Val­i­da­tion Tan­gle For Blue Ori­gin

The Bond Buyer - - Front Page - By Shelly Sigo

The lure of high-pay­ing jobs at a space­ship fac­tory owned by the world’s rich­est man mo­ti­vated Bre­vard County, Florida, to sup­port the deal with an eco­nomic in­cen­tive grant.

The county agreed to pay $8 mil­lion as part of an in­cen­tive pack­age for Jeff Be­zos to lo­cate his aerospace com­pany, Blue Ori­gin, near Kennedy Space Cen­ter, though its plans to raise the money by is­su­ing bonds hit a le­gal road­block.

With vi­sions of rock­ets blast­ing off from a nearby launch pad, win­ning the project was a coup for Florida’s Space Coast and Bre­vard County, still reel­ing from job losses af­ter NASA shut down the space shut­tle pro­gram.

A hic­cup in the plan de­vel­oped af­ter the county de­cided to bor­row the $8 mil­lion over 10 years to make a one-time cash pay­ment to Blue Ori­gin.

“I didn’t think it was le­gal,” said Bre­vard County Clerk of the Cir­cuit Court Scott El­lis.

Bre­vard County and the North Bre­vard De­vel­op­ment Dis­trict filed a com­plaint ask­ing a court to val­i­date the bonds so that their le­gal­ity couldn’t be chal­lenged in the fu­ture.

El­lis filed a mo­tion to dis­miss the com­plaint in April.

“This was a new type of se­cu­rity and they were bond­ing some­thing we never bonded be­fore,” El­lis said in an in­ter­view with The Bond Buyer. “You can’t bond for an op­er­at­ing ex­pense and [the county] tried to clas­sify the jobs grant as an op­er­at­ing ex­pense.”

Cir­cuit Judge Jef­frey Mahl de­nied the val­i­da­tion Aug. 22, rul­ing that the pro­posed bonds failed to meet the three-prong test re­quired for court ap­proval.

Mahl said that the county and the dis­trict failed to prove they had au­thor­ity un­der Florida law to is­sue the bonds; that the pro­posed is­suance served a paramount pub­lic pur­pose; and that the bonds com­plied with all

ap­pli­ca­ble Florida laws, in­clud­ing the county’s char­ter.

“The court finds plain­tiffs have not met their bur­den on all three prongs,” he said.

Bond val­i­da­tions are rarely de­nied in Florida, ac­cord­ing to a bond at­tor­ney not in­volved in Bre­vard’s case, who asked not to be named.

When val­i­da­tions are de­nied, ap­peals go di­rectly the Florida Supreme Court.

Bre­vard County At­tor­ney Eden Bent­ley and the firm rep­re­sent­ing the county in the val­i­da­tion case, Nabors, Gi­b­lin & Nick­er­son PA, did not re­spond to re­quests for com­ment on the rul­ing or whether the county plans to file an ap­peal.

El­lis was rep­re­sented by J. Carter An­der­sen, David Banker, and Cate Pars­ley from Bush Ross PA in Tampa, and the clerk’s staff at­tor­ney Re­becca E. Lober.

An­der­sen said the rul­ing pro­tects against friv­o­lous bor­row­ing and spend­ing, and forces the county to use avail­able funds to pay for grants.

“The court de­cided that the county can­not bor­row from the fu­ture to pay op­er­at­ing ex­penses of to­day,” An­der­sen said. “If the county wants to award cash job cre­ation grants with the hope of stim­u­lat­ing eco­nomic growth it can­not bor­row from the fu­ture to do so.”

Even if Bre­vard County can’t bor­row to pay for its in­cen­tive grant, the Blue Ori­gin man­u­fac­tur­ing com­plex project will pro­ceed.

Bre­vard’s in­cen­tive agree­ment with the com­pany al­lows the county to pay the $8 mil­lion in in­ter­est-free in­stall­ments over six years.

The Space Coast still wins a ma­jor job-maker with a bil­lion­aire backer.

The pur­pose of Be­zos’ man­u­fac­tur­ing fa­cil­ity is to build, test, and de­liver an or­bital launch ve­hi­cle ca­pa­ble of car­ry­ing large pay­loads, cargo, crew and pay­ing pas­sen­gers into space, ac­cord­ing to tes­ti­mony by Scott Hen­der­son, vice pres­i­dent of Test and Flight Op­er­a­tions.

Be­zos, the founder and CEO of Ama­, is widely re­ported to be the world’s wealth­i­est man, largely on the strength of his con­sid­er­able hold­ings in Ama­zon stock.

“Blue Ori­gin’s vision is to sup­port mil­lions of peo­ple work­ing and liv­ing in space,” Hen­der­son said, tes­ti­fy­ing about the progress the com­pany has achieved since lo­cat­ing in Bre­vard County.

The com­pany was re­quired to make a min­i­mum cap­i­tal in­vest­ment of $160 mil­lion to build a 250,000 square foot man­u­fac­tur­ing fa­cil­ity.

Hen­der­son said the com­pany up­sized the build­ing to 653,000 square feet at a cost of more than $232 mil­lion.

Blue Ori­gin was also re­quired to hire 36 work­ers by this De­cem­ber, and to fill 330 jobs by De­cem­ber 2026, all with an av­er­age an­nual salary of $89,000.

As of June, Hen­der­son said the com­pany had filled 117 jobs.

