IN THE SUPREME COURT OF FLORIDA. CASE No.: SC

IN THE SUPREME COURT OF FLORIDA CASE No.: SC06-1091 BREVARD COUNTY, FLORIDA, Cross-Appellant/Appellee, vs. THE STATE OF FLORIDA, AND THE TAXPAYERS, PROPERTY OWNERS, AND CITIZENS OF BREVARD COUNTY, FLORIDA, INCLUDING NONRESIDENTS OWNING PROPERTY OR SUBJECT TO TAX THEREIN, Cross-Appellees, and SCOTT ELLIS, in his capacity as CLERK OF THE BREVARD COUNTY CIRCUIT COURT Cross-Appellee/Appellant. --------------------------------------------------------------------------------------------- ON DIRECT REVIEW FROM THE EIGHTEENTH JUDICIAL CIRCUIT IN AND FOR BREVARD COUNTY, FLORIDA CASE NO. 06-CA-0033074--BOND VALIDATION PROCEEDINGS ---------------------------------------------------------------------------------------------- CROSS-REPLY BRIEF OF CROSS-APPELLANT/APPELLEE, BREVARD COUNTY, FLORIDA HOLLAND & KNIGHT LLP HOLLAND & KNIGHT LLP Steven L. Brannock Rory C. Ryan Henry M. Morgan, Jr. Andrew P. Lannon P.O. Box 1288 200 S. Orange Ave., Ste. 2600 Tampa, Florida 33601 Orlando, FL 32901 (813) 227-8500 (407) 425-8500 Attorneys for Cross-Appellant/Appellee, Brevard County, Florida

TABLE OF CONTENTS TABLE OF CONTENTS... i TABLE OF AUTHORITIES... ii ARGUMENT IN CROSS-REPLY... 1 I. THE SURPLUS MILLAGE ISSUE IS RELEVANT TO THE VALIDITY OF THE BONDS AND, THEREFORE, IS NOT COLLATERAL... 1 II. THE SURPLUS MILLAGE CAN BE USED TO FUND THE 2006 BONDS.... 6 CONCLUSION... 14 CERTIFICATE OF SERVICE... 15 CERTIFICATE OF TYPE SIZE AND FONT COMPLIANCE... 15 i

TABLE OF AUTHORITIES STATE CASES Archer v. State, 613 So. 2d 446 (Fla. 1993)... 8 Boschen v. City of Clearwater, 777 So. 2d 958, 963 (Fla. 2001)... 12 GRW Corp. v. Department of Corrections, 642 So. 2d 718 (Fla. 1994)... 2 Jacksonville Shipyards, Inc. v. Jacksonville Electric Auth., 419 So. 2d 1092 (Fla. 1982)... 12 Keys Citizens for Responsible Gov't v. Florida Keys Aqueduct Auth., 795 So. 2d 940 (Fla. 2001)...3, 5, 6 People Against Tax Revenue Mismanagement, Inc. v. County of Leon, 583 So. 2d 1373 (Fla. 1991)... 2 Speer v. Olson, 367 So. 2d 207 (Fla. 1978)... 2 State v. City of Port Orange, 650 So. 2d 1 (Fla. 1994)... 2 Sunset Harbour Condominium Ass'n v. Robbins, 914 So. 2d 925 (Fla. 2005)... 8 Taylor v. Lee County, 498 So. 2d 424 (Fla. 1986)... 5 Tillman v. State, 471 So. 2d 32 (Fla. 1985)... 8 ii

OTHER AUTHORITY Art. VII, section 12, Fla. Const... 12 200.181(3), Fla. Stat. (2005)... 10, 11, 14 Florida Rule of Appellate Procedure 9.210(a)(2)... 15 Brevard County Ordinance No. 2000-53 (Nov. 14, 2000)... 8 Brevard County Ordinance No. 2001-018 (April 24, 2001)... 9 iii

