Florida will report in December that it has significantly reduced its outstanding debt for the second year in a row, and that continued refinancing of outstanding debt will save more than $1 billion on future interest payments, the state's top bond finance official said Tuesday.
A second year of lower debt appears to portend a reversal of a long trend. Two years of reductions follow about a decade of increasing debt loads and represent the first year-over-year drops in 20 years.
In a preview of an annual report due later this year, Director of Bond Finance Ben Watkins told Gov. Rick Scott and the Cabinet that the year-end report is likely to say the state reduced its debt by about $1.5 billion this year, following last year's reduction of debt by $500 million.
The main reason the state isn't issuing new debt, primarily in its biggest borrowing program, the Public Education Capital Outlay, or PECO bonding program, because of lower revenue and efforts to be more frugal.
PECO bonding, which funds school construction, relies largely on revenue from utility taxes, known as gross receipts taxes, to pay back bondholders. Revenue from the tax has dropped in the down economy and there hasn't been any money available for new construction bonding in the most recent year.
Lawmakers have also slowed down funding for land-buying for conservation purposes, another purpose for which the state has in the past borrowed more heavily.
Watkins also said the state has refinanced more than $6 billion in debt over the last three years nearly a third of the state's entire debt portfolio to take advantage of low interest rates, allowing for a reduction in interest from 4.65 percent to 4.33 percent.
When applied to the entire $26 billion state debt portfolio, the reduction on future interest costs is likely to be about $1.1 billion.
"That's real money by any measure," Watkins said.
The amount is expected to continue to drop.
"Based on existing borrowing plans, total state debt outstanding is expected to continue to slowly decline as annual debt retirement increases and new debt issuance decreases," the state Revenue Estimating Conference said in August when it released its long range forecast.
With interest rates at very low levels, refinancing outstanding state debt has been a priority of the state bonding agency, Watkins said. For example, in August Florida announced the state had lowered the interest rate on certain PECO bonds from 4.97 percent to 2.76 percent, with an expected savings of about $85 million.