Fitch affirms Florida at AAA

Fitch Ratings Wednesday affirmed Florida’s issuer default rating and $6.4 billion of outstanding full faith and credit bonds at AAA.

Fitch also affirmed the Florida Department of Management Services’ $445 million of outstanding appropriation-backed certificates of participation and facilities pool revenue bonds at AA-plus.

The rating outlook is stable.

“Florida’s AAA IDR and full faith and credit ratings recognize its history of sound financial management practices, high gap-closing capacity and reserves, and low long-term liability,” Fitch said.

The state’s GOs are backed by its full faith and credit. Florida’s revenues are primarily driven by sales tax receipts, Fitch noted, and said that they have shown more economic sensitivity than other U.S. states on average.

“Fitch anticipates Florida revenues will grow on a real basis based on the state’s economic and demographic fundamentals. The state exhibits very broad revenue raising authority despite a constitutional restriction on the levy of a personal income tax,” the rating agency said.

The AA-plus ratings on the COPs and DMS facilities pool revenue bonds reflect the “slightly higher degree of optionality” associated with payment of appropriation debt,” Fitch said.

Florida’s GO are rated Aaa by Moody’s Investors Service and AAA by S&P Global Ratings.

Population growth has fueled the state’s economy, Fitch said, noting that construction and real estate along with state projects saw strong gains despite slowing international migration.

“Net domestic migration surged during the pandemic, contributing to 18.3% population growth from 2010 to 2022, far surpassing national growth of 7.9%,” Fitch said. “Florida’s important leisure and hospitality sector suffered steep job losses during the pandemic and was the last sector to fully recover to pre-pandemic levels.”

Fitch cited the debt reduction programs that have been put in place in the state.

“Florida’s long-term liability burden is low and well below the median for U.S. states,” Fitch said. “Outstanding debt has steadily declined, driven by lower new money issuance and greater use of pay-go capital spending. Retirement obligations are relatively modest.”

Florida remains well-positioned to maintain a high level of fundamental financial flexibility through economic downturns, with broad expenditure and revenue controls buttressed by robust reserves, according to the rating agency.

“Sound financial management practices, including a history of prompt action to maintain fiscal balance and reserves, are an important mitigant to above-average revenue volatility as indicated by historical experience and the Fitch Analytical Stress Test model.”

Florida remains one of more than a dozen states with a higher Fitch rating than the United States, which it downgraded to AA-plus from AAA on Aug. 1.