ARGUMENT IN CROSS-REPLY I. THE SURPLUS MILLAGE ISSUE IS RELEVANT TO THE VALIDITY OF THE BONDS AND, THEREFORE, IS NOT COLLATERAL. In their answer to the cross-appeal, both the Clerk and the State of Florida argue that the surplus millage issue is collateral to the bond validation proceeding and that the trial court's refusal to consider the issue should be affirmed. 1 Despite the fact that the parties had fully briefed the issue, the trial court erroneously concluded that "this show cause hearing should be limited to the proposed bond issue and if the 2006A, 2006B and 2006C proposed bonds have a legal purpose". See Final Judgment 35 (A. O). The trial court's view of the scope of the validation proceeding was too narrow. As discussed below, this issue is not collateral to the instant bond validation proceedings because it goes directly to perhaps the most fundamental and important issue connected with the legality of the bonds the legality of the 1 The trial court suggested that the issue should be raised in a separate declaratory judgment action. Because of the importance of settling the issue as soon as possible, Brevard County has filed, as a protective measure, a separate declaratory judgment action in the Circuit Court on the surplus millage issue. The sole purpose of the declaratory judgment action is to have the surplus millage issue ready for decision as soon as possible should this Court determine that the issue is, in fact, collateral. The declaratory judgment action is for protective purposes only and is not, as the Clerk suggests, a concession that the issue is collateral. The declaratory judgment action is completely irrelevant to the instant appeal. For the reasons discussed in this brief, Brevard County believes that it would be much more efficient (and certainly much quicker) to resolve the issue in this validation proceeding. 1

funding stream repaying the bonds. See State v. City of Port Orange, 650 So. 2d 1, 3 (Fla. 1994) ("Subsumed within the inquiry as to whether the public body has the authority to issue the subject bond is the legality of the financing agreement upon which the bond is secured"). As a threshold matter, the Clerk and the State ignore the purpose of the bond validation proceeding, which is to settle all issues impacting the legality of the bonds. "Chapter 75, Florida Statutes, clearly contemplates that a bond validation proceeding is a proper vehicle for quieting all legal and factual issues that may cast doubt on the legal validity of a bond issue." People Against Tax Revenue Mismanagement, Inc. v. County of Leon, 583 So. 2d 1373, 1374 n.2 (Fla. 1991). "Such a determination by the judiciary ensures that all issues relating to the validity of the obligation are forever put to rest so that no question affecting the validity of the indebtedness and financing agreements may subsequently be raised." GRW Corp. v. Department of Corrections, 642 So. 2d 718, 721 (Fla. 1994). But if the purpose of the validation proceeding is to ensure that there are no questions regarding the "indebtedness and financing agreements," it is hard to see how the legality of the funds being used as part of the repayment of the indebtedness could be considered collateral. What could be more important to an investor than the funding stream for repaying the debt? See Speer v. Olson, 367 So. 2d 207, 210 (Fla. 1978) ("The purpose of a judgment validating and confirming 2

bonds is to put in repose any question of law or fact that may be subsequently raised affecting the validity of the bonds") (emphasis supplied). Not surprisingly, this Court has not hesitated to examine the legality of the financing agreement as part of the bond validation process. Keys Citizens is a perfect example. Keys Citizens for Responsible Gov't v. Florida Keys Aqueduct Auth., 795 So. 2d 940, 945 (Fla. 2001). In that case, Monroe County's Comprehensive Plan called for the development of a countywide sewer master plan, and to assist in putting the plan into action, the County entered into an agreement with the Florida Keys Aqueduct Authority whereby the Authority would finance and operate the sewer system. 795 So. 2d at 943. Thereafter, the County enacted an ordinance requiring all property owners to connect with the central sewer system at their own expense and adopted two resolutions issuing sewer revenue bonds which were to be repaid with the fees charged to the property owners for using this system. Id. A hearing was held in which the trial court validated the bonds and held that the mandatory connection requirement was valid. Id. at 944. On appeal, a citizens group argued that the trial court's validation of the mandatory connection requirement was beyond the scope of the bond validation proceeding. In holding that the bond issuance complied with the requirements of the law and affirming the bond validation, this Court held as follows: 3

