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U.S. PUBLIC FINANCE
SECTOR COMMENT26 October 2018
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State and local government - Florida
Florida will weather Hurricane Michaelcosts with minimal financial effect, a creditpositiveOn 25 October, the State of Florida (Aaa stable) released an updated estimate of costsrelated to Hurricane Michael: $702 million, most of which will be reimbursed by the federalgovernment, a credit positive.
The final effect on the state's finances will be greater, however, because the bulk of thehurricane costs are still being tabulated, including local government aid and temporaryhousing assistance. Midyear supplemental appropriations will likely be necessary, which couldreduce year-end operating surplus projections.
The state's initial $702 million of expenditures is primarily for pre-storm emergencypreparation and removal of debris from roadways and bridges immediately after Michaelmade landfall (see Exhibit 1). The $702 million is equal to about 2.1% of Florida's fiscal2019 (ending 30 June 2019) general revenue budget, in line with the initial state agencyprojections from Hurricane Irma.
Exhibit 1
Florida estimates that two-thirds of initial Hurricane Michael costs are for emergencypreparation and debris removal from roads and bridges
State Agency Reported Cost % of Total
Transportation $ 270,136,902 38.5%
Emergency Management $ 256,363,506 36.5%
Environmental Protection $ 37,069,419 5.3%
Financial Services and Firefigher Mutual Aid $ 34,623,527 4.9%
Corrections $ 33,583,480 4.8%
Military Affairs/National Guard $ 23,611,350 3.4%
Fish and Wildlife Conservation Commission $ 15,016,250 2.1%
Other $ 31,612,036 4.5%
Total $ 702,016,470
Data does not include individual aid, county aid and transitional support assistance.Source: State of Florida preliminary state agency damage estimates, 25 October 2018
Separately, initial insurance claims data shows limited exposure for the state propertyinsurance entities, Citizens Property Insurance Corporation (A1 stable) and reinsurer FloridaHurricane Catatrophe Fund (State Board of Administrative Finance Corporation, Aa3 stable),although claims will increase in coming months.
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Local government damage is still being assessed, but these entities benefit from both state and federal government support. Overall,local governments in Florida are in a healthy financial position, despite two hurricanes in the past two years, partly because of federalfinancial assistance and strong local reserves.
The Federal Emergency Management Agency (FEMA) will likely reimburse at least 75% of the state's Michael-related expenditures. Bycomparison, for Hurricane Irma in 2017, initial state agency estimates a month after landfall were $636 million. The state is expectingFEMA to reimburse it for 94% of similar expenditures.
The initial state estimates for Michael do not include individual assistance and transitional support assistance for affected residents,or aid to local governments and counties to help rebuild. These expenditures usually comprise the bulk of state storm-relatedappropriations and will drive up final Hurricane Michael expenditures, likely necessitating mid-year supplemental appropriations. ForHurricane Irma, the state has estimated $460 million for county reimbursements, which may change, and will be paid out over fivefiscal years. The state projects an additional $104 million in spending for individual aid and transitional assistance.
The state maintains ample reserves to manage unanticipated budget needs, including storm-related expenditures. The state estimatesthese reserves will fall slightly to $3.5 billion in fiscal 2019, a still healthy 7.5% of fiscal 2017 own-source revenue (see Exhibit 2).Including $231 million of anticipated FEMA reimbursements, reserves are projected to grow to $3.7 billion.
Exhibit 2
Florida’s healthy reserves are a key mitigant of storm risk
0%
2%
4%
6%
8%
10%
12%
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2013 2014 2015 2016 2017 2018 2019
Budget Stablization Fund Unspent/unallocated General Reserves Lawton Chiles Endowment Fund Total Reserves as a % of Own-Source Revenue
Reserves reflect available Lawton Chiles Endowment Trust Fund balance only. Additional trust fund balances are estimated to be approximately $1.0 billion. Percentage calculations forfiscal 2018 and fiscal 2019 based on fiscal 2017 revenues. Fiscal 2019 reserves are budgeted estimates and have not been adjusted to reflect costs for Hurricane Michael or unanticipated,unspent general revenue.Source: State of Florida fiscal 2013-17 CAFRs and State of Florida fiscal 2019 budget
For the state insurance entities, Citizens’ initial claim exposure from Hurricane Michael is limited to 2,000 of the estimated 38,000total claims filed as of the week of 15 October. Although very preliminary, initial losses are $96 million-$145 million, although thefigures will increase in coming months as additional claims are filed and processed. The state reinsurance Catastrophe Fund has notreleased loss estimates. Citizens does not expect to hit its threshold for triggering Catastrophe Fund reimbursements.
Both Citizens and the Catastrophe Fund maintain significant claim-paying resources, even after payouts for Hurricane Irma. As ofAugust 2018, Citizens reported a balance of $11.7 billion to pay claimants for both the coastal and personal property/commerciallines accounts. The balance includes total available resources plus reinsurance coverage. As of October 2018, the Catastrophe Fundprojected claim-paying resources of $16.2 billion, nearly reaching its statutory liability cap of $17.0 billion.
Florida local governments have a record of maintaining credit quality in the wake of hurricane damage. Similar to the state, localgovernments face immediate storm preparation and then debris removal costs. All Florida counties have local hazard mitigationstrategies that outline a coordinated approach with state and local entities for pre-disaster planning and cleanup and rebuilding efforts,
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page onwww.moodys.com for the most updated credit rating action information and rating history.
2 26 October 2018 State and local government - Florida: Florida will weather Hurricane Michael costs with minimal financial effect, a credit positive
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the costs of which are largely reimbursed by FEMA. They are also eligible for state aid, which will include beach nourishment and dunerestoration to protect against possible future storm surge.
Florida counties and school districts benefit from large tax bases and strong cash reserves. School districts are coterminous withcounties, which allows management to move students to other schools within the district if schools are damaged and cannot reopen,as is the case in Bay County School District, Florida (Aa2). The median operating cash position for Florida counties was 43.2% ofrevenue, or $121 million at the end of fiscal 2017, a significant amount of liquidity compared with immediate clean up costs. Themedian operating cash position for Florida school districts is a lower, but adequate, 17.5% of operating fund revenue or $73.9 million.
Cities, towns and villages with smaller operations and significant damage, such as Mexico Beach, could face pressure from reduced taxcollection. Municipalities are legally required to budget 96% of estimated revenue. Revenue streams are diverse and include property,sales and utility taxes as well as various fees. Especially hard-hit areas typically waive some fees or extend deadlines for taxes afterstorms; Mexico Beach has waived fees for inspections required before electricity is restored. Generally, these revenue gaps and/ordelays are temporary and at least partially offset with funds from the state and federal governments. For assets that require significantrepair, such as water and sewer lines, municipalities can borrow. Long-term credit quality hinges on rebuilding efforts whether bycurrent property and business owners or by attracting new investment, which typically occurs after storms, including the hardest hitareas.
Moody’s related publicationsIssuer In-Depth
» Despite climate risk and hurricane damage, Florida and Texas maintain strong credit quality, February 8, 2018
3 26 October 2018 State and local government - Florida: Florida will weather Hurricane Michael costs with minimal financial effect, a credit positive
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4 26 October 2018 State and local government - Florida: Florida will weather Hurricane Michael costs with minimal financial effect, a credit positive
