"We already have $23 billion worth of debt."
Rick Scott on Thursday, June 2nd, 2011 in ABC News 27 interview
Gov. Rick Scott says state debt is $23 billion
Florida Gov. Rick Scott vetoed a record $615 million from the 2011-12 state budget on May 26, 2011, targeting an array of money for projects such as university buildings, a rainwater study and $4.8 million for public broadcasting.
The latter cut caused station managers across the state to worry about possible layoffs, station closings and an increased reliance on private donations.
In a June 2 interview, ABC 27 reporter Jerry Hume in Tallahassee asked Scott if vetoing public broadcasting dollars was a hard choice compared to other line items. Here is Scott's full response (available by video):
"I don't think the state ought to be paying for that. But the easy ones are things like studying how to collect rainwater, stuff like that, and a new barn and things like that. But there's a lot of tough ones. But the way I thought about it was, what should state government be doing? I mean, there's a lot of good things in there, but they were local issues, or charity should be doing it, or there's a better way of doing it, or we're already doing it a different way.
"And on top of that, I don't want to increase the debt in the state. We already have $23 billion worth of debt, so those are things I thought about. But really, it was how do we get jobs going?"
Scott mentions the state debt as support for his big cuts, even though the state wasn't going to issue new debt just for public broadcasting. But it got us thinking: How big is the state debt, anyway?
Turns out, this isn't the first time Scott has bemoaned the state's debt. In late May, Scott warned he was thinking about vetoing Public Education Capital Outlay projects, which pay for college and university construction projects and represent the state's largest bond program. He said the added debt of $134 million could jeopardize the state's credit rating and increase costs of future borrowing.
"I'm clearly focused on the amount of debt the state has," Scott said then. "I'm clearly focused on the debt rating."
Where does he get that number?
Our search for the state debt level starts with Scott spokesman Lane Wright. He directed us to a December 2010 report on Florida's debt affordability, written by the State Board of Administration's Division of Bond Finance. The division is responsible for executing bonds authorized by the Legislature and administers financing programs for educational facilities and transportation projects, among other programs.
As of June 30, 2010, the state's total overall debt outstanding stood at $28.2 billion.
Now, this doesn't mean Scott's figure is off from the get-go. That $28.2 billion figure includes $23.6 billion for "net tax-supported debt" and $4.6 billion for "self-supporting debt."
These are important differences to understand (page 7 of the document is helpful).
Net tax-supported debt, which Scott seems to reference in his TV interview, is debt accrued when the state issues bonds to raise money for spending on projects such as PECO, Everglades restoration, right-of-way acquisition for roads and bridge construction.
Self-supporting debt is made up of bonds that include a source of revenue, and is excluded when calculating the state's benchmark debt ratio. Examples of this are bonds to build toll roads, covered by the tolls, or university dorm maintenance, covered by student fees.
Net tax-supported debt is paid off through the state's ability to tax all residents and tourists, while self-supporting debt is paid off by the people who pay to use the facilities.
The benchmark debt ratio is important SBA jargon for measuring the state's annual payment on borrowed money, said Ben Watkins, the division's director. The annual payment, called debt service, works kind of like a mortgage, in which you pay off a chunk each year over a certain span of years. Debt service is based on tax-supported debt. To calculate the benchmark debt ratio, the division divides the annual debt service -- for tax-supported debt only -- by available state revenues.
Florida Statutes say the ratio should not exceed a target of 6 percent and a cap of 7 percent. But in 2010, it was over the cap at 7.91 percent. That did not happen as a result of outstanding debt, Watkins said, but declining state revenues (the denominator of the benchmark ratio equation). The Legislature authorized more borrowing in 2010 due to a "critical state emergency," pursuant to state law.
The law on benchmark debt ratios is really a "soft" policy limit to give lawmakers perspective on how much debt the state can afford, Watkins said. The cap is seen as a planning tool and not an absolute ceiling, though other states have "hard limits." Still, exceeding the "soft cap" should signal the state has borrowed all it should, and more borrowing should happen for absolutely essential projects, Watkins said.
Anyway, Florida pays about $2.1 billion a year for debt service on the state's tax-supported debt.
There's another type of debt to consider, called indirect debt. Unlike tax-supported and self-supported debt, this category does not get as much attention because the debt obligation lies with a separate legal entity such as Citizens Property Insurance, Florida Hurricane Catastrophe Fund Finance Corporation, water management districts or the Florida Housing Finance Corporation -- not the state. As of June 30, 2010, the indirect debt total was $16.4 billion. It is a whopping figure, but it is not included in the state's debt ratios or debt burden, according to the report.
We mention all of this to explain that Scott is essentially short-handing the state's debt by describing it as $23 billion. But that's not necessarily a bad thing.
"This is the debt (figure) that matters to the state from a financial management perspective," Watkins said.
Putting Florida debt in context
Now that we've considered the 2010 financial report, we looked for another opinion to make sure we understood all the context. Florida TaxWatch, a group that analyzes state spending and taxes, uses the same data supplied by the Division of Bond Finance to track the debt.
Kurt Wenner, TaxWatch vice president of tax research, echoed much of Watkins' analysis and agreed that $23 billion is probably the most accurate figure to use to describe the state debt.
"That is the amount of debt that is backed by Florida taxpayers," Wenner said.
Florida's debt doesn't get as many people talking as the country's $14 trillion-plus national debt. One explanation is that Florida has a balanced budget requirement, Wenner said. So it cannot "spend money it simply doesn't have, like Washington does."
Florida's borrowed money goes toward "bricks and sticks" projects, Watkins said, and not for normal government operations.
Florida's total outstanding debt last year grew $1.8 billion, exceeding the $1 billion average for the past decade, according to the report. Still, the debt is considered "moderate" and "manageable" at its current level.
Scott said he thought about the state's $23 billion debt as he weighed whether to veto certain programs. We verified that figure with the Division of Bond Finance's most recent estimate, and experts consider the figure a street convention to describe the debt. We rate his claim True.