In the instant case, as in Port Orange and GRW, the mandatory connection fees and rates charged for the service rendered to the properties connected to the central sewer system are tied to the financing agreement upon which the bonds will be secured. Thus, the validity of the mandatory connection ordinance was not a collateral issue, but part of the trial court's inquiry into whether the public body has the authority to issue the bonds. Id. at 947 (emphasis added). Similarly, in Port Orange, this Court invalidated a proposed bond issue after examining the source of funding for the bonds. In that case, the City of Port Orange enacted a "Transportation Utility Ordinance" under which it adopted a "transportation utility fee" which was imposed upon all of the owners and occupants of developed properties within the City for use of its roads. 650 So. 2d at 2. In addition, the City authorized the issuance of Transportation Utility Bonds, which were to be paid by a pledge of the transportation utility fees, "to finance the costs of constructing, renovating, expanding, and improving certain city transportation facilities." Id. at 3. This Court decided that the bond issuance did not comply with the requirements of law because the funding stream was illegal the fees that were to fund the bonds were in reality taxes that had to be authorized by general law. This Court left no doubt that the validity of the funding was an appropriate part of its analysis: "Subsumed within the inquiry as to whether the public body has the authority to issue the subject bond is the legality of the financing agreement upon which the bond is secured. Integral to the financing 4

agreement here under review is the pledge of what the bond ordinance labels 'transportation utility fees.'" Id. at 3 (citation omitted). As in Keys Citizens and Port Orange, this Court must examine the funding streams for repayment of these bonds as part of its validation analysis, including whether Brevard County should be permitted the option of using the surplus millage to pay their respective debt service. Otherwise, questions going to the heart of the bond issue will be left unanswered, a result which is directly contrary to the purpose of the validation proceeding, which is to resolve all issues impacting the legality of the bonds. 2 The declaratory judgment action is a poor substitute for resolving the issue because it will result in significant delay. If this Court refuses to consider the issue, the result will be (1) an opinion of this Court; (2) followed by another decision of the trial court; (3) followed by an appeal to yet another court, the Fourth DCA; (4) with the prospect of discretionary review to follow in this Court. 2 The Taylor v. Lee County case is not to the contrary. 498 So. 2d 424 (Fla. 1986). In fact, in Taylor, this Court specifically addressed the funding stream at issue by deciding that the County had the power to impose tolls on bridges and to utilize those tolls to repay the bond indebtedness. Id. at 425-26. If the Court had no power to examine the funding stream, it would not have ruled that the County had the power to set tolls. What was collateral was the issue of whether the County could impose a toll on a particular toll-free bridge to build a different bridge. Clearly, the bond validation proceeding cannot be the forum for deciding every issue that could have a remote impact on the validation. Although in some cases that line may be difficult to draw, there is no such difficulty here. The legality of the surplus millage issue is equally as direct as the question of whether the County had the power to set tolls in the Taylor case. 5

This circuitous route flies in the face of the priority given to validation proceedings. Similarly, this Court should reject the Clerk's alternative suggestion that the surplus millage issue be remanded back to the trial court. To the contrary, the issue should be addressed by this Court now. This issue has been fully briefed and is a pure legal issue subject to this Court's de novo review. There is no reason to send the issue back to the trial court for a decision followed by yet another appeal to this Court. It is in the best interests of judicial economy for this Court to address this issue in the instant appeal, for "the statutes governing bond validation proceedings provide for speedy disposition of these cases [and] the rules of this Court also recognize the necessity for the prompt disposition of these cases." Keys Citizens, 795 So. 2d at 944. Resolution of the surplus millage issue is crucial to the instant appeal because it determines the legality of the funding stream for repayment of the 2006A, 2006B and 2006C Bonds which, consequently, directly affects the validity of these bonds. This Court has the authority to decide, and should decide, the issue as part of this validation appeal. II. THE SURPLUS MILLAGE CAN BE USED TO FUND THE 2006 BONDS. This Court should address this surplus millage issue and hold that Brevard County may elect to use the surplus millage received with regard to the respective 6

