Florida hopes disclosure will avoid a 'Meredith Whitney moment'
Florida has issued a broad voluntary disclosure about actions it has taken to address the public health and economic crisis caused by the novel coronavirus that causes COVID-19.
The economic, financial and budgetary impacts on the state and its economy from the measures taken to combat the spread of the virus are expected to be significant, according to the five-page document posted on the Municipal Securities Rulemaking Board’s EMMA filing system Tuesday.
Ben Watkins, director of the Florida Division of Bond Finance, said it is important for the marketplace to know how the state is responding to the outbreak to prepare investors for what may ultimately happen.
"We know it's going to be bad and we don't want to replicate the Meredith Whitney moment where mom and pop investors are [overly] careful of their money invested in the muni space," he said.
Whitney, a financial banking analyst, erroneously predicted in 2010 amid the financial crisis that there would be 50 to 100 sizable municipal bond defaults, a call that led investors to pull $26 billion out of the bond market over several months and eroded their faith in municipal securities.
Disclosing the state’s response to the current crisis can help people feel better about the issuers and bonds they've invested in, and to feel the "safety and security of their investments in the muni space," Watkins said. The state has also released disclosures for state-run toll roads, toll bridges and universities.
"We want to start conditioning people to have information so they can make an informed decision because it's human nature to assume the worst," he added.
According to the disclosure, Gov. Ron DeSantis declared a state of emergency on March 9 allowing him to take certain executive actions to respond to the increase in COVID-19 cases. On April 3, he issued a "safer at home" order requiring vulnerable people to remain at home and other residents to limit their movements to essential activities until April 30.
Florida had 28,832 confirmed cases of the highly contagious and deadly virus, and 960 people died from it, as of Thursday, according to the Florida Department of Health.
Some 505,137 Floridians filed unemployment assistance claims in the week ending April 18, according to the U.S. Department of Labor.
Although the $93.2 billion fiscal 2021 budget was adopted by the Legislature on March 19, it hasn't been sent to the governor for final action. It doesn't address the potential decline in revenue or anticipated expenses because of COVID-19, the disclosure states. It sets aside $300 million to respond to the disease.
Budget amendments for the state's response to the virus total about $526.3 million through April 10.
"No accurate estimates for future costs expected to be incurred are available due to the fluid nature of the response efforts," the disclosure says. "Although the financial impact to the state for the cost of responding to COVID-19 is anticipated to be significant, it is expected to be manageable."
Due to a presidential emergency declaration for Florida, the state expects 75% of eligible virus-related costs to be reimbursed by the Federal Emergency Management Agency. The state said it received $4.16 billion under the federal CARES Act.
About 75% of the revenue in Florida's budget comes from state sales tax collections, and the impact of the expected decline in sales won't begin to be known until April collections are available in late May.
The notice said the state "does not anticipate any difficulties with liquidity" for the current fiscal year, which ends June 30, and it believes all deposits for full and timely payments on its outstanding bonds will be made.
Florida had $20.6 billion in direct debt outstanding as of June 30, 2019. The state is rated triple-A by Fitch Ratings, Moody's Investors Service and S&P Global Ratings.
Tuesday's notice was the fifth issued by the state due to the spreading disease. On April 2 and 3, Florida issued disclosures related to revenues and tolls for the state's turnpike, the Alligator Alley toll road and Sunshine Skyway toll bridge, and debt issued for state universities, most of which began remote classroom instruction around March 23.