South Florida Water Management District's Credit Rating Downgraded Amid Tax Cuts

Strategic Insights -

The South Florida Water Management District's decision to slash property taxes in compliance with a new state law has led to a credit rating downgrade from AAA to AA+, according to Standard & Poor's. The law, Senate Bill 2142, caps the revenue that the state's five water management districts can raise through property taxes, forcing the district to cut its budget by 30 percent, or $128 million. In response, the district has given buyouts to 123 workers, laid off dozens of others, and reduced benefits for those remaining.

Key Takeaways:

  • The South Florida Water Management District's credit rating was downgraded from AAA to AA+ by Standard & Poor's due to the district's reduced financial flexibility after complying with Senate Bill 2142.
  • The district was required to cut its property tax revenue by 30 percent, or $128 million, which led to the implementation of buyouts, layoffs, and reduced benefits for remaining employees.
  • The rating downgrade was not a surprise to the district, as they stated that they have "no plans to issue further debt in the foreseeable future and continues to place its credit worthiness and payment of existing debt as one of the agency's highest priorities."
  • If the district does borrow money for construction projects in the future, it could cost South Florida taxpayers millions of dollars more in debt payments.
  • The district's strong executive and legislative oversight of the budget, strong management practices and policies, strong reserves, and low direct debt levels were cited as favorable factors by Standard & Poor's.
  • However, the agency warned that it would consider lowering the rating further if the district takes on additional debt without a significant increase in revenues authorized by the governor and Florida's legislature.
  • The district issued $546.1 million of AAA-rated insured bonds in November 2006 to help jump-start construction of Everglades restoration projects.
  • Companies like Florida Power & Light and Disney could save over $1 million each on their tax bills for the budget year that begins October 1, according to an analysis by the National Institute on Money in State Politics.

Statistics:

  • The credit rating downgrade was from AAA to AA+.
  • The district was required to cut its property tax revenue by 30 percent, or $128 million.
  • The district issued $546.1 million of AAA-rated insured bonds in November 2006.
  • Companies like Florida Power & Light and Disney could save over $1 million each on their tax bills for the budget year that begins October 1.
  • The tax cut will yield bigger savings for some of the state's biggest companies, including those that helped power last year's GOP political campaigns.
  • The district has given buyouts to 123 workers and laid off dozens of others.

Sources:

  • Standard & Poor's report, cited in the Palm Beach Post article.
  • Senate Bill 2142, referenced in the Palm Beach Post article.
  • National Institute on Money in State Politics analysis, cited in the Palm Beach Post article.
  • Palm Beach Post article, "South Florida Water Management District's credit rating downgraded amid tax cuts."