Property Tax Cuts Hurt Local Bond Ratings

Palm Beach County is, as counties go, quite well off. As Marketwatch notes,

Palm Beach County is one of the nation's wealthiest counties, with 2006 per capita personal income levels 51% higher than the Florida and national averages. In addition, the economic base is diverse, balancing tourism and technology manufacturing in the coastal areas with agriculture in the western portion of
the county.

Which makes it a little surprising that their credit stinks:

Fitch Ratings has assigned an 'AA+' rating to Palm Beach County...The Rating
Outlook is revised to Negative from Stable. The Outlook revision to Negative reflects Fitch's concern regarding anticipated erosion in the county's financial metrics over the next few fiscal years.

So why is such a well-to-do county seem as a credit risk?

Several factors are stressing the county's financial profile, including: statewide property tax reform measures which, coupled with the political unwillingness to increase the operating millage, will reduce ad-valorem revenue available to fund countywide operations in fiscal year (FY) 2009; a weakened economy and housing market; and rapidly escalating operating costs, most notably for sheriff operations.

So at a time when a housing market slump is knocking down the property tax base anyway, the state of Florida comes along and helpfully forces localities, including Palm Beach County, to cut their property taxes even further.

Over the past year, the main debate on the Florida property tax question has been whether state-mandated cuts in local property taxes would be affordable. And the usual suspects have lined up on either side of this question: business says yes, unions say no. But it matters, a lot, what bond rating agencies think. And they think, in this case, that the state's property tax cuts are going to hurt local governments. That's worth thinking about as Floridians consider this fall whether more property tax cuts would be merited.