MIAMI BEACH — While there are signs that state revenues are slowly growing again in the Southeast, experts here warn that negative budget pressures will persist in coming years as governments struggle to meet their obligations.
States in general face a bumpy period recovering from the loss of revenues while finding ways to fund education and health care, Moody’s Investors Service managing director Gail Sussman said at The Bond Buyer’s Southeast Public Finance Conference Wednesday.
“This is really the worst recovery we’ve seen since the Great Depression,” she said. “It’s going to be really challenging for state and local governments to meet their obligations.”
Moody’s expected a decline in bond issuance this year, but not the precipitous decline that has occurred, Sussman said.
Wayne Winegarden, a managing director for the consulting and economic research firm Laffer Associates, said the Southeast’s economy should expect growth to be about half what it should be.
“The big risk factor is Florida,” he said. “Getting the policies correct there is more important … because of it being the center of the storm.”
Florida is the most populous of the Southeast states and has the country’s third-highest unemployment rate at 11.5%.
Republican Gov. Rick Scott has set an agenda to reduce the size of government and tackle reform of major policy areas such as pensions, Medicaid, and unemployment compensation while offering tax relief, according to Jerry McDaniel, director of the Office of Policy and Budget and the Office of Fiscal Accountability and Regulatory Reform.
While Florida leaned heavily on the use of $12 billion in federal stimulus funds and reserves the past three years, as well as borrowing, McDaniel said the new governor has departed from those conventions in his budget.
“Gov. Scott is interested in filling the budget gap and providing tax relief,” he said. “We are trying to build up reserves we used to bridge budget gaps.”
To help bridge the deficit for fiscal 2012, which could run as high as $3.5 billion, the Republican Scott wants to make state employees contribute to Florida’s pension program.
Currently, Florida is believed to be the only state in which employees to do not contribute to their pensions.
One of Scott’s tax relief proposals would reduce funding for the state’s 67 school districts, which are already stressed because property values have plummeted over several years.
In February, Moody’s said Scott’s budget plan could have a negative effect on the credit ratings of Florida and its school districts.
Scott’s fiscal 2012 spending plan totals $65.9 billion, a $4.6 billion, or 6.6%, reduction from the current year.
“The plan incorporates expenditure savings in most of the state’s major policy areas, but school districts statewide would feel the largest burden because of local property-tax reductions and the loss of federal stimulus education funds,” Moody’s said.
McDaniel said “anything rating agencies do is a concern.” He also said Scott is not interested in borrowing.
“As a general rule, he’s very opposed” to borrowing, he said, noting that Scott has proposed eliminating bonding for environmental programs and other traditional sectors.
The bond amounts proposed in Scott’s budget would slash financing to its lowest level in well over a decade. His plan would authorize $331.3 million of debt in 2012 and $428 million in 2013.
The debt would be sold only for Department of Transportation and school programs.