referenda to pay the debt service on the 2006A, 2006B and 2006C Bonds. First, the parks and recreation projects to be completed with the proceeds from the 2006A, 2006B and 2006C non-ad valorem Bonds are the very same projects that were adopted in the 2001 referenda and which were commenced with the proceeds from the 2001A, 2001B and 2001C ad valorem Bonds. The Clerk's attempt to draw a technical distinction between the special district's and the County should be rejected. Second, the surplus millage levied pursuant to the referenda is not pledged in any way to pay the debt service on the 2006A, 2006B and 2006C Bonds. Brevard County may simply elect to use certain surplus millage collected in the North Brevard Special District, the Central Brevard MSTU or the South Brevard Special District to pay all or a portion of the debt service on the 2006A, 2006B and 2006C Bonds, which are being used to complete the projects in each respective location, but is by no means obligated to do so. Third, the Bondholders cannot require the levy of ad valorem taxes of any kind to pay the debt service on the 2006A, 2006B and 2006C Bonds. Thus, a referendum is unnecessary. A. The Special Districts Are Wholly Contained in and Controlled by the County and are therefore indistinguishable from the County for the Purposes of the Bond Validation Proceeding. The Clerk argues that the surplus funds cannot be used because the County is not the same entity as the special districts that issued the bond pursuant to the 2001 referendum. In other words, the Clerk attempts to draw an erroneous 7

distinction between the three Special Districts and Brevard County itself. This issue has not been raised below and has been waived. "As a general rule, it is not appropriate for a party to raise an issue for the first time on appeal." Sunset Harbour Condominium Ass'n v. Robbins, 914 So.2d 925, 928 (Fla. 2005); Archer v. State, 613 So. 2d 446, 448 (Fla. 1993) (quoting Tillman v. State, 471 So. 2d 32, 35 (Fla. 1985)) ("For an issue to be preserved for appeal, [] it 'must be presented to the lower court and the specific legal argument or ground to be argued on appeal must be part of that presentation if it is to be considered preserved'"). Even if this Court were to address the Appellant's argument, it should be rejected as a matter of law. The Clerk's argument is all form and no substance. For the purpose of the bond issues, these Districts are wholly contained within, operated by, and are in essence indistinguishable from Brevard County itself. The North Brevard Special District, for example, was "established by Ordinance No. 2000-53 enacted by the County on November 14, 2000, encompassing the incorporated and unincorporated areas of the County described therein." 3 See Resolution No. 01-213, section 2.01 at p. 8, defining the term "District" (App. F.) (emphasis added). Ordinance No. 2000-53 was amended and 3 The Ordinances creating the North Brevard Special District and Resolution No. 01-213 are used to illustrate the point at issue here. The resolutions relating to the Central Brevard MSTU and the South Brevard Special District contain nearly identical language, with the necessary, corresponding changes to reflect the different districts and areas of Brevard County, as stipulated by the parties. 8

restated in its entirety on April 24, 2001, by Ordinance No. 2001-018. (Supp. App.). That Ordinance provides in relevant part as follows: Section 3. Composition of Governing Body. The governing body of said recreation special district shall be composed solely of the Board of County Commissioners of Brevard County, Florida. Section 4. Determination of Cost of Service. Said North Brevard Recreation Special District is created for the purpose of operating and maintaining recreation services within the boundaries of said district. The Board of County Commissioners of Brevard County, Florida, shall determine each year the estimated costs of providing such recreation services, including capital and equipment improvements, rentals and acquisitions and operating and maintenance costs and expenses, for the ensuing County fiscal year within the boundaries of said district. Section 5. Levy of Taxes; Adoption of Budget. The Board of County Commissioners of Brevard County, Florida, hereby authorizes the levy of an ad valorem tax not to exceed eight-tenths of one mill on all taxable property within said North Brevard Recreation Special District created under the provision of this Ordinance for the purpose of providing recreation services, operations and facilities within the boundaries of said district. Said ad valorem tax shall be levied and a budget prepared and adopted by said Board at the same time and in the same manner as said Board prepares and adopts its county annual budget and levies taxes as provided by law.... Section 6. Disposition of Proceeds from Levy of Taxes for Recreational Services. Those funds obtained from the levy of an ad valorem tax on all property within the boundaries of said district shall be maintained in a separate account and used solely for the purpose of providing recreation facilities, or repayment of bonds related to such recreational facilities, and for operation and maintenance of such facilities within the boundaries of said district. See Ordinance No. 2001-018 at sections 3-6 (Supp. App.) (emphasis added). 9

