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ESG U.S. Public Finance Report Card: Florida Governments And Not-For-Profit Enterprises


Cryptocurrency: U.S. Public Finance Issuers Cautiously Consider Its Applications


State Brief: Montana


Table Of Contents: S&P Global Ratings Credit Rating Models


U.S. Public Finance Rating Activity, July 2021

ESG U.S. Public Finance Report Card: Florida Governments And Not-For-Profit Enterprises

In this report, we analyze the environmental, social, and governance (ESG) credit factors for select U.S. public finance (USPF) government and not-for-profit enterprise issuers in Florida. Our ESG report cards explore the relative exposures of USPF issuers to ESG credit factors, including how and why they may have a more positive or negative influence on an entity's credit quality compared with peers. These comparative views of ESG credit factors are qualitative and established by analysts during analytic discussions and described in issuer credit reports, with the goal of providing more insight and transparency. Select ESG paragraphs from Florida issuer research are reproduced in the Appendix.


ESG In Credit Ratings

ESG risks and opportunities can affect an entity's capacity to meet its financial commitments, including debt service. S&P Global Ratings incorporates ESG considerations into its ratings methodologies and analytics, which enables analysts to integrate the qualitative and quantitative impacts throughout our credit analysis. Chart 1 shows an example of how we incorporate the most prevalent ESG risks and opportunities into our criteria frameworks. Strong ESG credentials do not necessarily indicate strong creditworthiness (see "Through the ESG Lens 2.0: A Deeper Dive Into U.S. Public Finance Credit Factors," published April 28, 2020, on RatingsDirect, and "The Role Of Environmental, Social, And Governance Credit Factors In Our Ratings Analysis," Sept. 12, 2019).

Chart 1


Environmental – Elevated

While western states wrestle with drought, Florida's physical risks are largely driven by its extensive coastline, low elevation, and porous limestone foundation, making it susceptible to tropical storm and hurricane impacts, frequent flooding, and sea-level rise. According to the Florida Department of Environmental Protection (FLDEP), the state's 35 coastal counties have 76% of its population and 79% of its economy, which exposes a substantial amount of the state's land and property to risk of impact from severe weather events. Tropical storm and hurricane season generally occurs between June and November, with the number of named storms and direct and indirect effects varying from year to year. But rising temperatures may result in more frequent and intense storm activity, which in turn could increase storm surges and flooding. We believe an entity's level of reserves and liquidity can help prevent credit quality deterioration when an entity is faced with an acute physical risk. For more information on event-related credit impacts, see our report "Extreme Weather Events: How We Evaluate The Credit Impacts In U.S. Public Finance," published Nov. 2, 2020.

Flooding.  First Street Foundation estimates that 20% of Florida's property is currently at substantial risk of flooding, and projects that 24% will be at risk by 2050. This is compared with a baseline for the entire U.S. of 10% of properties currently at risk, increasing to 11% in 30 years. A growing amount of research contemplates the long-term effects of climate change on Florida's economy, particularly its real estate market. For example, a 2020 study by McKinsey Global Institute evaluates the potential for changes in real estate prices as homebuyers reassess long-term value of properties that may be affected by climate change. Lower real estate prices may translate to a reduction in property tax collections, which is a material portion of revenue for Florida local governments. Over the long term, the revenue and demand profiles for public power and water utilities, higher education institutions, charter schools, tax-supported hospital districts, and toll roads may be challenged if climate change leads to fewer housing starts, less homebuying activity, and lower economic growth.

Sea-level rise.  Sea-level rise is one of the most evident long-term impacts of climate change for Florida, resulting from its low elevation and porous geology. The effects of sea-level rise are already occurring through beach erosion and more frequent tidal flooding, and compound the impact from storm surges. Furthermore, water and sewer utilities in Florida may face saltwater intrusion into the water supply, especially if groundwater levels rise over time, precipitating the need for subsidence planning. The Southeast Florida Regional Climate Change Compact's most recent projection estimates sea-level rise of 10 to 17 inches by 2040 and, in the longer-term, of 40 to 136 inches by 2120. These projections assume current greenhouse gas emission trajectories, a reduction in which could change the rate of impact and why proactive planning and coordination is such a material component in our credit rating analysis for issuers in Florida. Chart 2 identifies the property value at risk based on the combined effects of hurricanes, inland and coastal flooding, and hurricane wind in 2031.

