BRADENTON, Fla. — Fitch Ratings returned Florida's rating outlook to stable from negative, becoming the last of the three major rating agencies to do so following the economic downturn.
Fitch also affirmed its triple-A implied general obligation bond rating on $12.9 billion in debt backed by the state's full faith and credit, and the AA-plus rating on $900 million in outstanding appropriation-backed bonds issued by the Department of Management Services.
"The revision of the outlook to stable reflects the stabilization of Florida's economy and related improved financial flexibility," analyst Karen Krop said in a report Friday. "Economic performance is improving. Reserves, while reduced from previous levels, are satisfactory and growing, and revenue performance has been positive."
Krop said the stable outlook also reflects an established trend of economic stabilization and continued positive financial operations, including passage of a structurally balanced budget for fiscal 2014. The state's triple-A rating recognizes the state's strong financial management practices, moderate debt burden, adequately funded pension system, solid long-term economic prospects, and satisfactory reserves.
"The economic recovery in Florida has begun to accelerate," she said. "Having emerged slowly at first from the national recession, the labor market is showing signs of a stronger recovery - employment is up and the unemployment rate down, the housing market is improving, and collections of economically sensitive state revenues
The unemployment rate, which was atypically higher than the national rate between 2008 and 2012, was 7.1% in July compared to the 7.4% national rate, according to Fitch.
"Florida's poor economic performance in the downturn and its slow recovery from the recession largely reflect the state's severe housing market correction following an historic run-up," Krop said. "The housing market is improving, although prices and housing starts are still well below pre-recession levels."
The homeowner vacancy rate is declining and construction activity has resumed, with housing starts on track for much faster growth. Foreclosure activity remains much higher than the national average but is down substantially from its peak.
The combined unencumbered general fund and budget stabilization fund balance was $6 billion at the end of fiscal 2006, or 22.4% of general fund revenues. As the state drew down reserves during the recession, the combined balance declined to $905 million, or 4.3% of fiscal 2009 revenues.
"With positive budget performance and some reallocation of reserves from various trust funds to the general fund, the combined balance increased to $3.2 billion as of June 30, 2013, or 12.5% of general fund revenues," Krop said. "After steep declines during the downturn, revenue performance has begun to improve with steady growth and upward revenue revisions in fiscal years 2012 and 2013, and continued growth projected for fiscal 2014."
Fiscal 2013 unaudited general revenues increased 7% year-over-year, and were $808 million higher than state economists had forecast. Sales tax revenues increased 5.7% year-over-year, and were 1.5% above estimate, Fitch said.
Florida does not have a personal income tax, and the state budget relies on sales tax revenues as the primary source of income.
The fiscal 2014 budget increases overall spending by 6% to $74.2 billion.
In a special comment June 27, Moody's Investors Service said Florida's revenue trends, year-end surpluses, and other economic indicators now show that the state's recovery is well under way. Moody's rates the state's implied GO rating Aa1 with a stable outlook.
In May, Standard & Poor's affirmed its triple-A rating and stable outlook.
Florida, by law, cannot issue general obligation debt, though it can issue some bonds backed by the state's full faith and credit.
