BRADENTON, Fla. - Florida has no capacity to issue new debt beyond what is already is planned for the next three fiscal years because plummeting state revenues are expected to push it above a self-imposed debt service ratio, according to the state's 2008 debt affordability report.
The annual report that measures the ratio of annual debt service payments to available revenues was forwarded Monday to top lawmakers as well as House and Senate appropriation committees that are meeting this week to prepare for a Jan. 5-16 special session to cut more than $2 billion from the budget.
Since 1999, Florida has required a comprehensive analysis of its debt position by examining the ratio of debt service to revenues. The Legislature created a 6% target and a 7% cap for calculating the debt-capacity ratio. To exceed 6%, lawmakers must determine that authorizing new debt is in the best interest of the state. To exceed the 7% cap, the Legislature must determine that the new debt is necessary to address a critical state emergency.
The debt ratio hit 6.38% as of the June 30 end of the 2008 fiscal year. That represented an increase from 5.49% in fiscal 2007. The fiscal 2009 debt ratio is projected to be 7.18% due to continued falling state revenues coupled with the increase in debt service from the $2.4 billion in bonds issued in fiscal 2008.
"We've never been over the 7%," said Ben Watkins, director of the Division of Bond Finance, who has prepared the debt reports since their inception.
The report, which projects Florida's debt position over 10 years, is intended to provide guidance to the Legislature as budget decisions are made, according to Watkins.
"It is indicating that additional debt should only be used for critical infrastructure because we're really beyond what the Legislature had set from a policy perspective," he said. "There's significant long-term capacity if the economy bottoms out as anticipated. But we don't have any near-term capacity."
Florida had $24.3 billion of outstanding debt at the end of fiscal 2008. Approximately $13.4 billion of debt is expected to be issued over the next 10 years in all of the state's currently authorized financing programs.
Debt service payments now total approximately $1.9 billion per year and are projected to increase to $2.5 billion over the next three years.
The major problem, however, is the worsening revenue picture.
General revenue collections in fiscal 2008 were $28.7 billion, or $1 billion less than the previous year.
General revenue estimates for fiscal 2009 have been reduced three times over the past year and projected year-end income has been reduced by $5.4 billion, or 15.8%. Gov. Charlie Crist has addressed a portion of the deficit with cuts, hold-backs, and use of reserves. But reserves that the state socked away during the flush years are dwindling.
In fiscal 2008, $3 billion of reserves were used to offset declining revenue collections. By the end of fiscal 2008, the combined reserve balance in the budget stabilization fund and general revenue fund was $1.7 billion, or 6.9% of general revenues, which is considered adequate, the debt affordability study said.
"Reserves are expected to decrease further in fiscal year 2009 and could be depleted without legislative budget reductions and other actions taken in response to reduced revenues," the debt report said. "Adequate reserves have been critical in providing the financial flexibility to react to declining revenues and an important factor in maintaining the state's ratings."
So far, Florida has maintained its general obligation equivalency ratings of AAA from Standard & Poor's, AA-plus from Fitch Ratings, and Aa1 from Moody's Investors Service.
In March, Moody's changed its outlook on the state's credit to negative. Fitch followed suit this month. Watkins said Standard & Poor's analysts are currently evaluating the state's position and may issue a report in the next week or two.
"I'm sure they are looking at what the state's response will be to the projected budget deficit," Watkins said.