Chart 2


Social – Neutral

Social capital.  Florida's high age-dependency ratio, with 20% of residents over age 65, compared with the national average of 16%, has led to higher service costs and the potential for weaker revenue trends for the state's not-for-profit health care entities stemming from the reliance on Medicare versus commercial insurance payments. Furthermore, approximately 16% of the population in Florida is uninsured, which could result in credit weakness if demand to serve the vulnerable population outpaces revenue growth or requires a higher state-share of Medicaid program costs. Also, Medicaid enrollment growth typically occurs during periods of economic downturns, which was evident at the onset of the pandemic when Florida added 330,000 Medicaid enrollees from February to July 2020 (see "Medicaid Diagnosis: U.S. State’s Growing Caseloads Come With Rising Costs," published Dec. 8, 2020). Despite the age-dependency dynamic, we view overall population growth as an offsetting factor that will spur economic activity, resulting in our neutral assessment of social capital. Chart 3 shows the state's population increased 34% since 2000, and Florida remains one of the top three leading states for growth, partly due to in-migration from Latin America. While net migration is projected to slow, potentially as pandemic-related relocations wane, IHS Markit projects continued 1.0% annual population growth for the next 20 years.

Chart 3


Population growth is generally viewed favorably within our credit rating framework for governments and not-for-profit enterprises, as it leads to higher demand for activity-based transportation infrastructure enterprises, consistent enrollment growth for higher education institutions, and may help keep utility bills as a percentage of monthly income lower because service costs are spread across a larger base of ratepayers. While infrastructure investment will remain a key requirement for governments and not-for-profit enterprises to adapt to climate change risks, organic revenue growth may help issuers maintain budgetary balance while increasing reserves and liquidity that are instrumental to absorbing unexpected events related to the state's environmental physical risks.

While overall K-12 enrollment growth aligns with the state's population trends, we view enrollment shifts between traditional public schools, charter schools, and private schools as a social risk. The state's primary funding mechanism, the Florida Education Finance Program (FEFP), is based on per-pupil enrollment, so declining enrollment could lead to less state-aid revenue for affected districts because it typically makes up nearly half of a school district's general fund revenue. While the state's increasing charter school presence and school of choice scholarship program eligibility expansion is a risk for traditional public school districts, it is positive for charter schools, which receive more per-pupil state funding when charter school enrollment makes up a larger portion of total enrollment. For more background on Florida public and charter school funding in recent years see our articles "Florida Shines A Light on Education Funding Trends And Credit," published Dec. 10, 2019, and "Charter School Brief: Florida," published Oct. 21, 2019.

Affordability.  We believe population growth is partly driven by home affordability and a low-tax structure, given the absence of a statewide or local income tax levy. Chart 4 shows housing affordability ratios, calculated as median home price compared with median household income, for Florida and its largest peers--California, New York, Pennsylvania, and Texas--as well as the U.S.

Chart 4


Despite overall home affordability, one area of stress may be utility costs. According to IHS Markit, the state's electricity generation composition is 60% natural gas, 20% coal, 10% nuclear, and 2% renewable energy sources. While currently a small portion of the overall market, we recognize that solar capacity is expanding in Florida, with some utilities establishing large solar farms that could add to total renewable source availability while reducing the reliance on natural gas. Although utilities may be less exposed to decarbonization and energy transition in Florida than in other states, there remains a heavy level of reliance on natural gas, which typically contains coal attributes. In addition, Florida's natural gas prices are more than 50% above the national average, due to large import volumes through two pipelines, and no in-state production. While generally utility bills are lower when compared to areas with older infrastructure that require substantial capital investment, the higher natural gas prices could lead to revenue-raising constraints.

