BRADENTON, Fla. — Of Florida’s 67 counties, an “unprecedented” 52 have joined a lawsuit challenging a new state law that county officials say could impair their ability to make bond payments and meet debt coverage requirements while reducing bonding capacity.

The law, signed by Gov. Rick Scott on March 29, requires that the state intercept shared revenues with counties that have disputed Medicaid payments in the past as well as the future.

The shared revenues include a portion of the state sale tax that some counties have pledged to secure bonds, as well as revenues from a communications services tax.

“By mandating Medicaid bills be deducted from state shared revenues, the Legislature has diverted county revenues that could be pledged to service debt obligations,” said the suit, filed two weeks ago on behalf of counties by the Florida Association of Counties.

Although a portion of the bill addresses some of the impact on outstanding bonds, “the flexibility of the counties to solve local problems has been diminished by mandating the use of the state shared revenues to pay prior unpaid amounts and future billings,” the FAC suit said.

Scott, who made his fortune as co-founder of Columbia Hospital Corp., said the state would ensure that county Medicaid bills are accurate.

Counties, though, are on the hook for hundreds of millions in past-due payments.

The new law authorizes the Department of Revenue to reduce each county’s monthly revenue-sharing distribution up to 50% to service the amount the state says it is owed for Medicaid payments, though the “reduction must leave sufficient revenue to service outstanding debt.”

Counties can request refunds of billed amounts believed to be incorrect.

The new intercept program will potentially hit counties in two ways, according to an analysis of the law prepared by legislative staff.

The first is to collect $325.5 million in past unpaid Medicaid bills from counties.

Starting in October, the DOR will begin phasing the reduction of certain monthly shared revenues up to 50% to pay for the past-due bills.

Florida will reduce the portion of the sales tax it shares with counties for future unpaid bills beginning next month.

The DOR is in the process of requesting that counties provide information about the amount of debt tied to revenues shared by the state, said Cragin Mosteller, spokeswoman for the Florida Association of Counties.

“We think that we’ll have a number, hopefully, going forward,” Mosteller said, adding that FAC has requested copies of the letters and bonding amounts submitted by counties.

Mosteller also said the association expects the Department of Revenue to honor the provisions in the bill that will protect the ability of counties to pay debt service.

The sheer number of counties that joined the lawsuit shows the magnitude of the problem, according to Mosteller, who said the total that joined the legal challenge is a record for the Florida Association of Counties.

“We expected 20 counties and the fact that we have 52 is unprecedented,” she said. “By having so many counties join with us clearly shows that the statewide impacts affect every county, small and large. This is a fundamental issue about right and wrong.”

The new intercept program not only violates Florida’s constitution, it attempts to capture revenues based on a “fundamentally flawed billing scheme,” according to the suit.

It cites a number of examples where counties have historically disputed duplicative bills and improper charges. Some erroneous bills are the result of charges for patients that are not residents of the county being billed.

The intercept law, embedded in HB 5301, is unconstitutional because it was passed by less than the required two-thirds majority of the Senate and the House, the lawsuit alleges.

It also requires counties to reimburse the state for disputed Medicaid expenditures beyond the four-year statute of limitations.

The intercept provision will cause counties to spend additional funds for higher interest rates on revenue bonds secured by state shared revenues in the future, the FAC said.

The suit also cites a special report in early April by Moody’s Investors Service, which said the Medicaid intercept law has negative credit implications for Florida counties.

“This procedural change weakens available revenue to service sales tax bonds and non-ad valorem obligations,” wrote Moody’s senior vice president John Incorvaia. “The lost revenues add another financial strain on counties already challenged by waning property tax and other operating revenues.”

Incorvaia said debt service backed by specific revenue pledges, such as sales tax bonds, are somewhat protected because the new law stipulates that the state will not withhold revenues to the extent that a county’s ability to pay debt service is jeopardized.

However, “the increased withholdings of counties’ sales tax revenues will invariably reduce debt service coverage and bonding capacity,” he said.

In addition to bonds secured by the sales tax, Incorvaia said guaranteed entitlement bonds could experience reduced debt-service coverage levels.

Christopher Holley, executive director of the Florida Association of Counties, called the new law “a backdoor tax hike on Florida taxpayers” because it passes the costs of a “grossly inefficient billing system” on to Floridians in the form of an unfunded mandate.

The law also appears to be a method to increase funds for the state budget.

It directs that $350 million of collections from counties be sent to the Lawton Chiles Endowment Fund.

The investment fund was created in 1999 with $1.7 billion of Florida’s tobacco litigation settlement proceeds to provide funding for smoking-related health care and research programs.

Over the past few years, the Legislature has dipped into the endowment fund to help balance the state budget.

Collections from the Medicaid billing program will also go to the general fund.

The Florida Association of Counties is only challenging a portion of the bill, not whether counties should share in the cost of paying for Medicaid.

Counties are making sure charges are proper because taxpayers foot the bill, Mosteller said.

“We have fiduciary duty to ensure spending taxpayer’s money is accurate,” she said.

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