Florida Has Billions in Bonding Capacity to Combat Climate Risks

(Bloomberg) -- To maintain top credit ratings, Florida must focus on environmental concerns like vulnerability to hurricanes, flooding and rising sea levels, yet a solid economic recovery will help sustain the state’s triple-A status, according to the Division of Bond Finance’s new debt affordability analysis. 

The state benchmark debt ratio, or debt service as a percentage of the revenue available to pay it, declined to 4.30% from 5.49% in fiscal 2021, “largely a result of the significant rebound in revenues generated by the state’s strong economic recovery,” according to the report. The state has a target for the ratio of 6% and a limit of 7%. The ratio has remained below the 6% policy target for eight consecutive years, the report said.

Florida’s conservative debt practices mean the state has $38.3 billion in “theoretical bonding capacity” available over the next 10 years, the division’s analysis said. The Sunshine State had $18.4 billion in direct debt outstanding as of June 30, an $825 million drop from the previous fiscal year.

“This continues a downward trend which began in 2011 totaling $9.8 billion or a 35% reduction in debt outstanding,” according to the report, which also said the state projects borrowing, mainly for infrastructure projects, at $1.8 billion over the next decade.

Revenue available to pay debt service fell by $1.7 billion, or 2.9% in fiscal 2020 as a result of the pandemic, but subsequently rebounded by 15% to $47.5 billion. Florida, which is rated triple-A by the three major rating companies, received $4.6 billion in Coronavirus Relief Funds under the Cares Act and $4.4 billion of an $8.8 billion allocation under the American Rescue Plan Act of 2021. While not included in the revenue available for debt service, the money “served as a cushion to offset the fiscal impacts” of the pandemic and to enhance reserves.

Florida has been active in refinancing debt to take advantage of lower interest rates and reduce debt service payments. The state did 16 refinancing transactions in fiscal 2021 for gross debt service savings of $362 million, and 113 since 2013, generating gross savings of $3.3 billion, $2.6 billion on a present value basis. “More than 80% of all State debt has been refinanced to lower interest rates,” according to the report.    

The state said that rating companies have incorporated environmental, social and governance factors into their analysis with dedicated criteria and scoring, and said that S&P Global Ratings “warned that ongoing focus” on environmental issues and corresponding mitigation strategies “will be needed in order to maintain long-term credit quality.”

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