Health and safety.  Florida's large leisure and hospitality sector, which as of June 2021 made up 12.2% of employment compared with the national average of 10.1%, had material declines in tourist-driven revenue from the COVID-19 pandemic with a more acute effect on certain local governments and not-for-profit enterprises; in particular, hotel stays and airport traffic were notably lower and in some instances negatively affected ratings. Based on data from IHS Markit and Visit Florida, total visitors in fourth-quarter 2020 were 30% lower than in the prior-year period, and international visitors were down 80%. Chart 5 illustrates the total number of annual tourists on a calendar year basis since 2015. We believe the state's hospitality sector is vulnerable to large macroeconomic events that discourage travel. In addition, while vacation and summer travel during 2021 was robust, we believe the delta variant may negatively affect demand and are monitoring travel changes during the 2021 fall months, when seasonal travel typically declines. We also view renewed federal restrictions on international travelers as likely to lead to prolonged pressure on tourism. (For more information on transportation-related credit impacts, see our article "Environmental, Social, And Governance: How COVID-19 And ESG Factors Are Weighing On Airports' Credit Quality," published Dec. 10, 2020).

Chart 5


Governance – Neutral

Governance structure.  We view the state's organizational structure that provides stability for governmental entities as a neutral governance factor. Florida is required by statute and its constitution to annually adopt balanced budgets and to raise revenue to cover expenses and debt service costs. Issuers in Florida are also supported by the state's consolidated debt function for state agencies, through the division of bond finance, which ensures consistent transparency, oversight measures, and minimal use of risky debt structures. We consider the institutional framework to be strong for local governments, meaning standards for reporting and transparency are strong; there is a mechanism for extraordinary support for distressed entities; and the overall tax structure has largely been unchanged historically. While the state allows voter-initiative constitutional amendments, they require a representative sample of constituent support, super majority approval, and advance notice of implementation. In addition, each proposed amendment must undergo a fiscal impact review, so voters understand revenue and expenditure implications of implementation.

Risk management, culture, and oversight.  Florida has various state, regional, and local programs that help mitigate its environmental risks, which we view favorably, and consider an integral part of our credit rating analysis. Examples include:

  • The Florida Hurricane Catastrophe Fund (FHCF)

Created to help provide a stable property insurance market in the state, FHCF provides a funding source to reimburse residential property insurers. FHCF can issue pre-event or post-event bonds, the proceeds of which are set aside to provide resources following a covered storm event. FHCF has paid reimbursements for 11 storms in five hurricane seasons to date. There is a reimbursement cap of $17 billion, which covers a once-in-250-years storm event. All residential property insurers operating in Florida are required to participate in the program and pay premiums to FHCF, which secure the bonds.

  • Florida Department of Environmental Protection – Resilient Coastlines Program

The Resilient Coastlines Program offers technical assistance and funding to coastal communities to help prepare for the effects of climate change. Two types of grants, resilience planning and resilience implementation, provide coastal counties and the municipalities within those counties a total of up to $100 million annually.

  • Southeast Florida Regional Climate Change Compact

The climate change compact unifies local sea-level rise projections into one regional projection to help ensure consistency of adaptation planning and infrastructure design in a four-county region. Broward, Miami-Dade, Monroe, and Palm Beach counties are participants, and the first projection was published in 2011 with updates in 2015 and 2019, and at least every five years thereafter. Working groups are composed of climate change experts employed by Florida cities, counties, universities, and water management districts, as well as consulting expertise from federal agencies such as the National Oceanic and Atmospheric Administration, Bureau of Land Management, Environmental Protection Agency, and the Army Corps of Engineers.

In fiscal 2022, the state is investing nearly $4.5 billion (including American Rescue Plan funds) to support Everglades restoration and protection of water resources, beach nourishment, Resilient Florida, and other programs. In addition, at the local level, we find that many entities participate in proactive planning that may include infrastructure hardening, zoning rules and regulations, and contingency reserve policies that help entities prepare for and respond to weather events. In addition, Florida issuers are familiar with Federal Emergency Management Agency's reimbursement processes and are frequently able to apply for and receive aid relatively quickly following a natural disaster declaration. However, we are monitoring potential changes to building codes and enforcement actions following recent attention prompted by the Surfside condominium collapse.


