Fresh off a whirlwind of visits to investors and meetings with rating agencies, Florida officials are confident the state’s finances will remain in good shape no matter what the future holds.
In a yearly deep dive into its finances, Florida officials met with analysts at Moody’s Investors Service, S&P Global Ratings and Fitch Ratings as well as having two days of in-person meetings with major institutional accounts in New York and Boston.
Florida’s general obligation bonds are rated triple-A by Moody’s, S&P and Fitch Ratings. All three agencies assign stable outlooks to the credit.
The Florida Division of Bond Finance prepared a special presentation that was given to the participants.
Population growth during the COVID-19 pandemic was one of the issues Florida highlighted at the meetings, Ben Watkins, director of the Division of Bond Finance, told The Bond Buyer.
Between fiscal 2019 and fiscal 2021, domestic migration almost doubled, rising to 340,000 from 172,000, Watkins said, more than offsetting a fall in international migration.
Since 2015, Florida’s population has grown at an average rate of 1.67% a year. Still, migration is expected to gradually decline from its current record level to slightly under 300,000 by fiscal 2027.
The rise in people moving to the Sunshine State also caused a significant shift in income, rising from the historical level of around $17 billion annually to almost $24 billion in 2020. The state’s unemployment rate of 3.0% in May remains below the national level.
And tourists have returned. Current projections are for total visitors to surpass its pre-pandemic record in fiscal 2022.
In the seven years ending in fiscal 2019, tourism grew at an average annual rate of 5.3%, hitting a record high of 129.1 million visitors in fiscal 2019. The pandemic led to a loss of 25.5 million visitors in fiscal 2020 and a drop of 7 million in fiscal 2021.
Florida economy has now surpassed pre-pandemic levels, driven by its population growth, which has also spurred a red-hot housing market.
“In the Great Recession it took us like seven or eight years to get back to get back to where we were pre-recession,” Watkins said. “This time it was less than 24 months. That’s a pretty remarkable contrast.”
Since the beginning of the pandemic in the spring of 2020, sales of existing homes have outpaced new listings. This drove inventory in March to a low of just under one month of sales volume.
Median prices for existing homes started to rise in 2020 when the year-over-year growth rate more than doubled from an average rate of 7% to 22%, with prices surging by over 50%.
However, these high prices, combined with rising interest rates which will cause increased borrowing costs, are expected to cause a decline in sales, leading to a rise in inventory and a leveling off of prices.
Watkins noted the statewide revenues from property tax rolls have climbed steadily, aiding education.
“The rise in funding for K-12 education, all school districts in the state, which has been steadily rising [has been] primarily funded though property taxes and this is a reflection of the health of that tax base,” he said.
In terms of economic heft, Florida ranks as a heavyweight. It has the highest personal income per capita of any state in the Sunbelt — almost 16% higher than the average of other Southeast states. Florida’s income per capita is only 4.2% below the national level and its per capita income growth has outpaced the U.S. in recent years.
Florida has no state personal income tax.
Its biggest revenue sources are its sales tax, corporate income tax, documentary stamp and intangibles tax and the insurance premium tax.
The state’s general revenues are forecast to grow $7.7 billion, or 21%, in fiscal 2022. The fiscal 2023 budget is based on a current forecast $39 billion in revenues.
The two prior fiscal years saw exceptional revenue growth, with collections surging 15.7% in fiscal 2021 and 21.2% in fiscal 2022, which are attributed to the state’s COVID policies of keeping the economy open.
Driven by a strong economy and collections across all four major tax sources, general revenue collections are expected to hit a final tally of $44 billion for fiscal 2022.
“The main takeaway has been the remarkable revenue growth that we’ve seen — $44 billion in organic general revenue growth,” Watkins said. “The growth rate in fiscal 2021 and 2022 is 16% and 21%, respectively. I’ve been doing this a long time and that’s off the charts.”
In fiscal 2022, revenue collections exceeded the prior year levels as well as the current year estimates in every month. The monthly overages of actual collections relative to estimates ranged between $200 million to more than $1 billion, for a total of $6.7 billion.
The current forecast made in January, and incorporated into the fiscal 2023 budget, assumes collections of $39 billion, 11.2% below those received in fiscal 2022.
