BRADENTON, Fla. — Even with debt issuance by Florida at a historic low this fiscal year, the state continues to exceed its self-imposed debt service cap as revenues remain weak.
The ratio of debt service as a percentage of available revenues is at 7.64%, which exceeds the state’s 7% cap for outstanding debt, Division of Bond Finance director Ben Watkins said Tuesday.
It is at least the third year in which the state has exceeded the 7% cap as revenues have declined, even though Florida expects to issue only $900 million of direct and indirect, new-money bonds this fiscal year compared with the average annual issuance of $2.1 billion.
Less debt issuance is likely to be an ongoing goal of the Republican-led Legislature, which reduced the bond authorizations for educational purposes and discontinued borrowing for two major environmental programs during this year’s regular session.
“What we see is a tremendous increase in benchmark-debt ratio because of decreases in revenues resulting from economic weakness,” Watkins told the state’s elected Cabinet members in a presentation. “We moved outside of the policy guidelines not by virtue of what we did on the debt side but because of weak revenues.”
In October, the state’s economists for a third time revised downward revenue estimates for fiscal 2012 and 2013 that were projected to be higher just a year ago. As a result, incoming revenues are expected to be flatter due to a slower economic recovery than anticipated, Watkins said.
The debt-affordability study shows the state most likely will continue to exceed the 7% cap through 2013. It is likely to do so even if new bond authorizations continue to be reduced
The complex examination of the state’s debt program is provided annually to assist lawmakers in evaluating the long-term financial impacts of their borrowing decisions, Watkins said. The state’s total outstanding direct debt of $27.7 billion as of June 30 was sold for school construction, transportation projects, and land conservation.
Indirect debt of $16 billion has been sold by various state-created agencies with their own source of repayment, which is not included in the debt ratio cap. The total includes $5.4 billion of debt sold by the Florida Hurricane Catastrophe Fund Financing Corp., and $4.5 billion sold by Citizens Property Insurance Corp.
While the state is not required to pay indirect debt, Watkins said it can create the perception the state, in some circumstances, may come to the aid of entities for which it has no full faith and credit obligation.
The so-called Cat Fund and Citizens Property Insurance are of concern because their insurance coverage exposures are growing and because rating agencies are “connecting the dots and saying the state’s credit rating could be impacted” by those contingent, off-balance-sheet liabilities, Watkins said.