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Florida's Debt Debate

In 2010, with the recession in full swing, Florida’s finances were stumbling along with the rest of the economy. That year, the state owed about $2.1 billion to investors who had loaned it about $23 billion by buying state-issued bonds.

The debt level wasn’t unmanageable by traditional standards, but there was a problem. Florida law requires that debt service not exceed 7% of tax revenue. But revenue had plummeted low enough that the state was exceeding that cap, spending nearly 8% to service its bond debt.

The Legislature authorized additional “emergency” borrowing so the state could keep issuing bonds, but fiscal conservatives were in a lather. Meanwhile, on his campaign website, then-gubernatorial candidate Rick Scott said, “Florida is going down the path of California and Greece” and claimed that “career politicians in Tallahassee are spending our state into bankruptcy.”

Since taking office in 2011, Scott has made reducing the state’s debt level a fiscal centerpiece of his administration. The state has refinanced some debt, but debt levels have dropped mostly because Florida has borrowed less money.

The state, which had averaged taking on $1.8 billion in new tax-supported debt from 2002-10, borrowed only $552 million in the 2011 fiscal year and only $193 million in 2012 — the lowest level since 1990.

The state’s debt — the portion that it must support with annual tax revenue — now stands at $21.6 billion, down $2 billion from 2010. The state was back below the 7% cap at the end of last year, and financial reserves are rising. Of the five most populous states, Florida was the only one to reduce its absolute level of debt in the last two years.

For many, including Scott, lower state debt amounts to good financial stewardship, tax savings, a lessened burden on the taxpayer and an ideological triumph.

For those who operate schools, however — more than half of all state borrowing goes for education-related infrastructure — less debt means decaying facilities and no new buildings. The State University System, which received $650 million for new facilities or maintenance in the state budget five years ago, got only $37 million this fiscal year, with only $7 million coming from the Public Education Capital Outlay bonds, a historic low. Those bonds are repaid using a specific revenue stream from a tax on gas, electricity and communication services.

Meanwhile, environmental groups are clamoring for bond money to ramp up the Florida Forever land preservation program, which historically was funded at $300 million a year but had an annual budget this year of $8 million. With land prices at historic lows, the state is missing an opportunity, says Eric Draper, executive director of Audubon of Florida. “This is exactly the moment you want to borrow.”

There are nearly 90 top-priority land-buying projects on the state’s Florida Forever work plan that are at risk for development, Draper says.

Annual New Debt Issuance
2002 $1.4 billion
2003 $1.3 billion
2004 $1.3 billion
2005 $1.2 billion
2006 $1.3 billion
2007 $1.2 billion
2008 $2.4 billion
2009 $3.1 billion
2010 $2.5 billion
2011 $552 million
2012 $193 million
Source: Division of Bond Finance

Ironically, all the frugality — and a potential $828 million in additional tax revenue for the state to spend next year — is now creating pressure to ratchet debt upward.

While Wall Street has rewarded Florida with a AAA bond rating, that rating — and attention the state has gotten from bond investors — means the state can more easily sell bonds. Legislators, now operating under the 7% cap, are eyeing bond-funded building projects in their districts as the financial pressure eases.

Legislative leaders, however, are sending signals they are going to continue watching debt carefully. “There will still be heightened scrutiny of the debt,” says Ben Watkins, director of the state’s Division of Bond Finance.

And Scott, predictably, remains skeptical of the benefits of borrowing. Says Melissa Sellers, a spokeswoman for Scott: “He will consider any proposal for new debt through additional bonding based on the financial risk posed to Florida taxpayers and the return on investment of their tax dollars.”