It is clear upon review of the language above that the North Brevard Special District and Brevard County are one and the same. For instance, the North Brevard Special District is entirely controlled by Brevard County. Furthermore, the geographical boundaries of the North Brevard Special District are wholly contained within Brevard County. Therefore, in accordance with section 5 of the Ordinance supra, Brevard County exerted its control over this Special District and levied the full eight-tenths of one mill on all taxable property within the North Brevard Special District. In levying the full millage rate, Brevard County, by and through the Special District, was able to collect the surplus millage. In accordance with section 6 supra, Brevard County now wishes to use the surplus millage for "repayment of [the 2006A, 2006B and 2006C] bonds related to such recreation facilities[.]" See id. at sections 6 (Supp. App.). B. The Surplus Funds May be Used to Repay the 2006 Bonds. Contrary to the Clerk's argument, there is clear authority to utilize the surplus millage from the 2001 bonds to repay the 2006 bonds. The relevant statute, Section 200.181(3), clearly provides that power. See 200.181(3), Fla. Stat. (2005) ("The county or municipality may use the surplus revenue for any lawful purpose solely related to the capital project for which the voted millage was approved, including operations and maintenance."). There is no dispute that the 10

funds are being used on the same capital projects as the original bond issue within the meaning of Section 200.181(3). Moreover, the use of the surplus millage is not prohibited by the original bond resolution. According to Section 6 of the Bond Resolution, the funds may be used for the purpose of "providing recreational facilities, or repayment of bonds related to such recreational facilities, and for operation and maintenance of such facilities..." See Ordinance No. 2001-018 at section 6 (Supp. App.). There can be no dispute that the surplus funds are being used to provide the very same recreational facilities that were the subject of the 2001 bonds and are being used for repayment of bonds related to the same recreational facilities, all of which is permitted by Section 6 of the Bond Resolution. C. No Referendum is Required. Appellant argues that even if section 200.181(3) authorized Brevard County to use the surplus millage to pay the 2006 Bonds, the County would be required to hold a referendum and obtain voter approval, which it has not done, because the use of any device whereby ad valorem tax revenue is pledged - - directly or indirectly - - must meet voter approval under article VII, section 12 of the Florida Constitution. Nevertheless, Appellant is incorrect in his assertion. Article VII, section 12 provides as follows: SECTION 12. Local bonds.--counties, school districts, municipalities, special districts and local governmental bodies with 11

taxing powers may issue bonds, certificates of indebtedness or any form of tax anticipation certificates, payable from ad valorem taxation and maturing more than twelve months after issuance only: (a) to finance or refinance capital projects authorized by law and only when approved by vote of the electors who are owners of freeholds therein not wholly exempt from taxation; or (b) to refund outstanding bonds and interest and redemption premium thereon at a lower net average interest cost rate. Art. VII, 12, Fla. Const. (emphasis added). Because the instant 2006 Bond Issue is payable from non-ad valorem taxation, a referendum is not required. See Jacksonville Shipyards, Inc. v. Jacksonville Electric Auth., 419 So. 2d 1092, 1094-95 (Fla. 1982) ("Since the bonds are secured by a pledge of revenues to be derived from a non-ad valorem local revenue source in this case rates paid by electricity users they are not required to be approved by referendum.") (emphasis in original); Boschen v. City of Clearwater, 777 So. 2d 958, 963 (Fla. 2001). Brevard County operates under a Home Rule Charter. Under section 5.3.1 of that Charter, a referendum is required for all bonds payable from non-ad valorem tax revenues which exceed $15 million when combined with other issues for the same project within the previous two years. On its face, section 5.3.1 of the Charter would appear to prohibit the issuance of the 2006C Bonds, since that bond issue totals $19.1 million. 4 However, under section 5.3.4 of the Charter, the $15 4 Resolution 06-081 provided for and authorized the issuance of Series 2006A Bonds in an aggregate principal amount not to exceed $9.1 million to finance the completion of the North Brevard County Parks and Recreation Projects. See Final Judgment 4-5 (A. O). Resolution 06-082 provided for and authorized the 12

