Florida’s environmental bond program is not a marketable credit because of diminished debt service coverage, Division of Bond Finance director Ben Watkins said on Tuesday.
A dramatic decline in pledged revenues and severely lowered expectations for collections in the coming years led Fitch Ratings this week to downgrade to A-minus from A-plus $2.6 billion of outstanding Preservation 2000 and Florida Forever revenue bonds, and $200 million of outstanding Florida Everglades bonds.
Watkins commented on the program, and the rating downgrade, at Tuesday’s meeting of the State Board of Administration, which oversees his department. He said the outstanding bonds are secured by about 63% of the state’s documentary stamp-tax collections, most of which comes from real estate transactions that have declined severely in the economic downturn.
In a peak year, the environmental bond program received approximately $4 billion in documentary stamp-tax funds, which have declined precipitously to about $800 million a year in the last two years, said Alex Sink, Florida’s elected Chief Financial Officer and member of the SBA.
The program has about $200 million of authorized-but-unissued debt, “but in my judgment this is not a marketable credit at this time,” Watkins said.
He said he has recommended that the Legislature increase the documentary stamp tax allocation to improve debt service coverage, adding that “should put us on a course to have a viable program prospectively.”
Fitch said on Monday that its downgrade and negative outlook reflected revenue reductions that have resulted in significant deterioration of debt service coverage. Projected coverage of debt service on the outstanding bonds is 1.5 times in fiscal 2009 and drops to 1.15 times in fiscal 2010.
“The projected low point of $829 million in fiscal 2010 approximates revenues collected in fiscal 1997 and compares to a peak of $4.1 billion in fiscal 2006,” Fitch said. “Given the significant uncertainty associated with the Florida real estate market, downside risk remains.”