Fitch Ratings assigns an 'AAA' rating to the following state of
Florida full faith and credit state board of education public
education capital outlay refunding bonds:
--$230.175 million bonds, 2015 series A.
The bonds are expected to sell competitively as soon as Jan. 5,
2015, for bids on 18 hours' notice.
The Rating Outlook is Stable
SECURITY
Florida's full faith and credit bonds are secured first by
specific revenues, in this case a first lien on utility gross
receipts taxes deposited into the state public education trust.
Florida's full faith and credit are also pledged and provide the
basis for the rating.
KEY RATING DRIVERS
SOLID LONG-TERM ECONOMIC PROSPECTS: Long-term economic
fundamentals are strong with future growth expected. The pace of
economic growth has accelerated and the housing market is showing
signs of improvement.
ECONOMIC AND REVENUE STABILIZATION: Revenue performance has
improved along with the economy, resulting in greater financial
flexibility.
STRONG FINANCIAL MANAGEMENT PRACTICES: The state employs sound
financial management practices, including the use of consensus
revenue estimating, and has a history of prompt action to maintain
fiscal balance and reserves.
SATISFACTORY RESERVES: Reserves remain satisfactory although
they are reduced from the peak reached prior to the recession.
These reserves offset risks associated with an economically
sensitive revenue system vulnerable to declines in the rates of
population growth, consumption, and activity in the housing
market.
MODERATE LIABILITIES: The state's debt burden is moderate and
pensions are adequately funded.
RATING SENSITIVITIES
The rating is sensitive to continued stability in economic and
financial performance.
CREDIT PROFILE
The 'AAA' rating on Florida's GO bonds recognizes the state's
strong financial management practices, moderate debt burden,
adequately funded pension system, solid long-term economic
prospects, and satisfactory reserves.
IMPROVING ECONOMY
The economic recovery in Florida continues to accelerate. Having
emerged slowly 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 are
increasing.
Non-farm employment growth has been approximately equal to or
above the national rate since 2011, following a revision to
statistical data that indicate the recovery was stronger than
initially reported. The pace of growth began to accelerate midway
through 2012, leading to an annual increase of 2%, above the
national rate of 1.7%. Employment growth continued to be strong in
2013 with year-over-year (y-o-y) growth of 2.5%, as compared to the
1.7% U.S. rate. Most recently, y-o-y growth of 2.7% was reported in
October 2014, well above the 2.0% U.S. growth rate, and growth is
reported in all employment sectors. The unemployment rate, which
was atypically higher than the national rate between 2008 and 2012,
has essentially matched the U.S. rate since 2012.
The Florida economy has demonstrated rapid growth, economic
broadening, and diversification as it transformed from a narrow
base of agriculture and seasonal tourism into a service and trade
economy, with substantial insurance, banking and export components.
Florida's poor economic performance in the downturn and its initial
slow recovery from the recession largely reflected the state's
severe housing market correction following an historic run-up. The
housing market is improving, although prices and housing starts are
still below pre-recession levels. The homeowner vacancy rate is
declining and construction activity has resumed, with housing
starts on track for much faster growth. Construction employment
increased 10.4% y-o-y in October 2014, indicative of the improving
housing market. Foreclosure activity remains much higher than the
national average but is down substantially from its peak.
Strong underlying fundamentals remain, including a relatively
low cost of living, attractive tourist and retirement destinations,
and favorable geographic location. The state's natural amenities
include 2,200 miles of tidal shoreline, proximity to Latin American
and Caribbean markets, and the presence of some of the world's most
popular tourist destinations, large convention venues, and major
cruise ship ports.
The disproportionate impact of Florida's poor economic
performance during the recession is evident in wealth levels that
have been growing more slowly than the national average, although
recent performance has improved. Florida's per capita personal
income was 100.5% of the national average in 2006, preceding the
recession. Post-recession, per capita personal income has fallen to
93% of the national average and ranks Florida 27th by this measure,
down from 18th in 2006.
SOUND FINANCIAL MANAGEMENT
Florida's revenue sources (primarily a sales tax, but also a
documentary stamp tax in large part based on real estate
transactions) were especially susceptible to the state's steep
housing market correction; the state has no personal income tax.
The Florida legislature consistently and promptly addressed
numerous large negative revenue estimate revisions during the
downturn, maintaining budget balance and an adequate reserve
position. The state has enhanced reserves, although they remain
below their historically high pre-recession peak.
The combined unencumbered general fund and budget stabilization
(rainy day) fund balance totaled $6 billion at the end of FY2006,
or 22.4% of general fund revenues. As the state drew down reserves
during the recession, the combined balance declined to a low of
$905 million, or 4.3% of fiscal 2009 revenues. Balances have
rebounded with positive budget performance and some reallocation of
reserves from various trust funds to the general fund. The combined
balance increased to $3.5 billion as of June 30, 2014, or 13.4% of
general fund revenues. Trust fund balances, an additional source of
financial flexibility, are lower than at their peak ($3.8 billion
at the end of FY2006) but remain stable at $2.5 billion as of
FY2014.
After steep declines during the downturn, revenue performance
has returned to steady growth and there have been upward revenue
revisions during each of the last four fiscal years. FY2015
revenues year-to-date through November are above the forecast
adopted in August 2014 by $159 million (1.6%), reflecting strong
sales tax and documentary tax collections. The adopted budget for
FY2015 increased overall spending 3.8% to $77 billion and the
general revenue budget 5% to $27.9 billion. The budget funded
increases in Medicaid and transportation work projects, fully
funded pension contributions, and raised education spending. The
budget relies on continued solid revenue growth, offsetting
approximately $500 million in tax cuts, primarily motor vehicle
license taxes and adjustments to the sales tax. Although the budget
does assume a reduction in reserves, utilizing some of the surplus
generated over the last two fiscal years, strong revenue
collections may reduce that reduction.
MODERATELY LOW LIABILITIES
The state's debt position and structure are conservative. Debt
represents a moderate burden on Florida's resources, with net
tax-supported debt of about $20 billion, equal to 2.5% of 2013
personal income. Florida's debt portfolio does not include
derivatives and variable-rate debt is negligible at less than 0.5%
of net tax-supported debt.
Pensions had been overfunded since FY1998. Due to market losses
and assumption changes to reflect the results of a 2009 experience
study the funded ratio dropped, but was a still solid 85.9% as of
July 1, 2013 on a reported basis. On a combined basis, net
tax-supported debt and unfunded pension obligations attributable to
the state, as adjusted for a 7% return assumption, total 3.3% of
2013 personal income, the ninth lowest such burden for states and
well under the 6.1% median for U.S. states.
Florida's full faith and credit bonds are secured first by
specific revenues. PECO bonds, which are the state's primary method
to fund school construction, are secured first by a first lien on
utility gross receipt taxes and ultimately by Florida's full faith
and credit pledge. The prior first lien bonds have matured.
Additional information is available at
'www.fitchratings.com'.
In addition to the sources of information identified in the
report 'Tax-Supported Rating Criteria', this action was
additionally informed by information from IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. State Government Tax-Supported Rating Criteria', dated
Aug. 14, 2012.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. State Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959896
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Fitch RatingsPrimary AnalystKaren KropSenior
Director+1-212-908-0661Fitch Ratings, Inc.33 Whitehall StreetNew
York, NY 10004orSecondary AnalystLaura PorterManaging
Director+1-212-908-0575orCommittee ChairpersonDouglas
OffermanSenior Director+1-212-908-0239orMedia RelationsElizabeth
Fogerty, +1 212-908-0526New
Yorkelizabeth.fogerty@fitchratings.com