“It is sub­stan­tially com­plete now,” he said of the build­ing. “We have a par­tial cer­tifi­cate of oc­cu­pancy, which cov­ers about 85% of the fa­cil­ity.”

Own­er­ship of Blue Ori­gin’s build­ing will be trans­ferred to Space Florida, the state’s aerospace and space­port de­vel­op­ment au­thor­ity, when a fi­nal cer­tifi­cate of oc­cu­pancy is is­sued. Bre­vard will be re­quired to be­gin mak­ing pay­ments on its cash in­cen­tive within 120 days.

Hen­der­son said the com­pany has an ex­clu­sive op­er­at­ing sub­lease on the prop­erty with Space Florida that runs through 2065.

“We are re­ceiv­ing in-kind credit for the in­vest­ment that Blue Ori­gin made and that in-kind credit is in the form of rent,” he said.

Bre­vard County’s in­cen­tive pay­ment, Hen­der­son also said, is not a con­tri­bu­tion to­ward in­fra­struc­ture be­cause the com­pany was re­quired to in­vest its own money to build the fa­cil­ity.

In a de­po­si­tion for the val­i­da­tion case, Hen­der­son said he led the com­pany’s site se­lec­tion ef­fort, which in­cluded a pack­age of eco­nomic in­cen­tives.

In ad­di­tion to free rent, he said the Florida Depart­ment of Trans­porta­tion pro­vided a space port in­fra­struc­ture grant of $43 mil­lion; an FDOT avi­a­tion fund gave $10 mil­lion and an­other $2.75 mil­lion was re­ceived for road widen­ing; a work­force de­vel­op­ment en­tity in Bre­vard County pro­vided $1.8 mil­lion; and the North Bre­vard De­vel­op­ment Dis­trict agreed to give $8 mil­lion.

To get bet­ter fi­nanc­ing rates, Bre­vard County de­cided to is­sue notes to fi­nance the in­cen­tive grant be­cause of its credit rat­ings - AA-plus from Fitch Rat­ings and Aa3 from Moody’s In­vestors Ser­vice.

The county planned to pledge its covenant to ap­pro­pri­ate non-ad val­orem rev­enues an­nu­ally to pay the debt, with pay­ment ul­ti­mately from the dis­trict’s tax in­cre­ment fi­nanc­ing rev­enues.

Mahl found that the county and the dis­trict failed to demon­strate they had the le­gal au­thor­ity to is­sue the bonds in Florida’s statutes - the first prong of the val­i­da­tion test.

“A plain read­ing of the statute does not, as plain­tiffs con­tend, au­tho­rize is­su­ing bonds to make grants to pri­vate en­ter­prises,” he wrote. “The con­sti­tu­tion and gen­eral law pro­hibit coun­ties from is­su­ing bonds to fund op­er­at­ing ex­penses, such as eco­nomic de­vel­op­ment grants.”

Mahl said the pro­posed bond is­suance was for a “paramount pri­vate pur­pose,” a de­ter­mi­na­tion that meant the pro­posed bond is­sue failed the sec­ond val­i­da­tion test.

“The Florida Supreme Court has de­nied bond val­i­da­tion where the paramount pur­pose of bonds was to fi­nance a pri­vate en­ter­prise for pri­vate profit, which would be un­der the ex­clu­sive pos­ses­sion and con­trol of a pri­vate en­tity,” he wrote. “Every dol­lar of the $8 mil­lion grant will ex­clu­sively ben­e­fit Blue Ori­gin; the county will not have any own­er­ship in or con­trol of the fa­cil­ity.”

On the third prong of the test, Mahl said the plain­tiffs also failed to demon­strate that the pro­posed bond is­sue com­plies with the law be­cause it would vi­o­late state law and the county’s char­ter.

The char­ter states, “No pro­ceeds of in­stru­ments of in­debt­ed­ness shall be is­sued to fi­nance cur­rent op­er­a­tions of county gov­ern­ment, ex­cept that part of cur­rent ex­penses di­rectly al­lo­ca­ble to cap­i­tal projects.”

Dur­ing the val­i­da­tion trial July 30-31, the county’s fi­nan­cial ad­vi­sor, Jay Glover, tes­ti­fied that he had never ad­vised a Florida client on a trans­ac­tion that in­volved bor­row­ing money to fi­nance an eco­nomic de­vel­op­ment grant to a pri­vate party.

Glover, a manag­ing di­rec­tor for PFM Fi­nan­cial Ad­vi­sors LLC, also es­ti­mated that the fi­nanc­ing could cost the county be­tween $1 mil­lion and $2 mil­lion in in­ter­est ex­pense.

El­lis, the county clerk, con­tended that Bre­vard County was be­ing used as a test case to de­ter­mine if eco­nomic de­vel­op­ment zones and sim­i­lar districts could legally fi­nance grants.

“This case was im­por­tant for the clerk to en­sure the county could not ob­tain un­fet­tered power to bond op­er­a­tional ex­pen­di­tures,” El­lis said. “The case had po­ten­tial statewide sig­nif­i­cance and we are very thank­ful to have pre­vailed.” ◽

For more con­tent about this re­gion, visit the Re­gional News tab on Bond­

Bloomberg News

Bre­vard County, Florida, agreed to an $8 mil­lion in­cen­tive to Jeff Be­zos’ space­ship com­pany, Blue Ori­gin, to land a fac­tory.

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