Florida Trims Debt Most in 30 Years as Schools Age: Muni CreditToluse Olorunnipa
When Florida Governor Rick Scott visited Miami last week, he touted his record of shrinking state debt the most in 30 years. Nearby Miami Dade College, the nation’s largest community college, prepared for another year with broken elevators and decaying buildings.
The 61-year-old Republican won his seat in 2010 after vowing to rein in debt in a state he compared with cash-strapped Greece. As Scott campaigns for re-election, he has slowed bonding for schools, roads and environmental projects such as buying land for Everglades conservation.
Schools account for most of Florida’s debt, and local officials have struggled with the borrowing reduction, which has sapped budgets even as the state logs a $1.2 billion surplus. Miami Dade College, with 175,000 students, said it needs about $1 billion to repair buildings and start postponed expansion work.
“There’s a political aspect” to the debt slowdown, said Burt Mulford, who helps oversee $1.9 billion of municipal bonds at Eagle Asset Management in St. Petersburg, Florida. “We’re coming up to the midterm elections, and you’ve got the governorships that are up as well.”
Residents in 36 states will cast ballots in November’s gubernatorial elections, four years after Scott and two dozen other new governors won office amid a wave of Tea Party-backed candidates advocating lower government spending.
Voters will go to the polls as plans to fix roads, bridges and schools run up against a nationwide austerity push. Even as local finances are recovering from the recession that ended in 2009 and municipal interest rates are near generational lows, bond issuance has slowed.
The municipal market has shrunk 2.7 percent since 2010 to $3.7 trillion, according to data compiled by Bloomberg. Florida’s debt load fell 12.7 percent in the three years through June 2013.
“We have a surplus and we’ve paid down $3.6 billion worth of state debt,” Scott told reporters May 1 in Tallahassee.
Scott has attacked his predecessor, Charlie Crist, for increasing state debt by more than $5 billion. Crist, 57, a Republican-turned-Democrat, is running to unseat Scott.
Crist “did the right thing during the recession” to save jobs, Kevin Cate, his spokesman, said in a statement. Scott “should be investing in education and policies that grow the middle class.”
Crist led Scott 48 percent to 38 percent in a poll released April 30 by Quinnipiac University in Hamden, Connecticut.
Scott has vetoed bond authorizations and required new borrowing to show it can generate a return on investment. The policy has led to Florida’s largest reduction in debt in at least three decades, said Ben Watkins, director of the state’s Bond Finance Division. The fourth-most-populous state has about $24.6 billion in bonds.
After issuing an average of $2.1 billion in new debt annually from 2003 to 2009, Florida sold $448.3 million last fiscal year, records from Watkins’ office show. In the three fiscal years through 2013, sales totaled about $1.7 billion as the pace of issuance set a 23-year low.
The reduction also results from completing a multibillion-dollar school construction program, said Nicole Johnson, an analyst at New York-based Moody’s Investors Service.
The scarcity may be helping Florida bonds. Investors demand about 0.12 percentage point of extra yield to own the state’s 10-year debt instead of benchmark munis, close to the smallest spread since November, Bloomberg data show.
Florida’s largest bonding program, which finances schools, hasn’t borrowed new funds since 2011. Borrowing totaled $3.2 billion from 2003 to 2010, according to state data. As that stream dried up, schools postponed maintenance and sought alternative revenue, said Johan Mixon, director of the Florida Association of School Administrators.
Miami Dade College has put off almost $1 billion in repairs at its eight campuses, said Juan Mendieta, a spokesman. The college has seen state funding for facilities fall more than 80 percent since 2007, Mendieta said.
The school struggles with broken elevators at its downtown Miami campus, while other sites have leaky roofs and decaying bathrooms. The college had to close one of its pools this year after a visit from the county sanitation department.
A proposal backed by the school that would allow local residents to raise taxes to pay for renovations failed in the legislature this month. Voters in Miami-Dade County already agreed to raise taxes in 2012 when they passed a $1.2 billion bond program to repair crumbling elementary and high schools.
The state bonding cutback is one reason local money was needed, said Miami-Dade County Schools Superintendent Alberto Carvalho.
The revenue stream that the state of 19.6 million uses to secure school construction bonds -- taxes on cable and landline telephones -- has declined for five straight years. That has reduced capacity for new bonds, Watkins said.
While Florida has paid for some projects with cash, it hasn’t made up for the reduced bonding, said state Senator Anitere Flores, a Republican who sponsored the Miami Dade College local-tax legislation.
Florida is paying cash “instead of taking on new debt that burdens our families and future generations,” John Tupps, a spokesman for Scott, said in a statement.
Buoyed by a budget surplus, lawmakers passed a record $77.1 billion budget this month. It included more than $9.2 billion for transportation projects and $400 million for work on schools.
Florida can afford the bigger budget as tax revenue has increased and the state has added more than 500,000 jobs during Scott’s term. The unemployment rate was 6.3 percent in March, down from 10.9 percent when Scott took office in January 2011. The U.S. rate was 6.3 percent in April.
“This state is headed in the right direction, and we’re going to continue to make smart investments,” Scott said May 1.