Overview

Florida municipalities, counties, and schools (or local governments [LGs]) have demonstrated stable credit quality in recent years, which we believe is supported by continued economic development and growth despite the recent pandemic, supply chain disruptions, and a tight labor market that has affected local government portfolios nationwide. S&P Global Ratings expects credit quality for Florida LGs to remain stable in the near term despite the shallow recession predicted for the first half of 2023, due in large part to the added financial flexibility most of the portfolio has realized subsequent to injection of federal stimulus funds during the pandemic and ongoing economic development. Employment growth in Florida exceeds the national rate. Recovery in the leisure and hospitality sector was achieved during the last two years due to stronger domestic visitor activity, while international visitor activity remains depressed compared with pre-pandemic levels. All the while, business and professional services, financial, and information sectors continue to expand. Florida's unemployment rate has continued to trend below the national rate, at 2.7% as of October 2022, whereas the annual population growth at 1.9% has exceeded the national rate of 0.4% during 2022.

S&P Global Ratings maintains ratings on 101 LGs: 22 schools, 19 counties, and 60 municipalities. Overall, Florida LG credit quality remained stable during 2022, with only 1% experiencing rating movement. Two LGs within the portfolio experienced one-notch upgrades. Hernando County's upgraded rating reflects material improvement in reserves, coupled with stronger financial management policies and practices, whereas Seminole County's credit quality improvement reflects positive operations and economic growth within the county, supported by robust and forward-looking policies and practices. In addition, the portfolio realized one outlook revision, for Indian River County School, to stable from negative due to the district's improved financial profile during the past two years as a result of prudent expense management and revenue growth. The majority of the ratings have a stable outlook, with Winter Haven the only credit on positive outlook due to improving per capita market values, which we expect will continue to support a strong economic profile, while Hillsborough County School District is the only credit on negative outlook, reflecting uncertainty in the district's ability to balance recurring revenues and expenditures, without federal stimulus support, while facing expenditure uncertainty from labor contracts.

What We're Watching In 2023 And Beyond

Per-pupil school funding for the 2022-2023 budget increased from the previous year, to $8,143 from $7,758, but not enough to outpace inflation. Statewide enrollment is projected to increase by 2.4% and competition for state funds has increased during recent years, with charter school enrollment growth outpacing public school enrollment trends. Another expansion to school of choice is being considered in the 2023-2024 legislative session, potentially expanding eligibility for students to receive state funds for private tuition, including home-school-related expenses for online lessons or private tutoring. If it passes, this measure could ultimately increase the heat on competition for state funds. Retaining and recruiting teachers to fill vacancies across the Florida portfolio remains a challenge, in line with the nationwide portfolio. Minimum wage for school employees increased to $15 per hour, compared with the state minimum wage of $10 per hour, in an effort to achieve a starting salary of $47,500 and to raise pay for veteran teachers.

Independent special districts created prior to Nov. 5, 1968, were dissolved pursuant to a bill passed during the 2022-2023 legislative session that will become effective June 1, 2023. If Reedy Creek Improvement District (AA-/Developing, ad valorem tax bonds; A-/Negative, utility revenue bonds), the only affected district we rate, does not reconstitute under Florida's Uniform Special District Accountability Act, a transfer of assets and liabilities could affect those recipient local governments, namely Osceola (AA/Stable) and Orange (NR) counties. The legislation does not directly address how an asset and liability transfer would be accomplished, and consequently the financial ramifications to the respective counties are not reasonably foreseeable. We will continue to monitor developments as additional information becomes available as to what extent legislative actions may have an impact on credit quality to any rated entities.

Spotlight On Environmental, Social, And Governance Factors

During 2022, Florida local governments endured two hurricanes late in the season, Hurricane Ian (category 4) and Hurricane Nicole (category 1). We analyzed effects on credit quality for the Florida LG portfolio subsequent to the storms and determined that credit quality remained resilient. For more insight on our analysis following the storm events, see "Florida and South Carolina Local Governments' Credit Quality Remains Sound Despite Damage From Hurricane Ian," published Nov. 10, 2022. Acute and chronic physical climate risks, including severe weather, sea-level rise, flooding, and extreme heat, are common for the Florida local government portfolio (see "ESG U.S. Public Finance Report Card: Florida Governments And Not-For-Profit Enterprises," published Sept. 9, 2021, on RatingsDirect). While hurricane season is June to November, Florida counties and municipalities contend with various environmental risks throughout the year. We assess each credit's financial flexibility and planning initiatives in place to prepare, respond, and recover from the risks to which they are exposed.

On July 1, 2022, amendments to Florida's State Cybersecurity Act took effect, imposing certain ransomware reporting obligations on LGs and prohibiting those entities from paying or complying with cyber ransoms. Cyber security training provided by the Florida Digital Service is now required for LG employees within 30 days of employment and annually thereafter. LGs are required to adopt cyber security standards that safeguard government data and IT resources to ensure availability, confidentiality, and integrity that are consistent with the National Institute of Standards and Technology Cybersecurity Framework and generally accepted best practices for cyber security. Counties with populations greater than 75,000 and municipalities with populations greater than 25,000 must adopt these standards by Jan. 1, 2024, whereas counties with populations less than 75,000 and municipalities with populations less than 25,000 must adopt the standards by Jan. 1, 2025. The bill also expands the purpose of the state's Cybersecurity Advisory Council to include advising local governments on cyber security threats, trends, and best practices. The state's bill impact analysis indicates these initiatives will likely have a negative fiscal impact on local governments to comply, but also outlines grant opportunities through the state for technical assistance for LGs, along with dedicated funding sources allocated to develop cyber security training state and LG employees are required to take. The bill also outlines that any convicted person, including any government employee or contractor that aids and abets a cyber security violation, must pay a fine twice the amount demanded in the ransomware offense that will ultimately be deposited in the state's general fund. We view this expansion of the cyber security act as having favorable credit attributes for the portfolio, as it has a structured and supportive framework for LGs to mitigate cyber risk. For more information on our views about cyber risks in U.S. Public Finance, see, "As Threats Rise, U.S. Public Finance Entities Take On Mounting Challenges To Secure The Digital Front Line," published on Dec. 13, 2022.

Florida Local Government Data

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This list was prepared by individuals on behalf of the USPF Group of S&P Global Ratings and is current as of Feb. 9, 2023. For the most up-to-date, accurate, and complete information on any credit ratings referenced in this list, please visit www.standardandpoors.com.

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This list was prepared by individuals on behalf of the USPF Group of S&P Global Ratings and is current as of Feb. 9, 2023. For the most up-to-date, accurate, and complete information on any credit ratings referenced in this list, please visit www.standardandpoors.com.

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This list was prepared by individuals on behalf of the USPF Group of S&P Global Ratings and is current as of Feb. 9, 2023. For the most up-to-date, accurate, and complete information on any credit ratings referenced in this list, please visit www.standardandpoors.com.

Related Research

• Storm Clouds Or Clear Skies Ahead: How Rising Insurance Premiums From Environmental Physical Risks Could Affect U.S. Local Government Credit Ratings, May 10, 2022
• Outlook For U.S. Local Governments: Reserves and Agile Management Will Provide Stability In A Recession, Jan. 10, 2023
• 2023 Credit Outlook for U.S. Public Finance: Credit Headwinds Accelerate, Jan. 31, 2023
• Charter School Brief: Florida, Oct. 18, 2022