Florida is $21 billion in debt.
State leaders were actually happy to hear that number at the most recent Florida Cabinet meeting.
The amount of money owed on initiatives like transportation and environmental projects has fallen in recent years, bolstered in part by low interest rates and the economy.
Ben Watkins, Division of Bond Finance director, calls the reduction in debt unprecedented. It’s a “sea change,” he says, in terms of reversing what had been decades of perpetual debt increases.
He told the Florida Cabinet the state’s paying down of debt has two components.
“One is the direct debt that we issue for roads, school, acquisition of conservation land, etc. We paid down $7.1 billion of direct debt over the last eight years,” Watkins said. “The second component of that are federal advances from the unemployment compensation trust fund, and we repaid aggregate advances of $3.4 billion also over the last eight years. So you add that up, it’s $10.5 billions.”
The state’s debt has fallen 25 percent since July of 2010. That’s substantial, says Florida State University Economics professor Randall Holcombe, especially at a time when most states are building up unfunded liabilities.
“In most governments you look at how much spending is increasing, and not only is Florida’s state government spending not increasing, it’s actually been decreasing over a period of a couple of decades,” Holcombe says. “That’s pretty remarkable. That’s the budget side, and it goes along with the fiscal conservatism on the debt.”
The state deployed several tactics to cut its borrowing. Watkins says part of the Bond Finance division’s strategy was refinancing a lot of loans, which managed to save the state a few billion dollars.
It reduces the amount of interest payments that we have to make on the debt. So, that means less of the budget is going to interest payments. ~Randall Holcombe
“This was a once in a lifetime opportunity to take advantage of historically low interest rates, and this is what we’ve been able to accomplish: over the last eight years, 104 transactions totaling $14.7-billion. That is over 70 percent of our debt portfolio that’s been refinanced at lower interest rates,” Watkins said.
“It doesn’t reduce the total amount of debt, but it reduces the amount of interest payments that we have to make on the debt,” Holcombe says. “So, that means less of the budget is going to interest payments; more of the budget can go to other things that actually provide value to constituents. So, the state’s pretty smart to be doing that.”
Florida also got a boost by shrinking the policies held under Citizens Property Insurance Corporation. The company is known as the state’s insurer of last resort. It provides coverage for high-risk properties, like ocean-front homes. Citizens has shifted two-thirds of its policies to private insurers, reducing the state’s catastrophic risk exposure. The move has been controversial, as some of those companies were undercapitalized early on.
But with all of these improvements, the state now has a top-tier AAA credit rating from three financial services companies, including Moody’s.
“Florida is one of the best states as far as credit ratings, and you go to other states that are having debt problems - states like Illinois, like California. Not only do they have a lot more debt, they also have to pay higher interest rates on the debt,” Holcombe says.
The Governor’s Office calls this the largest reduction of state debt during one administration in Florida’s history.
News Service of Florida contributed to this story.
