Florida has enough cash on hand to make it through the end of this fiscal year and, beyond that, can manage what are expected to be major coronavirus-created revenue losses through budget cuts, reserves and federal funds, the head of state bond financing told investors this week.
Florida Division of Bond Finance Director Ben Watkins issued a “voluntary disclosure” on Tuesday, laying out a roadmap for how Gov. Ron DeSantis and the Legislature can deal with the impact of businesses shutting down or scaling back on state sales-tax collections, which comprise about 75% of general revenue.
“Although the financial impact to the state for the cost of responding to COVID-19 is anticipated to be significant, it is expected to be manageable,” Watkins, who has held the post for 25 years, assured investors, referring to the deadly respiratory disease caused by the coronavirus.
The state “does not anticipate any difficulties with liquidity for the fiscal year that ends June 30,” Watkins said, adding that Florida officials have a variety of methods to meet financial challenges in the following fiscal year.
Unemployment claims have skyrocketed — more than 1.5 million jobless Floridians have applied for benefits over the past month — but economists won’t have a complete picture of how devastating the hit to the state economy will be until April tax collections are reported in May, Watkins said. State economists are expected to meet in June to assess the impact of COVID-19 on Florida’s economy, which relies heavily on tourism.
In an interview Thursday with The News Service of Florida, Watkins said he issued the disclosure to inform credit-rating agencies and lenders about the state’s financial health.
The state has experienced severe economic downturns in the past, but “never have we shut the entire economy down” until the pandemic began spreading throughout the country, he said.
“That’s something everyone is experiencing. But I thought it would be important, with all of the uncertainty around what it looks like and what it means, to lay out for that community what we anticipate going forward,” Watkins said.
The disclosure came as a task force appointed by DeSantis began developing recommendations for reopening businesses shuttered to try to prevent spread of the disease.
“The economic, financial and budgetary impacts on the state and its economy from the measures taken to combat the spread of COVID-19 are expected to be significant,” Watkins said in the disclosure.
But he warned that the full impact of the coronavirus remains unknown.
The “economic conditions resulting from actions taken to slow the spread of COVID-19 is expected to have a material adverse impact on future state revenue collections. The amount and magnitude of the decline in revenue collections cannot be estimated with any reasonable degree of certainty at this time,” Watkins wrote.
Based on a January estimate, state coffers are expected to have a $1.9 billion general-fund balance heading into the 2020-2021 fiscal year, which begins July 1, according to the disclosure.
Lawmakers put an additional $300 million into reserves to prepare for COVID-19 in the $93.2 billion budget passed last month for the 2020-2021 fiscal year. DeSantis has not acted on the budget and last week threatened to use his line-item veto power to help plug anticipated budget gaps.
The state also has approximately $590 million in savings from a boost in Medicaid payments included in the federal coronavirus stimulus package, known as the CARES Act.
Altogether, Florida will have approximately $3.8 billion in reserves at the end of the current fiscal year, according to Watkins.
The state also has “additional financial flexibility” if lawmakers decide to dip into “uncommitted” trust fund balances, as they have done in the past, Watkins noted.
Florida is receiving about $4.6 billion from the stimulus package, “for costs incurred in connection with responding to COVID-19” between March 1 and December 30, he added.
The state has spent more than $500 million to purchase COVID-19 supplies such as testing swabs and protective gear, including gowns and masks, for hospitals and first responders, Florida Division of Emergency Management Director Jared Moskowitz recently said.
The federal government will cover 75% of such costs, Watkins wrote in the disclosure.
The CARES Act also provides additional funding of up to $3.7 billion for local governments and approximately $6.7 billion for specific programs throughout Florida, which could reduce the overall burden to state general revenue, he added.
The federal funds come with “various conditions and restrictions,” and “the governor and/or Legislature will need to take certain actions to request and receive federal funding,” but the state expects to qualify for the money, Watkins wrote.
Florida leaders have taken pride in the state’s AAA bond rating — the highest grade available — from credit-rating agencies Moody’s Investors Services, Fitch Ratings and Standard and Poor’s.
While Watkins’ stressed the uncertainty clouding Florida’s finances, he emphasized that the state — which had about $20.6 billion in outstanding debt, as of June 2019 — remains on solid fiscal ground.
“Although there will undoubtedly be material negative economic and financial consequences from COVID-19, the state believes it will make all deposits required for the full and timely payments on all of its bonds outstanding,” he assured.
The doubt caused by COVID-19 isn’t limited to the impact to the state’s revenues. It’s also not clear what states can spend the federal dollars on.
The U.S. Treasury Department issued guidance for states about the funds late Wednesday. The guidance says the money “may only be used to cover costs” that are necessary expenditures incurred due to the public health emergency caused by COVID-19, were not accounted for in the budget approved by March 27, and were incurred during the period between March 1 and December 30.
Senate Appropriations Chairman Rob Bradley told the News Service he believes the money can also be used to plug budget gaps.
“All indications are that the state will be able to use federal dollars to offset losses of revenue related to COVID,” Bradley, R-Fleming Island, said Wednesday. “President Trump tweeted it yesterday, and leadership in Washington has indicated that in future federal legislation there will be clarifying language to put the issue to rest.”
After the guidance was released, Bradley said he still believed the money can be used to plug budget gaps, again pointing to Trump’s tweet.
The cash injection from the feds — with more money for states on the horizon — will soften the blow to Florida’s sales-tax collections, Watkins told the News Service.
“I think it’s pretty clear the drops are going to be significant and it’s going to be challenging from a budgetary perspective, relative to what we thought was going to happen. The wildcard, what I haven’t really gotten my head around yet, is the federal money. How those play … relative to budgetary actions going forward,” he said. “They sent us a lot of money.”
Republished with permission from the News Service of Florida