Transcription:
Chip Barnett: (00:03)
Hi and welcome to a different Bond Buyer podcast. I’m Chip Barnett. My visitor at this time is Ben Watkins, he is the director of the state of Florida’s Bond Division. And we’re gonna be speaking in regards to the newest information popping out of the Sunshine State. And we’re gonna check out what’s taking place in Reedy Creek. Welcome to the Bond Buyer, Ben.
Ben Watkins: (00:21)
Thank you, Chip.
Chip Barnett: (00:22)
Okay. Let’s dive proper in. Can you inform our listeners about how Florida’s doing proper now? I imply, the state of its funds.
Ben Watkins: (00:31)
So the reply to that’s stronger than it is ever been. I’ve been on this place for a really very long time, by way of varied financial cycles and, and I can say that we’re in a greater place, each economically in addition to financially on the state degree, than we have ever been over my 25 yr tenure. And to simply type of provide you with a way of that, on the economic system facet, our tourism has surpassed pre-pandemic ranges. We see unprecedented development in inhabitants with in-migration, individuals shifting to the state, an awfully robust housing market, an unemployment price at 3%, which is if you need a job, you can discover it. So it is actually exceptional how shortly our economic system and our funds have actually bounced again from the from the pandemic.
Ben Watkins: (01:43)
When I take into consideration our funds and simply when it comes to, you already know, it and fascinated with it, in all probability the best metric to have a look at is our ranges of reserves, that are actually off the charts relative to historic norms. We’re basic fund reserves of some $19 billion. That’s about 43% of, of our whole basic revenues. And in the event you take a look at our whole reserves, we’re it $21.8 billion, which is name it 50% of our basic revenues. Normally we’re working between 5% and 10%, so that provides you an concept of order of magnitude when it comes to the way it’s affected our monetary efficiency, the way it’s affected our reserve ranges.
Chip Barnett: (02:36)
Oh yeah. That’s actually spectacular.
Ben Watkins: (02:38)
Yeah. Unprecedented is a method that I might characterize it for certain, Chip. And after I take into consideration basic income, basic income’s $44 billion on the finish of fiscal 22, June 30, 2022, that is up 21% over the prior yr. And the prior yr was up 16.5% over the earlier yr. So actually the restoration has actually been exceptional. And after I take into consideration, and I take into consideration the explanation why, and I take into consideration the pandemic, and I take into consideration how individuals have re have responded, it is largely attributable to in a big half to how the governor responded in managing the pandemic, which was to do the whole lot that he might to maintain faculties open and maintain companies open. So individuals might go to work, and other people dwelling within the Northeast and in New York and New Jersey and individuals who had been shifting to Florida to retire, noticed a chance and to work remotely might successfully do their job from some other place, had a second residence in Florida and simply determined to remain. And so actually our development enterprise is individuals shifting to the state, in-migration. And it was turbo charged as a consequence of the pandemic coupled with the governor’s response when it comes to how he managed the pandemic. So we have been beneficiaries of that from an financial and a monetary perspective in an enormous method.
Chip Barnett: (04:25)
Exactly, I imply between the gorgeous climate and no state revenue tax, it is is absolutely very alluring to be heading down south from a spot like New York or heading from out West from California.
Ben Watkins: (04:39)
Well, we have seen it, that is for certain. And we have skilled it, not solely seen it, however skilled it. So we’re in a very, actually good place economically and financially proper now, Chip.
Chip Barnett: (04:51)
How’s the state’s present debt scenario?
Ben Watkins: (04:54)
Well, our focus actually over the past decade has been on refundings, profiting from traditionally low rates of interest and we have achieved that in an enormous method. So over the past 10 years, we have executed about 130 transactions, totaling $16 billion for financial savings in refundings producing $3.4 billion in gross financial savings for the state when it comes to decreased curiosity on the debt that we have now excellent. So what does that imply portfolio-wise? We’ve refinanced about 95% of the debt that we at present have excellent. The different factor that is exceptional and first time that we have we have ever skilled it traditionally is definitely a discount within the debt that we have now excellent. The prior governor, Governor Scott, now Senator Scott, each cupboard assembly I might go to, he would ask me, ‘are we paying down debt?’
Ben Watkins: (06:03)
And I’d say, ‘sure, sir, we’re paying down debt.’ He was very a lot a debt hawk and over his tenure, or I ought to say over the past 10 years, we have decreased that quantity of state debt excellent from $28.2 billion to at present $17.1 billion. So that is some 40% decline within the quantity of debt that we at present have excellent. And then after I take into consideration the cash that we have acquired from the federal authorities and expect to obtain from the federal authorities has actually put us able to make the most of pay-go to offer for strategically vital infrastructure investments. So that is precisely what we have achieved, used the profit we have derived from the federal authorities, the windfall, because it’s non-recurring revenues, we’re utilizing it for non-recurring expenditures for strategically vital infrastructure investments in a method that is actually exceptional and strikes the needle when it comes to the sum of money we’re spending on infrastructure within the close to time period.
