Bond ratings for the state of Florida and the U.S. government appear to be headed in opposite directions.
The Moodys Investor Service and S&P bond rating firms announced this week they would likely downgrade the U.S. governments AAA bond rating if a deal on raising the debt ceiling isnt reached. A downgrade could still be forthcoming if significant fiscal restraints arent settled upon in Washington, the agencies said.
The federal government is poised to exceed its debt ceiling by Aug. 2. If it is not raised, the government could go into default. President Barack Obama and leaders from both parties have been engaged in ongoing talks to come to an agreement, but so far no deal has been reached.
Meanwhile, S&P upgraded its outlook for Florida this week from negative to stable, based on Florida's most recent budget, which cut spending and held back funds for reserves.
The upgrade appears to be a vindication of Gov. Rick Scotts call to drastically cut spending, as well as the Legislatures decision to buck Scott on a plan to phase out a corporate income tax, opting for a smaller cut instead and keeping revenues relatively stable.
Speaking during a press gaggle Thursday, Scott said he was pleased with the news, but noted that rating downgrades increase interest rates on bonds, leading to increased spending and taxes.
Thats great, I think it's very important. If our rating goes down, its going to cost us a lot of money in increased interest for our state. Im very cautious on any new debt in the state, Scott said.
Florida financial officials are following negotiations in Washington, but are confident the state wont be overly impacted by any potential downgrade in the federal governments bond rating.
The staff is monitoring the situation, but because of the diversity of the Treasurys investments, we are going to continue with our investment strategy, said Alexis Lambert, spokesperson for Chief Financial Officer Jeff Atwater.
Despite the solid financial outlook for the state government, Florida could still be affected by the bond rating decrease and a U.S. government default.
The Moodys report stated that it would automatically downgrade $130 billion in municipal debt linked to the U.S. government bond rating, should its rating be decreased, as well as review other municipal bonds for a possible downgrade.
Besides the possible effects on local government bonds, Florida citizens could also be affected by a federal government default. Obama stated earlier this month that he could not guarantee Social Security checks would be paid out if a debt ceiling deal isnt reached and the government defaults. The states Medicaid and Medicare programs, which are mostly funded with federal dollars, could also be affected.
Republicans on Capitol Hill, however, believe a default would not mean the inevitable Armageddon Obama is threatening.
Obama held a press conference Friday urging Republican negotiators to accept tax increases as part of a deal to cut spending in Democrat-cherished entitlement programs, similar to the deal that House Speaker John Boehner backed out of last week which would have shaved $4 trillion off the national debt.
For his part, Scott urged Obama to take the approach favored by tea partiers and several Republican members of Congress, and cut and cap spending, and balance the budget, eliminating the need to raise the debt ceiling. Scott is one of five governors who have signed the Cut, Cap and Balance Pledge.
Governor Scott believes its wrong for President Obama to threaten seniors with stopping their Social Security payments, and he calls on the president to do the right thing by cutting, capping and balancing the federal budget, said Scott communications director Brian Burgess.
Reach Gray Rohrer at grohrer@sunshinestatenews.com or at (850) 727-0859.