Florida ESG Risks And Opportunities
Selected Paragraphs From The Most Recently Published Issuer-Level Reports
Obligor Sector Rating ESG Paragraph

Hillsborough County

Water and sewer utility AA+/Stable Overall, we believe that management has mostly mitigated environmental, social, and governance (ESG)-related risk by adhering to state and federally mandated operating and financial policies and procedures. Heightened social factors, health, and safety precautions that officials enacted in response to the COVID-19 pandemic could result in declining operating revenue. Management does face some social risk related to its sizable capital plan, which we expect will pressure rates, but are currently a credit strength compared with those of peers. The county benefits from strong and proactive management, which deliberately targets affordability pressure as it works though its substantial capital needs. Management is also attempting to mitigate environmental risk by undertaking investments to adapt to long-term climate change challenges. An example of this is the county's reclaimed water system, which is partly used to pump water back into the aquifer to reduce sea water intrusion. According to management, deep water injection of a portion of the county's reclaimed water has proven successful in stemming saltwater intrusion into local aquifers, a risk common to coastal aquifers exposed to sea-level rise. We understand the system faces limited infiltration and inflow (I&I) and water loss issues. Management is conducting several studies to limit I&I and the potential for sanitary sewer overflows. The county is developing a risk and resiliency assessment to address resiliency issues related to climate change and natural disasters. We consider the utility's environmental risk higher than that of rated peers due to its location on the Florida coast, which exposes it to serious storms.

Barry University

Higher education BBB/Stable In our view, higher education entities face elevated social risk due to uncertainty about the duration of the COVID-19 pandemic and its total effect on the university's operations. We view this as a social risk under our ESG factors. We believe management has taken prudent actions regarding the health and safety of students, faculty, and staff, through options for remote learning and work. Also, we believe Barry's location in Florida, with potential for extreme weather events and long-term sea-level rise that could damage facilities, elevates the university's environmental risks above those without this exposure. However, the university carries insurance that provides some offset. Despite the elevated environmental and social risks, we believe the university's governance risk is in line with our view of the sector.

Reedy Creek Improvement District

Combined utility A-/Stable We believe RCID's social risk has moderated as the COVID-19 pandemic has subsided in the district, improving health and safety conditions. While we recognize that the pandemic is ongoing, we expect increased demand for utility services in the coming months. Nevertheless, it will take time before Walt Disney World attendance reaches pre-pandemic levels. As a result, there has been reducing demand for utility services. Demand for some utility services such as electricity for lighting, air conditioning, and ride operations is somewhat inelastic and does not fully correlate with the number of visitors. From an environmental perspective, RCID has moderate exposure to future carbon-emission regulations. In fiscal 2020, the electric system obtained about 85% of its electricity from natural gas and the remainder largely from solar and anaerobic digestion resources. The combustion of natural gas has fewer carbon emissions than coal on a per kilowatt-hour basis, but we still note the district's high percentage of electricity from fossil fuels. By January 2023, RCID plans to add about 150 megawatts of solar capacity to its supply portfolio via power purchase agreements (PPAs), boosting the district's renewable energy supply to 40% of its annual energy consumption. We view this considerable increase in renewable energy as reducing RCID's future exposure to potential carbon-emission regulations. In terms of governance, RCID has rate autonomy, which is typical for public power entities. We view favorably the district's board support of management's request to increase rates in May 2020 in response to the decline in demand for utility services.

Miami International Airport

Transportation A-/Stable Our rating reflects health and safety risks posed by the COVID-19 pandemic and its impact on passenger activity as a result of mobility restrictions and behavioral changes related to travel, which we view as a social factor within our ESG framework, resulting in significant operating and financial pressures for the airport. Furthermore, we believe the environmental risks for MIA are elevated, based on its coastal location in southern Florida, exposing it to severe weather-related events. However, the airport and county government have incorporated these risks into the capital programs, including terminal and airfield improvements to mitigate the long-term risks of sea level rise. In addition, the county maintains an Office of Resilience to upgrade infrastructure to protect and support communities against sea-level rise and climate change. Finally, we believe MIA's governance risks are in line with those of the airport sector.

Jacksonville Electric Authority

Public power and retail electric A+/Negative JEA's environmental risks relate chiefly to its carbon footprint. Coal and petcoke (which has a higher carbon content than coal) accounted for 24% of energy in 2020, down from more than 51% as recently as 2016. Despite the expected addition of the Vogtle nuclear units and a solar PPA, JEA forecasts that coal and petcoke will account for 25% of energy requirements in 2025. In addition, we view hurricane risk as providing heightened environmental risk given Jacksonville's location near the Florida coast. We believe that JEA has applied appropriate measures to stem the spread of COVID-19 and to protect the population's health and safety, which we view as a social risk under our ESG factors. In our view, the pandemic has not had a meaningful direct credit impact on JEA, although we do note that the coronavirus has affected construction of the Vogtle nuclear units, contributing to recent cost overruns, and possibly further slippage to the construction schedule. We believe that relative to those of peers, JEA's governance risk factors are heightened, as an erosion of stakeholder confidence, and the turnover of virtually the entire executive management team and board of directors are heavily factored into our assessment of JEA's operational management.