Chip Barnett: (07:31)
Yeah, Florida difficulty bond issuance has been on the decline and has been doing so for fairly some time — however trying ahead, what do the newest forecasts inform us in regards to the future what’s what’s on faucet?
Ben Watkins: (07:46)
So you already know we do income estimate estimates twice a yr, at the least, typically 3 times a yr, after which we use these income estimates to construct the finances off of. And they only accomplished these basic income estimates yesterday, so that is very recent info. So what do the forecasts inform us? They added three and a half billion to basic revenues. So we adjusted upward to mainly our precise quantity on the finish of ’22. We collected $44 billion normally revenues on the finish of ’22, considerably beating estimates all year long. And they made an adjustment to regulate the present estimate for the upcoming yr, up by the same quantity, three and a half billion. And that is curiously sufficient, or coincidentally, about the identical quantity that we expect a discount over the collections within the present fiscal yr of $44 billion.
Ben Watkins: (09:02)
So we’re embedded in these estimates as a conservative method to fascinated with the potential for a recession. And what does that imply relative to income collections? So as per regular on this state, taking a really conservative method and planning for the worst and hoping for the perfect. And whenever you do it that method, you typically all the time find yourself able that is higher than the place you thought you’ll, and you do not have sudden contingencies that it’s a must to take care of. And that is usually the way in which we roll, and that is why we’re a triple-a rated state. That’s embedded in our DNA when it comes to how we method this stuff, however so what it actually means is sustained power is what I might say, continued financial power, each within the housing, the employment, however down from the terribly excessive ranges, precipitated by a number of the federal authorities applications to stimulate the economic system, recognizing that that is going away, that that is tapering as really fizzling out and, and planning for the potential for a decelerate within the economic system is consequence.
Chip Barnett: (10:18)
Okay. Let’s check out what so many individuals have been speaking about, the controversial Reedy Creek scenario. Can you inform us your ideas on what’s taking place and what might occur earlier than this particular district is dissolved subsequent yr?
Ben Watkins: (10:42)
Yeah, I’m completely satisfied to speak about that. We’ve achieved so with among the main buyers to present them a heads up, maintain them knowledgeable on what the considering is behind that. It was a unprecedented legislative motion that occurred in a short time throughout a particular session, addressing insurance coverage. That was a ahead beginning date, over a dissolution of the particular district. Normally a invoice like that may be 60, 80 pages lengthy and would have the entire subsequent steps spelled out intimately about what was anticipated to occur. This was a two sentence invoice, one paragraph with a ahead, beginning dissolution of Reedy Creek that may be a particular district serving Disney within the Orlando space. And so, nicely, what does that imply? What meaning is that there shall be a subsequent legislative motion to spell out precisely what that’s and what that appears like earlier than the dissolution date.
Ben Watkins: (11:50)
So it was anticipated on the outset that there can be extra to return, however it did not spell that out. So there’s been an terrible lot of hypothesis due to the knowledge void about what may occur and what that may appear to be. The very first thing that I might say is that we perceive our accountability to bondholders and buyers and take that critically. And at any time when we endeavor to vary a governance framework doubtlessly, it is to take action in a way that doesn’t have any opposed penalties on the bondholders. And in order that’s precisely what we have undertaken to do. We have a seat on the desk. We’ve been in conversations with determination makers about what does that appear to be. I might expect there to be a evaluation of the particular privileges afforded Disney, granted again in 1967.
Ben Watkins: (12:51)
And these issues that aren’t vital to the present Reedy Creek operation, district operations, for each their utilities, in addition to their public infrastructure, consideration of eradicating these particular privileges and to deliver it higher in alignment with the Uniform Special District Act, which is a successor statutory scheme, coping with the multitude of various particular districts across the state, coping with transparency, with reporting transparency and accountability. So it is to take away these particular privileges, like the power to construct a nuclear energy plant or an airport, or the ability of eminent area, a consideration by the legislature of stripping these away which are pointless to the present operations to deliver it higher into alignment with the framework of the Uniform Special District Act. The different factor that I might expect is a reconsideration of how the board of Reedy Creek is appointed and certified to serve, to be appointed by state management with a broader curiosity throughout the spectrum of curiosity throughout the state.
