Jan 23 - Fitch Ratings assigns an 'AAA' rating to the following state of
Florida full faith and credit state board of education public education capital
outlay (PECO) bonds:
--$330.125 million PECO 2013 series A refunding bonds
The bonds are expected to sell the week of January 28 for bids on 18 hours
In addition, Fitch affirms the following ratings:
--Approximately $13.6 billion in outstanding Florida full faith and credit bonds
--Approximately $1.0 billion in outstanding Florida appropriation backed bonds
issued by the Department of Management Services at 'AA+'.
The Rating Outlook is Negative.
Florida's full faith and credit bonds are secured first by specific revenues, in
this case, a second lien on utility gross receipts taxes deposited into the
state public education fund. Florida's full faith and credit are also pledged
and provide the basis for the rating.
SOLID LONG-TERM ECONOMIC PROSPECTS: Long-term economic fundamentals are strong
with future growth expected; however, income levels have declined relative to
the nation and region due to the recession and slow recovery and the housing
market remains weak.
STRONG FINANCIAL MANAGEMENT PRACTICES: The state employs sound financial
management practices, including the use of consensus revenue estimating, and has
a history of prompt action to maintain fiscal balance.
SATISFACTORY RESERVES: Reserves remain satisfactory and improved in fiscal 2012
although still greatly reduced from the peak reached prior to the recession.
These reserves offset risks associated with an economically sensitive revenue
system vulnerable to declines in the rates of population growth, consumption,
and activity in the housing market.
MODERATE LIABILITIES: The state's debt burden is moderate and pensions are well
REDUCED FLEXIBILITY: The negative outlook reflects Florida's reduced financial
flexibility as it emerges very slowly from the recession. Reserves, while still
satisfactory, have been significantly reduced and budget balancing remains
WHAT COULD TRIGGER A RATING ACTION
STABILIZATION: The rating could be stabilized at the 'AAA' level based on an
established trend of economic stabilization and continued positive financial
operations, including passage of a structurally balanced fiscal 2014 budget. The
recent Florida Supreme Court decision regarding pension funding was favorable
toward the state and a positive rating factor.
NEGATIVE FINANCIAL RESULTS: The rating could be revised downward if there is
evidence of a weakening of the state's slow economic and revenue recovery or a
material reduction in reserves.
The 'AAA' rating on Florida's GO bonds recognizes the state's strong financial
management practices, moderate debt burden, well-funded pension system, solid
long-term economic prospects, and still satisfactory reserves. The negative
outlook reflects the severity of the state's economic decline and reduced
financial flexibility as well as lingering uncertainty associated with the pace
of the economic and, therefore, revenue recovery.
STRONG ECONOMIC FUNDAMENTALS BUT SLOW EMERGENCE FROM RECESSION
Until the recession, the Florida economy was characterized by rapid growth,
economic broadening, and diversification as it was transformed from a narrow
base of agriculture and seasonal tourism into a service and trade economy, with
substantial insurance, banking and export components. Strong underlying
fundamentals remain, including a relatively low cost of living, attractive
tourist and retirement destinations, and favorable geographic location; however,
there is still uncertainty regarding the near term economic outlook and economic
performance during the recession was among the weakest of the states. The
state's natural amenities include 2,200 miles of tidal shoreline, proximity to
Latin American and Caribbean markets, some of the world's most popular tourist
destinations, large convention venues, and major cruise ship ports.
Florida's poor economic performance in the downturn and its slow recovery from
the recession largely reflect the state's severe housing market correction
following an historic run-up. The decline in employment exceeded that of the
nation between 2008 and 2010. Although Florida matched the national growth rate
of 1.1% in non-farm employment in 2011, growth since has consistently lagged the
national rate with year-over-year employment growth of 0.9% in December 2012
once again falling short of the national rate of 1.4%. Construction employment,
which is less than half what it was in 2006, continues to decline, albeit at a
slower rate. The state's unemployment rate, has declined significantly from its
historical high of 11.4% in January 2010, and is 103% % of the U.S. rate at 7.8%
in December 2012.