This forecast will be revised on Aug. 16 to reflect the latest economic projections. No adjustments will be made to adopted fiscal 2023 budget, however. It’s expected the new estimates will come in at or above the January predictions.
Watkins credited Gov. Ron DeSantis’ policies for the rise in tax collections.
“I think that’s largely of the governor’s policy of managing through COVID,” Watkins said, “which was to stay open — for schools to be open so people could go to work. And that created a tremendous increase in revenues for us.”
COVID-19 has killed 76,389 people in Florida, according to data compiled by the New York Times, and its death rate of 358 per 100,000 is 19% higher than that of the U.S. as a whole.
Looking in detail at the fiscal 2023 budget,it is structurally balanced, with recurring revenues estimated to exceed recurring appropriations by $187 million.
The funding received under the Federal American Rescue Plan Act of 2021 was not used to balance Florida’s budget in any fiscal year.
Under the ARP, Florida received $8.8 billion in direct state aid, with $4.4 billion received in May 2021 and $4.4 billion received in May. These funds were used for strategic investments in non-recurring initiatives.
The fiscal 2022 budget appropriated $5.3 billion of the ARP funds. Distribution was divided into $562.2 million for education, $1.8 billion for the environment, $2.4 billion for transportation and economic development, $150 million for government efficiency and $350 million for statewide deferred maintenance projects.
The fiscal 2023 budget appropriates $938.2 million for the prorated fiscal 2022 initiatives and $3.4 billion for strategic investments. Distribution was divided into $1.4 billion for education, $674 million for the environment, $934 million for transportation and economic development, $195 million for government efficiency and $200 million for fuel tax relief.
Watkins also highlighted education and environmental protection priorities in the fiscal 2023 budget, which made new investments in both while maintaining its record high levels of reserves.
Environmental investments were prioritized by providing more than $1 billion in funding for Everglades restoration and the protection of water resources, bringing the four-year total of investment to more than $3 billion. This was double the total investment of the previous Scott administration.
More than $4.2 billion of funds in the fiscal 2023 budget went to environmental projects, including $658 million of funding from ARP.
Watkins said each county will have its own coastal vulnerability assessment for flooding and develop consensus estimates on the planning metrics for sea level rise.
“Environmental issues are huge for us,” he said. “We have an infrastructure funding program, Resilient Florida, a state and local match to deal with resiliency infrastructure for a half a billion dollars.”
In education, the fiscal 2023 budget fostered the goal of providing a minimum salary of $47,500 a year for teachers in the state. That’s a $250 million increase toward that goal.
Florida’s universities saw $3 billion in state operating funding while state colleges saw $1.5 billion in funding, both record high levels.
Also included were $202.5 million for literacy initiatives and $140 million for mental health initiatives.
Reserves also were kept at record high levels.
Under the fiscal 2023 budget, the transfer of $410 million into Florida’s Budget Stabilization Fund brought the total to $3.1 billion, double the balance when DeSantis took office in 2019. It also kept reserves of $2 billion for the Reinsurance to Assist Policyholders program.
The tobacco reserve from the Lawton Chiles Endowment Fund were eliminated in fiscal 2021 and the balance was transferred into the stabilization fund.
The state is expecting to end fiscal 2022 with a balance of more than $21.8 billion in total reserves, which include general fund reserves and unrestricted trust fund balances. This totals almost 50% of the state’s general revenue collections.
Starting in 2011, the state reversed a long history of increasing debt.
Total direct debt is estimated to have fallen by more than $11 billion, or nearly 40%, since it peaked in 2010, mostly as a result of principal repayments on outstanding debt exceeding new money debt issuance.
In the past decade, the state took advantage of historically low interest rates and reduced the cost of its debt service by selling more than $16 billion of refunding bonds. This enabled $3.4 billion in debt service gross savings, or $2.7 billion on a present value basis.
In fiscal 2022, debt outstanding was reduced by an estimated $1.3 billion after falling $1.2 billion in fiscal 2021.
Benchmark debt ratio, or debt service to revenues, fell to 4.30% in fiscal 2021 as a result of increased revenues. It has remained under the 6% target for the eighth straight year.
While state’s economy, revenues and population have grown over the past 20 years, Florida now has less debt outstanding than it did in 2000.