Moody's Watching Florida

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BRADENTON, Fla. - Citing a precipitous drop in revenues brought on by a protracted and deep dislocation in Florida's real estate market and the recession, Moody's Investors Service has become the first rating agency to place the state's ratings on watch for possible downgrade.

Moody's action was announced as the state yesterday was to start taking bids for $200 million of Board of Education public education capital outlay bonds, which are backed by the state's full faith and credit.

The Florida Division of Bond Finance delayed pricing the bonds and said that it would take bids today up until 11 a.m. Eastern Daylight Time.

A revised announcement calling for bids today disclosed that Moody's had placed the state's Aa1 implied general obligation rating, which applies to the education bonds, on watch for possible downgrade.

Ben Watkins, director of the Division of Bond Finance, could not be reached for comment.

Moody's said it expects to determine whether to downgrade the state's ratings within 90 days and will consider any actions taken by Florida lawmakers and Gov. Charlie Crist on solutions to address a fiscal 2010 budget gap.

The agency also will analyze the weakening economy and the state's plans to restore reserves in the future, said a report by analyst Mark Tenenhaus.

Because of steep revenue declines in the current fiscal year, lawmakers have cut the budget, made withdrawals from various trusts, and drawn down the budget stabilization fund from its $1.35 billion balance at the beginning of fiscal 2009 to its current level of $272 million, Tenenhaus noted.

Florida has no state income tax, so lawmakers rely primarily on sales and use taxes to support the budget.

The Legislature is in session until May 1. A budget conference committee was appointed this week to iron out differences in the proposed fiscal 2010 budget and close an estimated $5 billion deficit, which is expected to be addressed in part with spending cuts, an increase in some sin taxes, elimination of sales tax exemptions, further depletion of trust fund balances, and federal stimulus funds.

A "budget resolution that relies primarily on nonrecurring measures, in light of the weakened state of Florida's economy, may result in a downgrade," Tenenhaus said.

The $200 million of public education capital outlay bonds being sold today represent a $50 million increase in the par amount originally sought by the state.

The education bonds are rated AA-plus by Fitch Ratings and AAA by Standard & Poor's. Both rating agencies maintained negative outlooks on the ratings.

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