Credit crunch makes borrowing harder for Florida

[October 01, 2008]  TALLAHASSEE, Fla. (AP) -- The nation's credit crunch has frozen Florida's ability to borrow money, but that isn't yet causing problems for the state, a top state money manager said Tuesday.

Florida has been unable to borrow money for nearly three weeks, said Ben Watkins, director of the division of the state's Division of Bond Finance.

As such, the state cannot issue bonds for schools, roads or programs to purchase environmentally sensitive land, Watkins said.

Florida, which works on bonds months in advance, is not in a dire need for extra cash, he said.

"It's not creating a problem for us currently," Watkins told Gov. Charlie Crist and members of the Florida Cabinet. "But if this goes on for an extended period of time we will be challenged to have access to the credit markets."

Florida has more than $24 billion in debt. Each year, it borrows anywhere from $1 billion to $2 billion. Two-thirds of the money the state has borrowed has gone to pay for new buildings for schools, community colleges and universities.

The money is paid back through various taxes like those on utility bills and money from selling items such as lottery tickets.

The ongoing credit crisis could eventually affect other functions of state government.

Florida has billions in the state treasury and its massive pension plan for state workers, teachers and county employees that are spread out through various types of investments.

Bob Milligan, the interim executive director of the State Board of Administration, said that the state's $125 billion retirement plan is still relatively healthy and that Florida has a nearly $9 billion surplus.

"We take the ups and we take the downs and we're able to work our way through them," said Milligan.

Chief Financial Officer Alex Sink on Tuesday also remained cautiously optimistic that the state treasury, which holds the money collected from taxes and fees used to pay for day-to-day operations, can weather the current economic crisis.

Although the state does not invest money from the $20 billion to $24 billion treasury in stocks, it does place the money in banks or purchases bonds and securities issued by corporations.

When Sink came into office in 2007, she put in guidelines that limited how much the state could invest with a single financial institution. Last year, the state still found itself holding some mortgage-backed securities that were damaged because of the credit crisis.

While Florida did sell at a loss some holdings with Lehman Brothers earlier this month, there is no need for the state to rush into the market and sell off its current investments at a loss, Sink said.

Sink, a former president of Bank of America operations in Florida, was adamant that something needed to be done quickly to stabilize the financial markets.

"We are in a very critical situation in our country," she said. "If a solution is not found by the Congress, then the whole financial economy is faced with a crisis of enormous proportion."

[Associated Press]

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