NEW YORK (Reuters) - Florida’s credit outlook was revised to stable from negative because its new budget begins to fix a longstanding gap between what it spends and what it collects, Standard & Poor’s said on Tuesday.
The credit ratings agency’s decision removes, at least for now, the threat that Florida would lose the top rating of AAA.
Florida’s service-based economy “continues to depend on tourism and in-migration and continues to be dragged down by the severely weakened housing market,” S&P’s said in a statement.
This potential hazard became apparent during the near collapse of the housing market. Florida’s housing bubble, like ones in California and Nevada, was particularly inflated.
Florida’s housing market is tightly linked to the U.S. market and many homeowners will not move to Florida’s retirement areas unless they can get satisfactory prices for their homes.
Congress’ failure to lift the federal debt limit ceiling may also pressure the finances of states.
“Absent a timely resolution to the ongoing debt limit negotiations at the federal level, the risks to the state (Florida) associated with a decline in federal funding could accelerate,” S&P said.
Like most states around the country, Florida’s tax revenues are rising though they remain below pre-recession levels.
S&P saluted Florida for working to rebuild its financial reserves, cushions which were depleted during the recession.
“Given our expectation of slow economic growth and continued budget pressure, our view of management’s significant progress in reestablishing structural balance is very important from a credit standpoint and is one of the main drivers of the outlook revision to stable,” it said.
Like six other states, Florida still struggles with a double-digit unemployment rate, according to the U.S. Labor Department. Florida’s May jobless rate was 10.6 percent; other double-digit states were: California, Michigan, Mississippi, Nevada, Rhode Island and South Carolina.
While tourists and retirees prize Florida’s beaches and warm climate, its coastal location also subjects it to danger.
“If a catastrophic hurricane were to make landfall in Florida and further weaken the statewide economic base or lead to debt issuance that increases the tax-supported debt burden for Florida above that of its state peers, we could lower our ratings on Florida,” S&P warned.