million cap may be adjusted. Prior to the instant bond issue on March 22, 2005, Brevard County adopted Resolution No. 2005-076 and determined in accordance with section 5.3.4 and Ordinance No. 2002-65 that the cap would be increased to $19,158,316. Because the 2006C Bond Issue is under that cap and because there have been no bond issues in the past four years with respect to the instant projects, no referendum is required. As previously stated, Brevard County has never pledged the surplus millage to pay the debt service on the 2006 Bonds. Brevard County is only seeking the option to elect to use the surplus revenue for this purpose. It is not required to do so and may not elect such option at all in the future. Furthermore, the 2006 Bondholders will not be able to force Brevard County to use the surplus millage for this purpose. Consequently, no referendum is required. issuance of Series 2006B Bonds in an aggregate principal amount not to exceed $8.1 million to finance the completion of the Central Brevard County Parks and Recreation Projects. See Final Judgment 4-5 (A. O). Because both of these bond issues are below $15 million, they are not discussed in this section. 13

CONCLUSION For all of the foregoing reasons, this Court should hold that Brevard County has the authority to issue the bonds, that the purpose of the obligation is legal, and that the 2006 Bond Issuance complies with the requirements of the law and affirm the final judgment. In addition, because the 2001 Bond Issuance and the 2006 Bond Issuance are directly related to the same projects, this Court should hold that Brevard County has the authority to levy the maximum millage and use any surplus millage for "any lawful purpose solely related to the capital project" as provided by section 200.181(3), Florida Statutes (2005). Lastly, this Court should hold that Brevard County may use the surplus millage from the North Brevard Special District, Merritt Island Recreation Municipal Service Taxing Unit, and South Brevard Special District, at the sole option of Brevard County, to pay debt service on the 2006A Bonds, 2006B Bonds and 2006C Bonds, respectively. Respectfully submitted, RORY C. RYAN Florida Bar No. 862010 ANDREW P. LANNON Florida Bar No. 0648140 HOLLAND & KNIGHT LLP 200 South Orange Ave., Suite 2600 Orlando, Florida 32801 Telephone: (407) 425-8500 Facsimile: (407) 244-5288 STEVEN L. BRANNOCK Florida Bar No. 319651 HENRY M. MORGAN, JR. Florida Bar No. 351679 HOLLAND & KNIGHT LLP 100 North Tampa Street, Ste. 4100 Tampa, Florida 33602 Telephone: (813) 227-8500 Facsimile: (813) 229-0134 14

CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing Cross- Reply Brief has been furnished by U.S. Mail to Norman R. Wolfinger, Esq., State Attorney and Philip Archer, Esq., Assistant State Attorney, 400 South Street, Titusville, Florida 32780; Henry Morgan, Jr., Esq., Post Office Box 32092, Lakeland, Florida 33802-2092; and Joseph C. Mellichamp, III, Esq. and Christine R. Davis, Esq., 215 S. Monroe Street, Suite 500, Tallahassee, Florida 32301, this of September, 2006. Attorney CERTIFICATE OF TYPE SIZE AND FONT COMPLIANCE I HEREBY CERTIFY that the type size and style used throughout this brief is 14-point Times New Roman, double-spaced, and that this brief fully complies with the requirements of Florida Rule of Appellate Procedure 9.210(a)(2). Attorney # 4043112_v1 15