Florida’s debt profile and revenue picture are solid heading into 2023

Florida is so well positioned economically that it should see stability through future economic cycles despite threats from rising inflation and higher interest rates, according to a report from the state Division of Bond Finance.

“We continue to position ourselves well for the future,” Ben Watkins, director of the division, told The Bond Buyer. “This is like the antithesis of what they’re doing in Washington, D.C. We’re actually having debt going down and needing less money to pay for it.”

Florida’s debt ratio is still far below its 6% target mostly due to declining bond issuance and rising revenue growth, according to the State of Florida Debt Report issued last week

The debt affordability analysis is based on the ratio of debt service to revenues available to pay debt service. Legislative policy guidelines establish a 6% target and a 7% limit for the state’s benchmark debt ratio. That ratio is 3.78%, according to the debt report.

“Two things go into that. One is the debt going down,” Watkins said. “The other is the phenomenal growth in revenues that we have seen over the last couple of years, even through the COVID pandemic.”

In fiscal 2022, the state increased its general revenue collections by $7.75 billion, or 21%, from fiscal 2021, and in fiscal 2021 the growth was 15.7%.

“The consequence of this is that the level of reserves we have been able to accumulate by virtue of our economy being on fire,” Watkins said.

General fund reserves, including the budget stabilization fund, were at $19.7 billion at the end of fiscal 2022, an unprecedented level and almost double the amount at the end of fiscal 2021. By the end of fiscal 2022, general fund reserves were 45% of general revenue, which rating agencies consider extremely strong. General fund reserves are projected to be around $18.8 billion at the end of fiscal 2023.

Florida’s general obligation bonds are rated triple-A by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings.

Total state direct debt outstanding was $17.1 billion as of June 30, a decline of $1.3 billion from the prior fiscal year.

This continues the downward trend which began in 2011.

The large decrease in projected debt issuance reflects state policies less reliant on debt to finance infrastructure. In fiscal 2010, projected debt issuance was $7.2 billion compared to current projected debt issuance of only $2.2 billion.

Annual debt service payments have remained relatively stable, staying in the $2.0 billion to $2.2 billion range through fiscal 2022. They are projected to decrease to $1.8 billion in fiscal 2023 and decline every year after that based on low projected new issuance.

Net tax-supported debt for programs supported by state tax or tax-type revenues totaled $13.0 billion as of June 30. Self-supporting debt, or that secured by revenues generated from operating bond-financed facilities, totaled $4.1 billion.

Indirect state debt, secured by revenues not appropriated by the state, was around $9.6 billion.

Roughly $2.2 billion of tax-supported debt is forecast to be issued over the next 10 years, mostly for transportation projects.

Compared to last year’s debt report, projected bond issuance in the next decade has risen by around $380 million from $1.8 billion.

Florida’s economy continues to grow, with fiscal 2022 revenues available to pay debt service totaling over $56.0 billion, an increase of $8.5 billion, or 17.9%, over fiscal 2021.

This followed a 15% rise in revenues in fiscal 2021 available for debt service of about $6.3 billion more than fiscal 2020.

Revenue collections, which make up most of the revenue available to pay debt service, are projected to fall by $2.0 billion, or 4.6%, in the current fiscal 2023. However, the actual collections have exceeded these projections for every month so far in this fiscal year through September.

The total debt capacity available over the next 10 years within the 6% target is about $40 billion, according to the debt report. Assuming the revenue collections currently projected are correct, the report stated there would be around $22.3 billion of debt capacity available in fiscal 2024.

“Although likely not needed due in the near-term, due to the state’s reserves and continued strong revenue collections, significant debt capacity is available should policymakers choose to use debt to accelerate strategically important infrastructure projects,” according to the report.

Separately, the Republican-dominated Legislature passed three bills along party lines in a special session that were signed by Republican Gov. Ron DeSantis last week. They make reforms to the property insurance market, provide additional disaster relief to residents after Hurricanes Ian and Nicole and establish a toll relief program.

