quickly once the Florida Supreme Court rules.
If the court rules in the district’s favor on April 7 following oral arguments, new contract deadlines will be implemented and there will be a tight time frame to present the deal to rating agencies and ultimately sell the COPs to purchase the land.
However, an attorney for the district Thursday cautioned that justices have twice denied the district’s request to expedite the process, and he noted that in a recent validation case justices took more than a year to rule.
That was the Strand v. Escambia County validation, a complex case involving tax-increment financing.