State of Florida

State government AAA/Stable We view Florida's social and governance risks as being in line with our view of the sector as a whole. Although the state's age dependency is substantially above the national average that could lead to higher service costs, the state's social capital risks are neutral in our analysis given the positive economic activity driven by strong employment and population growth. In our view, Florida's environmental risks are above those of the sector given its vast coastline as a peninsular state, which exposes it to chronic and acute physical risks. However, we believe these risks are mitigated by the creation of entities to provide for a stable insurance market and recent measures to address climate resiliency.

Palm Beach County

Local government AAA/Stable Environmental risks are somewhat elevated for Palm Beach County given its location along Florida's southeastern coast, which makes it more susceptible to weather events and the effects of climate change. However, the county established an office of resilience (OOR) department and is a member of several organizations that plan and integrate capital improvements over the longer term to protect the property tax base from environmental risks. We view social risks as in line with the sector standard; however, the county has experienced strong population growth, which a third-party consultant report indicated was largely spurred by in-migration and job relocations from the northeast. Furthermore, we believe the county's home price appreciation and growth in high income earners since the start of the pandemic have highlighted the county's disparity in housing affordability. To address the demand in affordable housing, the county budgets about $5 million annually in pay-as-you-go funding toward this effort and may issue debt, subject to voter approval, over the next three-to-five years to invest in the demand. We analyzed governance-related risks and consider them in line with our view of the standard. We will continue to evaluate these risks as the situation evolves.

Central Florida Expressway Authority

Transportation A+/Stable We analyzed the CFX's ESG risks and opportunities relative to its market position, management and governance, and financial performance, and determined that, with the exception of environmental risks, all are in line with our view of the standard for the toll-road sector. In our view, CFX's environmental risks are above those of the sector because it is in a peninsula state with a vast coastline, which exposes it to extreme weather events and long-term sea-level rise. Although the abatement of health and safety risks stemming from the pandemic reflected in the easing of social restrictions are reflected in the stable outlook, long-term credit stability is supported by favorable demographic trends and economic growth within the Central Florida region and represents a social opportunity that drives demand for the system.


Not-for-profit health care AA/Stable We view AdventHealth's social risk as lower than that of peers because the system operates in several markets that have high population growth and favorable payer characteristics that have led to healthy earnings and cash flow. That said, COVID-19 has exposed AdventHealth to additional health and safety related social risks that have resulted in financial pressure as federal and state support has been insufficient to cover the increased costs and lost revenue associated with the pandemic. We view AdventHealth's overall environmental risks as elevated relative to those of peers, given the organization's location in markets that are historically prone to severe weather-related events, particularly hurricanes. However, in our view, the diversified location of AdventHealth's facilities helps dampen this risk, as it is highly unlikely that the entire system would be affected simultaneously. Governance risk is in line with sector standards.

Fort Lauderdale

Local government AAA/Stable We believe the city's governance factors are above the sector standard including management's efforts to improve the funded status of Fort Lauderdale's pension and other postemployment benefits (OPEB) plans as well as integration of costs associated with climate change, storm preparedness, and sea-level rise. These costs have been incorporated into management's long-term plans and annual reporting to the governing body on infrastructure improvements related to this area of environmental risk that we view as being above the sector standard given Fort Lauderdale's coastal exposure. Based on the city's growing population trends and wealth and income levels, we view Fort Lauderdale's social risks as being in line with the sector standard absent implications of the COVID-19 pandemic.

Bay Haven Charter School

Charter schools BBB/Stable We view the academy's governance risk as elevated given repeated internal-control-related and lack-of-separation-of-duty findings in the audit, which could affect its ability to sufficiently manage operations. We believe the academy's environmental risk is elevated given the academy service area's proximity to the Gulf of Mexico, which has experienced increased incidence of disaster events that could lead to lower enrollment as a result of displacement or property damage. In addition, in our view, the academy is exposed to elevated social risk because of the duration of the COVID-19 pandemic and the unknown impact on state revenue, which could pressure funding levels as well as enrollment.

