Negative Watch Dropped

Moody’s Investors Service on Tuesday removed Florida’s Aa1 general obligation rating from its watch list for possible downgrade but retained a negative outlook for the state. Moody’s also lifted other state ratings from the watch but maintained a negative outlook for them as well.

The agency on April 21 said the state’s ratings were being considered for possible downgrade due to Florida’s declining revenue and worsening economy.

Removing the state from that status “reflects enactment of a fiscal 2010 budget that seeks to address structural balance by reducing reliance on non-recurring revenues, significantly increasing recurring revenues, and reducing expenditures,” said a report by analyst Mark Tenenhaus.

The state’s 2010 budget incorporates approximately $2.4 billion of recurring revenue enhancements and cuts expenditures by approximately $3.6 billion, or 14.5%, from the prior year. “The resulting budget is projected to have a year-end unencumbered balance of approximately $1 billion,” Tenenhaus noted.

The negative outlook reflects weakness in the state’s economy shown by employment dislocations, job losses that exceed those for comparably rated states, a weak housing market, and projections for minimal population growth through 2010, all of which could hurt the state’s plans to restore reserves over the next few years, according to the analyst.

Single-family housing starts were as high as 193,000 in 2005 and have declined to a projected low of 18,100 this year, with the excess supply of homes on the market estimated to be more than 300,000, Tenenhaus said.

Florida recorded the second-highest number of foreclosures nationwide in 2008, and its unemployment rate in May was 10.2% compared to a national rate of 9.4%.

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