By Gary Fineout, Herald-Tribune
Wednesday, July 13, 2011
Florida’s budget-balancing act, which included layoffs and forced public employees to help pay for their pensions, has had one positive impact so far.
A national credit agency on Tuesday announced that it was revising its outlook for Florida from negative to stable. Also, Standard & Poor’s said it was keeping in place the state’s current bond ratings.
The move is a vindication for Republican state officials – especially those in the Legislature – who had expressed deep concerns about the state’s credit rating as they wrestled with a roughly $4 billion shortfall earlier this year. Legislative leaders refused to cut taxes as deeply as Gov. Rick Scott wanted because they were worried about draining reserves. But lawmakers did slash spending in education and health care and mandated that state workers, teachers and other public employees pay 3 percent of their salary to cover pension costs.
“The outlook revision reflects our view of the progress the state has made in addressing its structural imbalance through significant cost-cutting measures adopted in fiscal 2012 and maintenance of strong reserves,” said Standard & Poor credit analyst John Sugden-Castillo in a release from Standard & Poor’s.
Moody’s Investors Service – another credit rating agency – had warned in February that Scott’s plan to cut taxes by nearly $2 billion had negative implications for Florida’s school districts and could make it hard for lawmakers to balance budgets in the future. For more about Moody’s decision, read here.
Florida currently has excellent ratings from the nation’s three main credit agencies, which means that the state gets a better interest rate when it borrows money to pay for schools and road construction. But the negative outlook raised the possibility of a future downgrade on its bond ratings. A change in bond ratings could cost the state money when it borrows in the future.
Florida built up good credit ratings back when Gov. Jeb Bush was in office and the state was flush with cash. The state is currently paying more than $2 billion a year in debt service payments to pay off an existing $28 billion in debt.
Standard & Poor’s on Tuesday said it was maintaining the state’s good credit rating because the state has made “significant progress in restoring structural budget balance” in response to changes in the economy and the phase-out of the federal stimulus aid. The rating agency also noted that reserves are being replenished and “when coupled with trust fund reserves, continue to be at levels that we consider strong.”
The rating agency also stated that while Florida has a “moderately high debt burden,” it should remain manageable. This debt burden was cited by Scott as one of the reasons he vetoed a long list of school construction projects that had been included by lawmakers in the state budget they passed in early May.
Scott on Wednesday had not heard about the outlook change by Standard and Poor’s but said the news was “great.”
“If our rating goes down it’s going to cost us a lot of money,” Scott said.
Still, Standard & Poor’s said it expects a “slow economic recovery” in Florida because of high unemployment, significant housing inventory and high foreclosure rates.