Credit ratings of Florida, local governments not likely to be downgraded, officials say

Aug 9, 2011

The following article was published in the Naples Daily News on August 8, 2011:

Credit ratings of Florida, local governments not likely to be downgraded, officials say

By Katherine Albers

Two days after Standard and Poor’s downgraded the United States credit to AA+, Republican Gov. Rick Scott said he doesn’t think the downgrade will have an effect on Florida’s credit rating.

“We balanced our budget,” the Naples resident said during a press conference Monday. “We’re going to watch how we spend.”

Scott said governments need to prioritize their spending, and not try to operate using borrowed money. Scott said he spoke to rating agencies earlier this summer and assured them the state would be watching its pennies.

“This shouldn’t have an impact on us,” he said.

It doesn’t seem to be having much of an impact on local governmental entities, either.

In the city of Naples, the city’s bonds are backed by city revenue, not by federal revenue, and the city has a AAA bond rating, said Ann Marie Ricardi, the city’s finance director.

“The city of Naples’ bonds are always strong,” she said.

Ricardi said the bonds will be strong if the government backing the bonds is strong.

“We remain confident in our current situation,” she said. “We have no plans to obtain new debt. … We pay off our debt.”

If the city is concerned about the downgrade, Ricardi said, it is because 50 percent of the city’s investment portfolio is in US Treasuries. She said the city could be in trouble if its investments don’t make their rate of return.

Bonita Springs Finance Director Lisa Pace said the city currently has one bond issue for its roads, and the S&P downgrade will not affect that bond issue.

“As we look toward any future borrowings, we would review how it might be affected by the market,” she said, adding the city of Bonita Springs does not plan to borrow any more money in the near future.

Pace said Bonita Springs is in a different position from most municipalities, saying the city does not go out for many bonds because the city’s utility is privately owed.

But, Pace said the city has been reviewing whether to refinance its existing debt. She said what happens with the downgrade could affect that refinancing, although the city has not committed to refinancing its debt yet.

S&P is likely to cut its ratings on municipal debt secured by the federal government, such as pre-refunded bonds, tax-exempts backed by U.S. agencies, and credits that are most dependent on federal spending, Peter DeGroot, head of municipal research at JPMorgan Chase & Co. (JPM), wrote in an Aug. 5 report distributed after the federal downgrade.

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