Submitted by Doug Hornig of The Casey Report
Florida – Much Worse Problems Than the Oil Spill
Media coverage of the oil spill’s effect on the Gulf focusing on
tourist income lost by the waterfront towns – with footage of empty
beaches, restaurants and T-shirt shops – dominates the news. Interviews
with devastated business owners are heart rending. But they always end
with references to somehow hanging on until “things get back to
Trouble is, things are not going to “normalize.” Not for the Panhandle
of Florida, and probably not for the rest of the state, either.
Projections suggest that Florida can expect oil all along its west
coast, and possibly throughout the Keys and up the east coast as well.
Yet even before BP’s well began spewing crude, pressures within the
state’s economy were building. It was an explosive situation awaiting a
Oily beaches and dying wildlife are likely that match.
Take unemployment. Statewide, it ballooned from 3% in 2006 to a peak of
12.3% in February 2010. Though it’s backed off, it remains in
double-digit territory at 11.2%. ”Officially” – though official numbers
understate the problem. Illegal immigrants, some 4.5% of Florida’s
population, aren’t counted; the long-term unemployed and aging workers
are regularly purged, even if they’re still looking for work.
This in a state already confronted with the worst of the coming
healthcare/taxation crunch. It has the second oldest population in the
nation, and as its citizens retire, their earnings fall off, causing
tax revenues to drop. At the same time, healthcare bills rise,
stressing social service budgets.
Florida is ground zero for Baby Boomer demographics. With 600 seniors
for every 1,000 workers now, and the number trending inexorably higher,
soon every employed person in the state will essentially have to adopt
one senior to care for out of his or her paycheck.
Housing? Naturally, rising unemployment amplifies the difficulties of
maintaining homeownership. With further negative effects from the oil,
we can only expect the situation to worsen. A tsunami of defaults and
foreclosures – and bank failures – would not be a surprise.
Florida is mortgaged to the hilt. It ranks second only to California in
total securitized non-agency mortgage loans, 10% of the national
total. Of those, half are 60 days or more delinquent, or 16% of all
such mortgage delinquencies in the country, the highest ratio anywhere.
The state is full of retirees trying to live on modest incomes while
hanging on to their homes. Unsurprisingly, this has led to a
disproportionate amount of at-risk loans. 85% of the statewide pool is
rated Alt-A or Subprime.
Nor has the crash in prices bypassed the Sunshine State. Nationally,
fewer than 30% of houses sold for a loss in the past year, compared to
nearly 50% in Miami and 65% in Orlando.
Many would-be sellers are clinging to the cliff edge by their
fingernails. Overall, 81% of all Florida loans are under water, with
the average mark-to-market loan-to-value ratio standing at 138%. Almost
40% of borrowers are crushed beneath debt of more than 150% of the
value of their homes.
State government is no better off.
As the oil cuts into employment prospects, tax revenues will nosedive –
and even before the blowout, the state was broke. The projected budget
shortfall for fiscal year 2011 was $4.7 billion. What it will actually
be is anyone’s guess – a bigger number is baked in the cake – but at
$4.7 billion, it already represented more than 22% of the FY10 budget.
Both tax hikes and service cuts are political suicide. And desperately raising taxes in a depressed economy tends to decrease revenue, anyway. Yet a balanced budget is mandated by law. Where will the additional money and/or savings come from?
Then there’s Florida’s $113.8 billion public pension fund. It must
generate earnings of 7.75% per year to meet its commitments to the
nearly one million public employees and retirees who depend on it.
What investment safely yields 7.75% today? Nothing. So the fund’s
administrators are asking for permission to try some “riskier”
investments. Maybe they’ll succeed. Or maybe they’ll wind up staring
down the barrel of a pensioners riot.
Florida’s coming problems are intractable, at best; the least bit of bad luck and they may become utterly irresolvable.
Expect bailouts. Washington will not be able to ignore what happens to
this beleaguered state. The federal government will be forced to spend
yet more vast sums of money that it doesn’t have, on a recovery that
will take years, if it ever happens.
And that makes Florida’s plight a looming horror for us all.