Ben Watkins: (14:15)
And not simply solely primarily based on Disney’s particular curiosity. Currently, it’s a must to be a property proprietor within the district so as to be on the Reedty Creek board. But the one property proprietor inside Reedy Creek is Disney. So it is mainly a handpicked Disney board and I might expect that board to be appointed by state management with a broader curiosity throughout all residents of the state and never simply Disney in determination making relative to Reedy Creek. What does does that imply for bondholders? I might additionally expect, and there is a recognition of the necessity to shield bondholders’ curiosity. So I might expect the successor entity to imagine all tasks and obligations underneath the prevailing bond paperwork, the prevailing safety construction, the prevailing pledges, the prevailing income assortment and fee mechanisms for bondholders.
Ben Watkins: (15:22)
I might expect that to be an identical to the, the present move of funds, the present pledges and the present assortment and fee mechanisms that, that at present exist. So that there is a switch and assumption by the successor entity of the entire obligations at present relevant to Reedy Creek and which are vital for bondholder safety. So I might expect no change within the Reedy Creek the credit score construction or the safety for the compensation of debt relative to excellent Reedy Creek bonds. So what does that imply? So what I see is a change within the governance framework with safety of bondholders on the finish of the day, which implies that bondholders are gonna be in the identical place they had been after the dissolution of Reedy Creek than they had been earlier than. And that is what I might advocate for and what I might expect to occur.
Chip Barnett: (16:29)
Okay, thanks for that replace. Let’s flip to the opposite ESG points. How does Florida stack up, um, you already know, environmentally?
Ben Watkins: (16:38)
So after I take into consideration ESG, you already know it means a number of various things to a number of totally different individuals and there is an terrible lot of confusion and terrible lot of conflating points concerned in that as a result of I believe it is largely been utilized by the asset, the, the funding administration neighborhood to collect belongings, what it means for us and the way in which we take into consideration ESG, we take into consideration ESG as a threat disclosure difficulty. And I believe it is a honest query to ask, particularly the environmental facet in Florida, you already know, what are you doing to anticipate hurricanes, sea degree rise and local weather change. And I believe that is a good query for the long run buyers and for credit score analysts, the S and the G is slightly bit misplaced on me and once more it is as a result of we haven’t any significantly acute social or governance threat.
Ben Watkins: (17:42)
I imply, we’re a authorities, we have now elected our bodies, we have now Sunshine Laws which are relevant in doing enterprise and determination making, social points are what they’re. There are no significantly acute or which have any impression on credit score. So for us, it means, what are you doing about your environmental threat? And the reply is an terrible lot. And this does not actually get reported, however it’s an important story. And it is one of many governor’s prior priorities, or one of many central planks to his platform — is safety of the atmosphere. And we have achieved an terrible lot in that area to boost the, our skill to adapt and be resilient. So what does that appear to be? Governor DeSantis when he got here in, he was calling for a two and a half billion greenback funding in Everglades restoration and safety and sources over 4 years, which was greater than a, a billion {dollars} extra, or twice as a lot, because it had been spent over the earlier 4 yr interval that, that 4 yr whole, nicely over the past three years, we have exceeded that aim, by investing 3 billion, which is double the quantity of, of the prior 4 years.
Ben Watkins: (19:16)
And with the federal income sharing significantly in addition to the robustness of our financial development has actually put us able to make significant progress. So far focused water high quality enhancements, Resilient Florida, which is resiliency infrastructure of grant program with native governments to offer for resiliency, infrastructure, Everglades restoration, and conservation land acquisition, making up the foremost elements of 4.2 billion to be invested in Florida’s environmental applications in fiscal 2023. So it is an important story. We’re actually pleased with the legacy and management supplied within the environmental area. Importantly, we have now the institutional infrastructure created on the state degree with a chief science officer and a chief resiliency officer and making a mandate for consensus estimates on sea degree rise for functions of planning and investing in coastal mapping and vulnerability assessments for each county within the state for use as infrastructure for planning round modifications in local weather.
Ben Watkins: (20:44)
So, hose are, that is how we give it some thought, that is what we disclose in our providing paperwork. We assume that is the suitable method within the muni area. But the entire ESG moniker has gotten hijacked in a number of other ways and utilized in a number of totally different ways in which that aren’t explicit. Are they useful to the the correct method, which is all about threat disclosure? I believe extra broadly for the business, the entire ESG moniker is a lure, for both underwriters and sellers promoting inexperienced bonds with nothing to behind it, or issuer self designating with out satisfactory rationalization of what they imply by that — it is gotten the regulators’ consideration on the company facet and it would not shock me if it will get the regulator’s consideration on the enforcement facet. So it is one thing we have prevented and stayed away from and, and handled it merely as a threat, which is how we have approached it and the way we have applied.
Chip Barnett: (22:07)
Exactly. Florida has, been taking a really proactive method to local weather change and, uh, additionally too, of their disclosure and transparency on their monetary paperwork.