DeSantis called Senate Bill 2-A the most significant property insurance reform bill in recent history. It is aimed at stabilizing the state’s property insurance market, foster increased competition and strengthen protections for consumers.

The new law will eliminate one-way attorney fees for property insurance claims, which is hoped will lessen frivolous lawsuits; supporters say it will realign the market to best practices to promote more competition in the private insurance industry.

It is also expected to lower what backers call excessive and predatory litigation that could bring down costs for homeowners. It also commits additional funding to provide temporary reinsurance support to help stabilize the market in the wake of two hurricanes this year. 

Additionally, the bill expands the Office of Insurance Regulation’s ability to complete examinations of property insurers after a hurricane.

“Florida’s property insurance market has seen excessive litigation in recent years, with the increased frequency and severity of litigation generating adverse loss development, driving financial pressure on insurers, and creating uncertainty that has impacted reinsurance capacity and reinsurance rates, the Bond Division said in a special report released Tuesday.

It noted that last year Florida represented 6.9% of total homeowners’ claims nationally, but saw 76% of homeowners’ lawsuits. Domestic property insurers in the state also have seen cumulative net underwriting losses of $3 billion from 2017 to 2021 and have not had positive net income since 2016, the report said.

“This has been a long time coming,” Watkins said. “We had taken incremental steps to try to improve the litigation landscape … but eliminating the perverse incentives to litigate will help cauterize the wounds and stop the bleeding so the patient doesn’t die.”

Since 2019, eight insurers have been declared insolvent, with five insolvencies in 2022 alone.

“The issues in Florida’s property insurance market did not occur overnight and they will not be solved overnight,” DeSantis said. “The historic reforms signed today create an environment which realigns Florida to best practices across the nation, adding much-needed stability to Florida’s market, promoting competition, and increasing consumer choice.”

The new law will also help Citizens Property Insurance Corp. return to its role as the state’s insurer of last resort.

Citizens said its policy count — reflecting property owners who cannot obtain coverage from the private insurance market —has increased almost 50% to roughly 1.14 million policies from Jan. 1 to Dec. 9.

“These reforms will reduce litigation and stabilize the Florida property insurance market by encouraging new capital and giving reinsurers confidence to provide the coverage necessary for a healthy market,” Citizens’ President and CEO Barry Gilway said in a statement. “A stable market will benefit consumers by reducing the pressures that are driving up premiums.”

Rising policy counts threaten Citizens’ ability to pay claims without having to levy surcharges and assessments if it exhausts its ability to pay claims, the company said.

“For Citizens, the bill provides the tools for us to return to our residual role over time while ensuring policyholders have financially sound options in the private market,” Gilway said. “This is historic legislation.”

Buying property in Florida requires careful consideration of insurance coverage as well as the rate on a mortgage, John Hallacy, founder of John Hallacy Consulting LLC, told The Bond Buyer.

“Many citizens complain about the costs of insurance as it adds significantly to the monthly carrying charges,” Hallacy said. “Any steps to control or effectively cap the costs are welcome by all.”

The new toll relief program will be run by the Florida Department of Transportation, which will provide account credits to frequent commuters using toll roads across the state.

“This is our way of delivering tax relief to working people during a period of rising inflation,” Watkins said.

Under the program, drivers who use toll transponders such as SunPass and have 35 or more transactions a month will get a 50% credit to their account. The program is expected to help 1.2 million drivers a year and is estimated to save the average commuter about $400 next year.

“Toll breaks for frequent users have been used to effect elsewhere,” Hallacy said. “The costs are relatively low and should affect coverage only marginally.”

DeSantis also signed Senate Bill 4-A which provides additional disaster relief following Hurricanes Ian and Nicole.

The bill provides property tax relief for homes rendered uninhabitable due to the storm. Additionally, the bill provides $750 million for the communities impacted by the hurricanes.