Miami Beach: receded, revised, and reaffirmed.

• Author: Reid, Robert C.
• Position: City, County and Local Government Law

On September 18, 2008, the Supreme Court of Florida released its third opinion in Strand v. Escambia County, 992 So. 2d 150 (Fla. 2008), reh'g denied, (Fla. Nov. 19, 2008), and the long-awaited decisions in City of Parker v. State, 992 So. 2d 171 (Fla. 2008), and Bay County v. Town of Cedar Grove, 992 So. 2d 164 (Fla. 2008). These cases (1) upheld the principles established in 1980 in the landmark case of State v. Miami Beach Redevelopment Agency, 392 So. 2d 875 (Fla. 1980). (2) The decisions in all three cases are fundamental to the ability of local governments in Florida to access critical capital markets and to finance, build, and equip a multitude of capital improvements and basic facilities such as schools, city halls, courthouses, fire stations, and other buildings serving vitally important government functions. All three cases involve tax-increment financing (3) and community redevelopment. (4) While each case had its own nuances, there was one common issue central to all three cases. That issue was whether local governments may issue tax-increment financing bonds without holding a referendum pursuant to art. VII, [section]12 of the Florida Constitution, which requires, among other things, bonds "payable from ad valorem taxation" to be approved by a vote of the electors. In each case, the court validated the tax-increment financing bonds and upheld the decision in Miami Beach.

The Precursor: Miami Beach

To understand the court's decisions in Strand, Parker, and Cedar Grove, it is necessary to examine the origin, development, and application of the court's previous decisions, culminating in Miami Beach. Over the past 75 years, the court has developed a clear, undisturbed bright-line principle that a bond or similar debt obligation is subject to the referendum requirement only where it directly or indirectly obligates the local government to exercise its taxing powers. (5) Local governments in Florida have relied on this clear bright-line principle in negotiating and developing carefully crafted financing vehicles.

The bright-line principle was established in 1933 in State v. City of Miami, 152 So. 6 (Fla. 1933), in which the court recognized that bonds or similar debt obligations, which are not payable from ad valorem taxes, do not constitute a debt of the local government obligating the local government to levy or collect ad valorem taxes. (6) The court further developed this principle in Seaboard Air Line Railroad Co. v. Peters, 43 So. 2d 448 (Fla. 1949), when it held bonds payable solely from a special fund, into which operating revenues and ad valorem taxes were deposited, did not violate the referendum requirement because the bondholders could not compel ad valorem taxation. Subsequently, in Town of Medley v. State, 162 So. 2d 257, 258 (Fla. 1964), the court again confirmed the constitutionality of using ad valorem taxes as long as the power to tax was itself not pledged, and reiterated that the referendum requirement encompassed only bonds or certificates of indebtedness that directly obligate the ad valorem taxing power.

In 1968, the Florida Constitution was substantially revised. The 1968 constitutional revision amended the referendum requirement by expanding the class of debt instruments subject to the referendum, but it did not disturb the line of authority stretching from City of Miami to Town of Medley. In fact, one of the principal drafters of the new constitution commented, "[e]xcept for the fact that the new constitution limits local bonding to capital projects, the new constitution offers the same basic provision as did the 1885 Constitution after 1930." (7) Because the referendum requirement remains similar in this regard, the court continued to apply the brightline principle. For instance, 10 years after the constitutional revision, the court recognized there was no prohibition against a local government using ad valorem tax revenues when it was required to compute and set aside a prescribed amount, when available, for a discrete purpose. (8)

The court's development and application of the bright-line principle continued with its decision in Miami Beach, which applied the principle to a tax-increment financing transaction in the relatively new context of community redevelopment.9 Miami Beach held that "what is critical to the constitutionality of the bonds is that ... a bondholder would have no right ... to compel by judicial action the levy of ad valorem taxation." (10) In a tax-increment financing transaction, the court held that the only obligation of the local government "is to appropriate a sum equal to any tax increment generated in a particular year from the ordinary, general levy of ad valorem taxes otherwise made in the city and county that year." (11) Miami Beach, following the brightline principle, validated the issuance of tax-increment financing bonds by a community redevelopment agency without requiring a referendum. Following Miami Beach, the court has continued to uphold the bright-line principle and the use of ad valorem tax revenues to pay debt service without a referendum. (12)

The bright-line principle developed in 1933 and consistently applied through today practically protects taxpayers' interests while also providing local governments access to necessary capital. When analyzing the...