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Amid Downgrades and Market Shakeups, Florida Keeps Cool Head

August 16, 2011 - 6:00pm

The recent tumult over the debt ceiling deal, the subsequent S&P downgrade of U.S. debt and resulting stock market rollercoaster ride have Florida finance officials patiently weathering the storm.

National markets exhibited a Jekyll and Hyde act last week, plunging hundreds of points down one day then hundreds of points up the next, as traders attempted to make sense of the domestic debt deal, Europes debt crisis, the fallout from the earthquake in Japan and the persistent discord in the Middle East.

Floridas pension fund was along for the ride. Its value plunged nearly $10 billion before making a slight gain for the week.

We basically are up now beyond the level we started last week at. All of the downdraft of last week has gone, said Ash Williams, executive director of the State Board of Administration, which oversees the pension fund.

Despite sharp downturns with the onset of the recession in 2008 and the glacial pace of recovery, the Florida Retirement System pension fund did well last year, posting a 22 percent annualized return for the 2010-2011 fiscal year, which ended June 30. The fund ended the fiscal year with $128.4 billion in assets, not reaching its peak of $136 billion in 2007, but up nearly $20 billion from its value of $109 billion on June 30, 2010.

Williams said the trick is not to get caught up the excitement of the moment -- whether out of fear or greed -- and stick to the long-term investment strategy.

Written investment policy provides the discipline, it provides the touchstone, and it provides the script and it replaces human emotion. Human beings are driven by fear and greed and they will tend to be overwhelmed by either of those emotions and make the wrong decisions at the wrong times, Williams said Tuesday after a Cabinet meeting.

Meanwhile, Gov. Rick Scott is trying to take the long view when it comes to Floridas debt. Consistently railing against the federal governments $14.2 trillion debt, Scott is also trying to hold the line on debt at the state level.

This year, rather than whats happened in the past where the state borrowing was going up $1.5 billion a year typically, its going down, Scott said.

Scott and the new Cabinet installed this year have approved $209.4 million in new debt that will mainly finance education construction, but that spending was already authorized by previous Legislatures. The 2011-2012 fiscal year budget signed by Scott authorizes $220 million in new debt for road and education construction projects.

The new debt isnt chump change, but it is significantly less than the debt tacked on by Republican legislatures and governors (before former Gov. Charlie Crist became an independent, anyway) over the past decade.

Florida had a total debt of $17.96 billion in 2000, a tab that rose to $28.17 billion in 2010 -- a 57 percent increase.

Now Scott is trying to temper the spending spree, but his policies, along with the fickle markets, have had both positive and negative effects on how rating agencies view the state.

Last month, Standard & Poors switched the outlook on Floridas AAA credit rating from negative to stable. Scott and Senate President Mike Haridopolos, R-Merritt Island, have attributed the change to cutting spending to fill a $3.8 billion shortfall and increasing the states reserves.

But S&P didnt merely change its outlook but actually downgraded the South Florida Water Management District from AAA to AA+ last week.

The agency cited a $120 million tax cut as the reason for the downgrade. The cut was part of an overall $210.5 million cut to all five of Floridas water management districts. The cut was far short of the 19 percent property tax cut favored by Scott during his campaign.

Despite the downgrade, Scott said the tax cut, along with a re-evaluation of water management districts, was the correct course of action.

I think that we absolutely did the right thing. I think now we are making sure all of our water management districts go back to their core mission, Scott said.

He was unconcerned about the prospect of increased interest rates on the SFWMDs borrowing.

Well, why are they borrowing money? I mean think about it, why are they out borrowing more money? They should be doing what the states doing, Scott said.

Reach Gray Rohrer at or at (850) 727-0859.

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