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Florida's Board of Education Public Education Capital Outlay Refunding Bonds Series 2013A Rated 'AAA'

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NEW YORK--29 Jan--Standard & Poor's

NEW YORK (Standard & Poor's) Jan. 28, 2013--Standard & Poor's Ratings Services assigned its 'AAA' long-term rating, with a stable outlook, to Florida State Board of Education's Public Education Capital Outlay series 2013A refunding bonds. At the same time, Standard & Poor's affirmed its 'AAA' rating on Florida's parity debt and its 'AA+' rating on the state's appropriation debt.

"The 'AAA' rating reflects our view of the state's significant progress in restoring structural budget balance in response to changes in economic growth trends, and other budgetary pressures," said Standard & Poor's credit analyst John Sugden.

Additional rating factors include our assessment of Florida's:
  • Reserves, which, when coupled with trust fund reserves, are at levels that we consider extremely strong;
  • Service-based economy that depends on tourism and in-migration, is seeing some improved growth in employment, but continues to be slowed down by the weakened housing market and high unemployment;
  • Good income levels; and
  • Moderately high debt burden, which has declined due to greater principal amortization than new issuance. We expect the state's debt burden should remain manageable and should not increase significantly based on current bond issuance plans and lower-than-historical levels of debt authorized in fiscal 2013.

The bonds are initially secured by a junior and subordinate lien on the state's gross receipts taxes. Ultimately, the bonds are secured by Florida's full faith and credit pledge. We understand that management will use bond proceeds to advance refund all or a portion of the series 2003A bonds for net present value savings. The state plans to invest the proceeds of the refunding bonds into the State Treasury investment pool. The refunded bonds will be considered to be outstanding and economically defeased only until the bonds are redeemed. The bonds are callable on June 1, 2013, and management plans to redeem the bonds at that time. There is no extension of maturities and the savings will be taken throughout the remaining life of the refunding bonds.

The stable outlook reflects our view of an improved revenue environment and a fiscal 2013 budget that, while still structurally unbalanced, narrows the gap and improves reserve funding levels. Although revenues are now increasing, we do not expect rapid economic growth. Nationally, we believe that a slower-than-expected economic recovery and still-very-tight credit conditions are contributing to slower migration to Florida--one of the main drivers of Florida's economic growth. Locally, our view of the above-average unemployment, significant housing inventory even after substantial price depreciation, and high foreclosure rates contributes to our expectation of a slow economic recovery. While we expect that over the long term, Florida's employment growth will outpace the U.S. average, slower near-term growth will continue to present budgetary challenges. Given our expectation of slow economic growth and continued budgetary pressure, our view of management's significant progress in re-establishing structural balance is very important from a credit standpoint. Downside risk for the rating includes our view of the potential for significant reductions in federal funding that currently flows to the state. Standard & Poor's will continue to monitor the federal consolidation efforts stemming from the Budget Control Act and, once these are identified, will evaluate their effect on Florida's finances and officials' response to these revenue reductions, as Standard & Poor's does for all states. In addition, if a catastrophic hurricane were to make landfall in Florida and further weaken the statewide economic base or lead to debt issuance that increases the tax-supported debt burden for Florida above that of its state peers, we could lower our ratings on Florida (AAA general obligation rating), the Florida Hurricane Catastrophe Fund (AA-), Citizens Property Insurance Corp. (A+), and Florida Insurance Guaranty Association (A-).


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