NEW YORK--(BUSINESS WIRE)--
Fitch Ratings assigns an 'AAA' rating to the following state of Florida
full faith and credit state board of education capital outlay bonds:
--$24.57 million 2014 series A.
The bonds are expected to sell competitively as soon as Feb. 25, for
bids on 18 hours' notice.
In addition, Fitch affirms the following ratings:
--Approximately $12.8 billion in outstanding Florida full faith and
credit bonds at 'AAA';
--Approximately $1 billion in outstanding Florida appropriation-backed
bonds issued by the Department of Management Services at 'AA+'.
The Rating Outlook is Stable
Florida's full faith and credit bonds are secured first by specific
revenues; in this case, a lien on motor vehicle license taxes
distributed to school and state college districts. Florida's full faith
and credit are also pledged and provide the basis for the rating. The
state's appropriation-backed bonds, rated one notch below the state's GO
rating, are secured by lease rental payments paid by Florida state
agencies, subject to annual appropriation.
KEY RATING DRIVERS
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 initial slow
recovery. The housing market remains weak but is showing signs of
ECONOMIC AND REVENUE STABILIZATION: Economic performance continues to
show improvement, with related improvements in financial flexibility.
Reserves, while reduced from previous levels, are satisfactory and
growing, and revenue performance has been positive.
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 and
SATISFACTORY RESERVES: Reserves remain satisfactory and have increased
over the past two fiscal years although they are still 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 adequately funded.
The rating is sensitive to continued stability in economic and financial
The 'AAA' rating on Florida's GO bonds recognizes the state's strong
financial management practices, moderate debt burden, adequately-funded
pension system, solid long-term economic prospects, and still
satisfactory reserves. The Stable Outlook reflects the established trend
of economic stabilization and continued positive financial operations,
including passage of a structurally balanced budget for fiscal 2014.
The economic recovery in Florida has begun to accelerate. Having emerged
slowly at first from the national recession, the labor market is showing
signs of a stronger recovery - employment is up and the unemployment
rate down, the housing market is improving, and collections of
economically sensitive state revenues are increasing.
Non-farm employment growth has been approximately equal to or above the
national rate since 2011, following a revision to statistical data that
indicate the recovery was stronger than initially reported. The pace of
growth began to accelerate midway through 2012, leading to an annual
increase of 1.8%, slightly higher than the national rate of 1.7%.
Employment growth continued to be strong in 2013 with year-over-year
growth of 2.6% reported in December, as compared to the 1.7% U.S. rate,
and growth in virtually all employment sectors other than government.
The unemployment rate, which was atypically higher than the national
rate between 2008 and 2012, is once again lower at 6.2% in December 2013
compared to the 6.9% national rate.
The Florida economy has been 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. 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 housing market is improving, although
prices and housing starts are still well below pre-recession levels. The
homeowner vacancy rate is declining and construction activity has
resumed, with housing starts on track for much faster growth.
Foreclosure activity remains much higher than the national average but
is down substantially from its peak.
Strong underlying fundamentals remain, including a relatively low cost
of living, attractive tourist and retirement destinations, and favorable
geographic location. The state's natural amenities include 2,200 miles
of tidal shoreline, proximity to Latin American and Caribbean markets,
and the presence of some of the world's most popular tourist
destinations, large convention venues, and major cruise ship ports.
Construction employment, which is less than half what it was in 2006,
has resumed growth, increasing 1.8% in 2012 and up 8.4% year-over-year
as of December.
The disproportionate impact of Florida's poor economic performance
during the recession is evident in wealth levels that are growing more
slowly than the national average. Florida's per capita personal income
was 100.5% of the national average in 2006, preceding the recession. Six
years later, per capita personal income has fallen to 95% of the
national average and ranks Florida 27th by this measure, down from 18th
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) were
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. As the state drew down reserves during the
recession, the combined balance declined to a low of $905 million, or
4.3% of fiscal 2009 revenues. With positive budget performance and some
reallocation of reserves from various trust funds to the general fund,
the combined balance increased to $3.6 billion as of June 30, 2013, or
14.2% of general fund revenues. Trust fund balances, an additional
source of financial flexibility, have also been reduced, from $3.8
billion at the end of FY 2006 to $2.4 billion at fiscal year-end 2013.
The trust fund balances are projected to be further reduced by the end
of FY 2014 as monies are added to the general fund and stabilization
After steep declines during the downturn, revenue performance has begun
to improve with steady growth and upward revenue revisions in FYs 2012,
2013 and now 2014. FY 2013 general revenues increased 7.2%
year-over-year and were $683 million (2.8%) higher than the forecast
upon which the budget was based. Sales tax revenues increased 5.7%
year-over-year and were 1.5% above estimate.
The adopted budget for FY 2014 increases overall spending 6% to $74.2
billion and the general revenue budget 7.9% to $26.7 billion. The budget
funds increases in education and Medicaid and also fully funds pension
contributions, in contrast to FY 2013. The budget did assume a reduction
in reserves, utilizing some of the surplus generated in fiscal 2012 and
2013. Revenue performance has been positive year-to-date, with upward
revenue revisions in August and December 2013 totaling $274 million.
Through December, general revenue collections have increased $513.4
million (4.4%) year-over-year and are $59 million above even the
December revenue estimate.
The Governor's budget proposal for FY 2015 would keep overall spending
flat at $74.2 billion but, with general revenues projected to increase
4.9%, increases the general revenue budget 3.1% to $27.5 billion. In
keeping with prior budget proposals, the budget proposes reductions in a
variety of revenue sources, principally a reduction in motor vehicle
license fees, and keeps tight restrictions on debt issuance. The budget
would fund increases in education and Medicaid, continue to fully fund
pension contributions, and provide some funding for performance based
one-time employee bonuses.
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 $20.4 billion equal to 2.6% of 2012 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
Pensions had been overfunded since FY 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 85.9% as of July 1, 2013 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 3.6% of 2012 personal income, the fifth lowest
such burden for states rated by Fitch and well under the 7% median.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the report
'Tax-Supported Rating Criteria', this action was additionally informed
by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. State Government Tax-Supported Rating Criteria', dated Aug. 14,
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
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Source: Fitch Ratings