A Florida bill prohibiting a municipal electric utility from using its revenues to fund general governmental functions shouldn’t trigger a significant number of credit rating actions, but could challenge local governments relying on the transfers as an important revenue source, Fitch Ratings said Thursday.
House Bill 653, filed for this year’s legislative session, would prohibit a municipal electric utility from sending its revenues to a city’s general fund and it would prohibit electric utility revenues from securing bonds issued by a city to finance capital needs unrelated to the utility.
The law “could prove a political challenge to policymakers who have to allocate the cost of government among taxpayers and utility ratepayers, including utility, water and sewer customers, but is unlikely to create financial strain for most local governments,” said Fitch analyst Michael Rinaldi.
“Complying with the legislation could prove a greater challenge to those local governments that rely on utility transfers as an important general fund revenue source and whose offsetting budgetary flexibility is not as high,” Rinaldi said. “Municipal utility transfers range as high as 30% of general fund revenues, allowing for lower ad valorem tax rates than would otherwise be required given the services provided.”
HB 653 was filed by Rep. Michael Caruso, R-Delray Beach, located in Palm Beach County. He didn’t respond last week to requests for comment about why he filed the bill this year. If approved, the law would take effect July 1.
Rep. Anthony Sabatini, R-Howey-in-the-Hills, said he signed on to co-sponsor the bill because most taxpayers are unaware that they’re being taxed through their utility systems.
“That defies logic because it is a tax in itself,” he said. “The intent of the bill is that we don’t want extra money to get transferred into other types of spending that cities do.”
The Jacksonville City Council in December passed a resolution opposing HB 653, saying it would be detrimental to the city and “could hamstring or possibly extinguish the symbiotic relationship that the city and JEA have established over the last two decades.”
JEA, the combined electric, water and sewer utility owned by Jacksonville, transferred $116.62 million of revenues to the city’s general fund in fiscal 2018, according to city finance officials. The contribution is expected to be $118.8 million this year.
During a Dec. 2 Transportation, Energy & Utilities Committee meeting, Jacksonville City Council members said HB 653 would impact the city budget and it be another attempt by Tallahassee lawmakers to challenge a local government’s home rule powers.
“If this bill does pass,” Council Member Aaron Bowman said during the hearing, “you’re probably looking at about 1 mill tax increase to maintain the amount of money coming into our general fund. This is a big deal.”
In Florida, 1 mill is equivalent to $1 in taxes per $1,000 of taxable property value. Jacksonville’s median home price is $190,908, according to the real estate website Zillow.
In addition to Jacksonville’s annual transfer from JEA, the city also received $123.14 million of utility service taxes in fiscal 2018. Those are taxes users pay on the purchase of electricity, gas, and water, as well as the purchase of various fuel oils, and a tax on communications services.
The JEA transfer and the utility services tax collections are among the non-ad valorem revenues used by the city to issue special revenue bonds, the outstanding amount of which was $1.1 billion as of Sept. 30, 2019, city officials said.
In Thursday’s comment on HB 653, Fitch didn’t address the portion of the bill that would prohibit cities from issuing bonds backed by utility revenues.
Should the bill pass, Fitch said its impact would be “mildly positive” on electric utilities.
“Transfer payments typically approximate 6% of total system revenues, which Fitch does not consider financially burdensome,” Rinaldi said. “However, given their importance to the host government, Fitch views transfer payments as a fixed obligation for retail utilities, and as such includes them in the analysis of financial performance.”
