State debt drops after bonds refinanced

By LLOYD DUNKELBERGER
THE NEWS SERVICE OF FLORIDA

THE CAPITAL, TALLAHASSEE, December 1, 2016.......... State debt declined by $1.6 billion during the past year, although the head of the state Division of Bond Finance warned Thursday that rising interest rates could present more financial challenges in the coming year.

In a preliminary report, reviewed by aides to Gov. Rick Scott and state Cabinet members, Ben Watkins said Florida's overall debt declined to $24.1 billion in the fiscal year that ended June 30. That was a drop from the prior year's debt level of $25.7 billion and reflected a six-year decline of $4.1 billion.

State debt has declined since reaching a peak of $28.2 billion in 2010 due to several factors. Since taking office in 2011, Scott has remained largely opposed to borrowing money or issuing bonds.

The debt has also declined because state officials, taking advantage of low interest rates, have aggressively refinanced older bonds, replacing higher rates with more-favorable rates.

In the last year alone, the Division of Bond Finance oversaw 13 refinancings totaling about $3 billion in debt that resulted in $619 million in savings. Over the last six-and-a-half years, 82 refinancings have been executed, resulting in nearly $2.5 billion in debt savings, the new report shows.

But Watkins, who will present his report to Scott and the Cabinet on Tuesday, said the municipal bond market is undergoing fairly dramatic changes, calling a recent upward tick in interest rates "a bigger move than has happened any time in the last three years."

Watkins said money is flowing out of the municipal bond market into other areas, including a rising stock market. He said that trend "creates dynamics that are unfavorable for selling (municipal) bonds and puts upward pressure on rates."

Higher rates could curb Florida's ability to refinance older debt and increase the state's reluctance to borrow new money during the next year.

In August, state officials reversed a five-year trend and agreed to borrow $285 million over the next few years to build and maintain facilities for state universities, colleges and public schools. The initial borrowing was in the range of $52 million for what are known as Public Education Capital Outlay bonds.

Heading into a 2017 legislative session, where a minimal budget surplus has been projected, lawmakers could again look to borrowing for education construction projects.

Also, Senate President Joe Negron, R-Stuart, has advanced a proposal to issue bonds to pay for the state's share of acquiring 60,000 acres south of Lake Okeechobee. The proposal, which also would rely on federal money, is part of an effort to store and clean water and reduce releases from Lake Okeechobee into the Caloosahatchee and St. Lucie estuaries.

Scott and Cabinet members are keeping an eye on rising debt for the state university system, with a report from the Division of Bond Finance in October showing university debt had risen by $1.1 billion over the last five years, while the state's overall debt had declined.

Most of the university debt is tied to borrowing by "direct support organizations," university-based entities that have borrowed money for health-care facilities, student housing, parking garages, fitness-wellness centers and athletic facilities.

The university system's Board of Governors and the boards of trustees at the 12 universities have approved new procedures to make sure borrowing proposals face rigorous scrutiny.

Florida made $2.1 billion in debt payments in the last year, the new report shows. The debt payments are expected to rise in 2017 and 2018 due to financing related to the "I-4 Ultimate Project," a public-private partnership that is adding lanes to a 21-mile section of the interstate highway in Orange and Seminoles counties.

Florida's debt payments, as a percentage of state revenues, were at 5.46 percent in the last year, under a benchmark of 6 percent, the report shows. Florida's debt, on a per-capita basis, ranked seventh among the 11 largest states at $1,085 of tax-supported debt per resident, compared to $4,141 in New Jersey, the highest, and $298 in Texas, the lowest.