Miami-Dade County

Water and sewer utility AA-/Stable Miami-Dade County benefits from strong and proactive management, which is deliberately targeting affordability concerns as it works through its substantial capital needs. Combined water and sewer rates are only 1.4% of local incomes, but we believe requests for increases may be pressured given potential recessionary conditions and social risks compared with those of other water utilities stemming from the elevated county poverty rate and the need for the county commission to approve all rate increases. Management has been working to revise its customer assistance programs to make sure that they effectively benefit customers in need. While the utility's current CIP largely reflects regulatory requirements, including the Florida ocean outfall statute and a federal consent decree to address sanitary sewer overflows (SSOs), the county is also undertaking ambitious investments to adapt to long-term climate change challenges to mitigate its environmental risks. We consider the environmental risk higher than that of rated peers due to the utility's location on the Florida coast, which exposes it to serious storms.

Hillsborough County School District

Local government A/Negative Although the district's new management team has changed some internal policies, we believe the changes are within the boundaries of the FMA, and therefore we do not currently view the district's governance risks as elevated and consider them in line with the sector standard. However, if reserves deteriorate or the state funding environment changes such that we believe flexibility is limited to an extent that would no longer allow the district to mitigate risk, we could revise our view of the district's governance risk. Absent the effects of COVID-19, such as a temporary decline in enrollment, we view the district's social risks in line with those of the sector standard. Environmental risks are somewhat elevated for the district due to its location along Florida's Gulf coast, which make it more susceptible to weather events and the effects of climate change.

Lee Memorial Health System

Not-for-profit health care A+/Stable We analyzed LMHS' governance risks relative to its economic fundamentals, market position, and management and governance, as well as the corresponding effects on its financial profile, and determined that they are in line with our view of the sector. However, LMHS has a publicly elected 10-member board, although it is not self-perpetuating, which we view as best practice. Furthermore, it has operated well and we do not consider this as an elevated risk. As LMHS is a special-purpose unit of local government, we view its disclosure practices--publicly reporting financial results, statistics, and management discussion and analysis on a monthly basis--as excellent. We consider LMHS' social risks to be in line with our view of the sector. That said, we believe the pandemic exposes the entire sector to additional social risks. While we view these risks as diminishing given widespread vaccine distribution, uncertainty remains, particularly because of the COVID-19 variants. We will continue to monitor how this affects LMHS. We view LMHS' overall environmental risks as elevated relative to those of peers given its location in markets that are historically prone to severe weather-related events, particularly hurricanes. In our view, LMHS has demonstrated it has systemwide policies and procedures in place to implement in the event of a pending hurricane, including identifying and accessing key medical staff, supplies, and other specific needs should there be a prolonged emergency response, thereby minimizing disruption to its overall operations. In addition, LMHS has the ability to use its diversity of facilities to execute its emergency response action plan to manage environmental challenges effectively.

Orange County Housing Finance Authority

Housing A+/Stable We have analyzed the projects' ESG risks relative to its coverage and liquidity, management and governance, and market position. Our rating action incorporates our view regarding the COVID-19-related health and safety risks, which have affected all affordable housing developments. Specifically, the risk of increasing expenses and decreases in rental revenue related to the social risks of the pandemic have been evaluated in our rating. We view the obligor's governance risk to be higher than average compared with the sector based on the projects' lack of risk mitigation policies and housing-development-specific strategic plans, which leaves the projects vulnerable to operational volatility. Environmental risks are in line with those of the sector given a lack of elevated environmental threats in the area in which the projects are located.

This report does not constitute a rating action.

Primary Credit Analysts:Kimberly Barrett, Centennial + 1 (303) 721 4446;
Nora G Wittstruck, New York + (212) 438-8589;
Secondary Contacts:Oscar Padilla, Dallas + 1 (214) 871 1405;
Kurt E Forsgren, Boston + 1 (617) 530 8308;
Research Contributor:Joseph Vodziak, Chicago + 1 312 233 7094;

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