The disproportionate impact of Florida's poor economic performance is evident in
wealth levels that are growing more slowly than the national average. Florida's
per capita income was 100.5% of the national average in 2006, preceding the
recession. Five years later, per capita income has fallen to 95% of the national
average and ranks Florida 26th by this measure, down from 18th in 2006.
SOUND FINANCIAL MANAGEMENT
Florida's revenue sources (primarily a sales tax, but also a documentary stamp
tax in large part based on real estate transactions) have been especially
susceptible to the state's steep housing market correction; the state has no
personal income tax. The Florida legislature consistently and promptly addressed
numerous large negative revenue estimate revisions during the downturn,
maintaining budget balance and an adequate reserve position. The state has begun
to rebuild reserves, which remain well below their pre-recession peak.
The combined unencumbered general fund and budget stabilization (rainy day) fund
balance totaled $6 billion at the end of FY 2006, or 22.4% of general fund
revenues. At the end of FY 2011, these balances totaled $1.0 billion, or 4.5% of
FY 2011 general fund revenues. The combined balance increased to $2 billion as
of June 30, 2012 (unaudited). Trust fund balances, an additional source of
financial flexibility, have also been reduced over the past five fiscal years,
from $3.8 billion at the end of FY 2006 to $2.0 billion at fiscal year-end 2012.
The trust fund balances are projected to be further reduced by the end of fiscal
2013 as monies are added to the general fund and stabilization fund balances.
The enacted fiscal 2012 budget, which totaled $69.2 billion, a reduction of $1.5
billion (2.1%) from the fiscal 2011 budget, closed a projected $3.6 billion gap
with spending reductions and a requirement that employees begin making
contributions to retirement plans, a provision that was challenged by the
teachers' union. The recent Florida Supreme Court decision in favor of the
state's position, which will be final as of January 25th if no motions to rehear
are filed, is a credit positive for the state. The contribution requirement
allowed the state to reduce ongoing annual spending by over $1 billion.
After steep declines during the downturn, revenue performance has begun to
improve with steady, slow growth in fiscal 2012 and an upward revenue revision
for fiscal years 2013 and 2014. Fiscal 2012 unaudited general revenues increased
4.7% year-over-year and were $407 million (1.8%) higher than forecast growth.
Sales tax revenues increased 4.7% year-over-year and were 0.9% above estimate.
Through the first five months of fiscal 2013, general revenues have increased
7.8% year-over-year and are 2.8% ahead of forecast.
The adopted budget for fiscal 2013 assumes 5.4% revenue growth and increases
general revenue fund spending 7%. This, in part, reflects an increase in
education funding required by enrollment gains as well as a shift to state
funding per formula as local property tax values have declined. The increase in
K-12 funding is partially offset by a reduction in state funding to higher
education, prison consolidation, and other reductions. The governor's proposal
to reform Medicaid was not acted upon although savings are expected to be
achieved through lower reimbursement rates. The most recent general revenue
estimating conference, held in December 2012, revised projected fiscal 2013 and
2014 revenues upward by $240 million, reflecting the positive performance
year-to-date as noted above.
MODERATELY LOW LIABILITIES
The state's debt position and structure are conservative. Debt represents a
moderate burden on Florida's resources with net tax-supported debt of about
$21.6 billion equal to 2.9% of 2011 personal income. Florida's debt portfolio
does not include derivatives and variable-rate debt is negligible at less than
0.5% of net tax-supported debt. Pensions had been overfunded since fiscal 1998,
but due to market losses and assumption changes to reflect the results of a 2009
experience study the funded ratio dropped to a still solid 87% as of July 1,
2011 on a reported basis. On a combined basis, net tax-supported debt and
unfunded pension obligations attributable to the state, as adjusted for a 7%
return assumption, total 3.9% of 2011 personal income, the eighth lowest such
burden for states rated by Fitch and well under the median.
Florida's full faith and credit bonds are secured first by specific revenues.
PECO bonds, which are the state's primary method to fund school construction,
are secured first by a second lien on utility gross receipt taxes and ultimately
by Florida's full faith and credit pledge. A closed first lien accounts for less
than 1% of debt service.