BRADENTON, Fla. - Standard & Poor's last week affirmed Florida's triple-A general obligation rating and stable outlook, but said the state's economic growth has come to a halt.
Housing market deflation compounded by the subprime crisis, reduced credit access, and the national economic slowdown point to a more prolonged economic downturn than previously expected, said a report by analyst John Sugden.
Despite those difficulties, the rating reflects the state's strong and conservative budget-management practices, including swift response to declining revenues, fully funded reserves that can be tapped, and a moderate debt burden.
"While the state remains well positioned to manage these challenges and has been proactive in addressing budget shortfalls, a reliance on nonrecurring revenues could weaken its flexibility to address additional revenue shortfalls should the downturn end up being deeper and lasting longer than currently forecast," Sugden said.
The state is rated Aa1 by Moody's Investors Service and AA-plus by Fitch Ratings.
Florida since last year has weathered revenue declines much greater than anticipated, but during flush years it stockpiled cash in reserve accounts.
The $66 billion fiscal 2009 budget signed by Gov. Charlie Crist in June was $6 billion lower than the 2008 budget due to plummeting revenues. Florida's budget is not supported by any property taxes and relies primarily on sales and use taxes.
The rating affirmation is great news given current market problems, said Ben Watkins, director of the Division of Bond Finance.
"It recognizes the hard work and difficult decisions that have been done by the state in a timely way to make the budget adjustments necessary to balance the budget with less money," Watkins said Friday. "No doubt [a triple-A rating] is more important now than ever, but that being said it doesn't matter what your rating is if you can't access the bond market, and that's the fundamental problem."
Watkins remarks came shortly after the U.S. House passed the $700 billion bailout bill intended to help stabilize the credit markets. The bill, which passed the Senate on Wednesday, is expected to be signed by the president.
"I am hopeful that this provides the catalyst for the credit markets to stabilize and begin functioning properly," Watkins said.
Meanwhile, Standard & Poor's praised state officials for taking action to deal with plummeting revenues.
In August, state economists lowered their revenue estimates and predicted that this year's budget will be short by $1.8 billion. The Legislative Budget Commission approved Crist's recommendation to use $672 million from reserves to offset the deficit.
The governor has also ordered state agencies to hold back spending 4% of their budgets, or about $900 million, in case he needs to make further cuts. But he said he wants to wait until after economists take their next look at revenue in November before deciding how to plug the remaining deficit.
Sugden said state officials estimate current reserves at $4.3 billion, or 17% of expenditures - a level he called "very strong." Even if state officials use reserves and trust funds to close the budget gap, Sugden said the balance would still be "a strong $2.9 billion, or 11.3% of fiscal 2009 expenditures."
Crist, hailing it as good news for Florida's economy, announced Thursday that the state would receive more than $1 billion for the state's troubled housing market from August's federal Housing and Economic Recovery Act of 2008, which includes an additional $571 million in private-activity bond volume capacity.
Crist said the tax-exempt bond capacity would allow developers to acquire or rehabilitate affordable housing and make funds available for first-time home buyers with low and moderate incomes. The remaining $541 million will come from the federal Community Development Block Grant program to purchase foreclosed homes and to promote other community-stabilizing activities.