Ben Watkins: (22:19)
Well, it is a actually vital query and it is difficult for everybody. It means various things to totally different individuals throughout the United States, and what we did was to attempt get forward of it, to work intently with the GFOA in drafting finest practices for disclosure, relative to environmental, social and governance threat. What does that imply? What does that appear to be? We reached out to chief resiliency officers in Fort Lauderdale and Broward county, Dr. Gasman and Dr. Harrada, I did not even know there was such a factor as a resiliency officer they usually coached us up on the way in which they give it some thought, how they deal with it. And a number of it’s round say, for instance, statewide constructing codes, zoning rules, not permitting buildings to be in-built environmentally delicate or flood inclined areas.
Ben Watkins: (23:19)
So they are not issues that you’d usually take into consideration when it comes to resiliency that see individuals’s daily enterprise, and that I’m, I’m eternally grateful for them, for taking the time to teach us up on what it means and the way to consider it in order that we might share these finest practices with other people throughout the nation, whether or not it is ice in Texas or fires in California or flooding within the Midwest or drought within the Western states — we’re all confronted with one thing that is environmental associated that must be considered and talked about with our analysts and buyers to present them an actual image of how it’s that we’re fascinated with and approaching it. And what form of methods we’re growing to mitigate the potential impacts of that.
Chip Barnett: (24:12)
You know, talking of catastrophes, how’s the Cat Fund doing? I do know you had an enormous sale a number of years in the past to form of get it into good monetary form. Is it doing okay now?
Ben Watkins: (24:22)
Oh, yeah, a topic that is close to and expensive to my coronary heart. I’m completely satisfied to say that the Cat Fund is definitely very nicely positioned coming into this storm season. We’ve bought a 16.2 billion liquid claims paying sources on hand relative to a $17 billion most statutory cap on legal responsibility. So we’re inside shouting distance of being absolutely funded within the extremely, extremely unlikely occasion of a significant catastrophic storm hitting the state. So we’re very nicely positioned on the Cat Fund that after all contains three and a half billion of pre-event proceeds that we borrowed and bought an important market reception on that. We did an terrible lot of investor schooling and outreach, had a mess of institutional accounts, multiples the quantity that we might had collaborating in prior transactions.
Ben Watkins: (25:44)
So we’re actually, actually completely satisfied about having them on board — no higher approach to perceive a credit score than personal it. So we had been very happy with the transaction, very happy with the investor base and the breadth and depth of that base. And so Cat Fund could be very nicely positioned, I’ll say. Another motion of observe was we had a particular legislative session to take care of the insurance coverage difficulty this yr. It was throughout availability and affordability and what the legislature did, and we’re within the monetary place to have the ability to do that explanation for the stress on the first insurers explanation for insurance coverage fraud in, I name it ‘institutionalized insurance coverage fraud,’ across the extraordinary litigation that is happening within the state round roof injury.
Ben Watkins: (26:48)
We had been in a position to do tort reform and eradicate a number of the perverse incentives to litigation. To provide you with an concept at order of magnitude, we accounted for nationally about 8% of all householders claims, resided within the state of Florida, however relative to that, 8% of all claims excellent nationally, Florida represented 80% of all litigation. So that provides you an concept of order of magnitude simply method outta line when it comes to what you’ll expect of nationwide norms. So we had been in a position to do tort reform. The legislature was in a position to set 2 billion apart as a contingent reserve for reinsurance, beneath the present Cat Fund retention degree. So a unprecedented transfer, of very constructive to assist help the business as a complete, each from a solvency standpoint in addition to the power of major insurers to have the ability to steer satisfactory reinsurance for the chance they’ve on their books. So that has occurred, however we’re in a really, very robust place, each Cat Fund and Citizens to take care of catastrophic occasions within the state.
Chip Barnett: (28:24)
Okay. Do you’ve any final ideas you would like our listeners to learn about?
Ben Watkins: (28:29)
No, I actually do not Chip. But I do actually very a lot admire the chance to have the dialog. The story this yr has been simpler to inform than any prior yr throughout my tenure. So it’s exceptional the place we’re instantly after a pandemic. So, I actually admire the chance to inform the story and I admire the chance to speak with you at this time, Chip.
Chip Barnett: (29:06)
Ben Watkins, head of the Bond Division of the State of Florida, thanks very a lot for being right here with us at this time.
Ben Watkins: (29:12)
Happy to do it,
Chip Barnett: (29:13)
And due to the listeners of this newest Bond Buyer podcast. Special due to Kellie Malone, who did the audio manufacturing for this episode, and remember to price us, evaluation us and subscribe at www.bondbuyer.com/subscribe. For the Bond Buyer, I’m Chip Barnett, and thanks for listening.