BRADENTON, Fla. - Standard & Poor's said Friday that it would be "unprecedented and significant" if AAA-rated Florida failed, for the first time ever, to adopt a state budget on time.
The Legislature on Monday begins a 20-day special session to iron out a major disagreement over healthcare funding that prevented lawmakers from passing a budget for 2016 during their regular session. The fiscal year begins July 1.
If legislators fail to pass a budget for the coming fiscal year, the state could be required to use reserves to make some bond payments, S&P said in a special report.
"We would consider the need to use those reserves as being uncharacteristic of a triple-A rated state," S&P analyst Sussan Corson said in an interview with The Bond Buyer.
While a payment from reserves would not be considered a default, it could pressure Florida's stable outlook, she said.
If lawmakers fail to pass a budget before July 1, S&P said that the state expects to have sufficient resources from the current budget to meet all July 1 debt service payments, as well as Sept. 1 debt service payments for the Department of Management Services' facilities pool revenue bonds.
Without a fiscal 2016 appropriation, however, S&P said the state might need to tap debt service reserves for Florida Correctional Finance Corp.'s certificates of participation debt service payments due Aug. 1, 2015.
Ben Watkins, director of the Division of Bond Finance, said Friday that a default would not occur in the unlikely event that reserves are required to make the Florida Correctional Finance Corp. COP payments.
"We fully expect to have a budget done," he said. "That's the whole purpose of having a special session."
The Division of Bond Finance posted a notice on its website Thursday, "to make people aware of that fact that we have called a special session because of a budget impasse," Watkins said. "The constitution requires the Legislature to adopt a budget prior to the state of the next fiscal year."
Florida has never failed to adopt a budget by July 1, though three special sessions have been required since 1992 to iron out major funding disputes between lawmakers.
The current budget standoff centers on a disagreement between the House and Senate, both GOP-led, over whether to expand the state's insurance coverage to 800,000 low-income residents who fall in the gap that prevents them from qualifying for insurance under the Affordable Care Act or Medicaid.
Gov. Rick Scott, a Republican, and the House leadership oppose a Senate plan that would expand the Medicaid program.
On Tuesday, Sen. President Andy Gardiner, R-Orlando, said his chamber fully intends to adopt a spending plan for 2016 budget during the special session, though he stopped short of saying if he would consider dropping the expansion plan in order to reach agreement on the budget.
"From a credit standpoint, continued political brinkmanship that results in a late budget past June 30 with a need to use debt service reserve funds to cover scheduled debt service payments would reflect a weakening of state budget management that we consider uncharacteristic of a AAA-rated state," S&P said.
Fitch Ratings assigns Florida its AAA implied-general obligation bond rating and Moody's Investors Service assigns an Aa1 implied GO rating. Both have stable outlooks.
The state does not issue GO bonds, though it does issue certain bonds backed by Florida's full faith and credit.