New twist in Florida’s credit rating

This November, Florida voters will decide whether to expand abortion access in a constitutional proposal. Initiative for the right to abortionAmendment 4 was placed on the ballot at the request of citizens, making it eligible for comment by the Financial Impact Estimating Conference, which is historically nonpartisan.

Last November, the FIEC decided the impact was undetermined, but Gov. Ron DeSantis, who called the amendment “very, very extreme” and criticized the Florida Supreme Court for allowing it to be included on the ballot, manipulated the FIEC.

On 15 July 2024, the Conference updated its opinion:

The proposed amendment would result in significantly more abortions and fewer live births per year in Florida… There is also uncertainty about whether the amendment will require the state to subsidize abortions with public funds. Litigation… will result in additional costs… that will negatively impact the state budget.

The Washington Post also reported that Michael New, a professor of social research at the Catholic University of America and a consultant hired by DeSantis, further claimed that reduced fertility (due to abortion rights) would “reduce federal funding and lead to ‘a worse credit rating, hurting Florida’s fiscal bottom line.'”

“A ‘Yes’ has no implications on the credit rating,”

countered Bill Harrington, a longtime critic of the credit rating industry and former senior vice president at Moody’s.

But it’s a clever ruse that kills the debate. Very, very few people know much or anything about credit scores, including Michael New.

I became aware of how credit rating opacity harms the economy and how lobbyists use that opacity to advance their agenda as a Daubert-qualified expert hired in several high-profile federal cases involving credit ratings.

The first thing to understand about New’s logic is that it’s backwards. Lower tax revenue can lead to a lower credit rating, but the reverse isn’t true — unless the rating is already so low that a further downgrade would make borrowing costs so high that daily operations would be hampered. For that to be true, Florida’s economy would have to be very, very fragile. And it isn’t.

States with AAA and AA+ ratings span the full spectrum of abortion laws

Florida belongs to the S&P AAA Club, along with Delaware, Georgia, Indiana, Iowa, Maryland, Minnesota, Missouri, Nebraska, North Carolina, Ohio, South Dakota, Tennessee, Texas, Utah and Virginia. These sixteen states span the gamut of abortion laws and policy positions, from Expanded and Protected to Hostile and Illegal.

Furthermore, there is no material credit difference between AAA and AA+, other than losing the halo. So it wouldn’t be the end of the world even if Florida dropped a notch and joined Hawaii, Idaho, Massachusetts, Nevada, New Hampshire, New York, North Dakota, Oregon, South Carolina, Vermont, Washington State, Wisconsin, and the United States. S&P downgraded it in 2023 due to the extreme polarization of Congress.

There is no evidence that state funding of abortions weakens the rating

Currently, nearly one-third of states offer abortion coverage under the Hyde Amendment, which prohibits the use of federal funds for abortions but allows states to fill the gap. They are Maryland and Minnesota (AAA); Hawaii, Massachusetts, New York, Oregon, Vermont, and Washington (AA+); Alaska, Maine, and New Mexico (AA); California and Connecticut (AA-); New Jersey (A); Illinois (A-), and Montana (NR). The average portfolio rating for these states is AA+.

While no direct causal relationship is observed between Amendment 4 and Florida’s credit rating, the indirect impacts on credit rating variables from the rating models are complex and, in most cases, murky. Consider the variables in the following table based on Moody’s scoring for the rating of U.S. states and territories:

In short, no direct causal relationship is seen between Amendment 4 and Florida’s credit rating.

What factors could really hurt your credit score?

S&P’s recent updates identify two real challenges to Florida’s rating. One is unfunded pension liabilities, where Florida ranks 43rd – the seventh worst. The impact of rising fertility or more women entering the workforce (two opposing views on the drivers of GDP) is difficult to calculate directly.

The other is rising insurance costs. Florida is highly exposed. Extreme weather events are making property and casualty insurance unaffordable or inaccessible for many, reducing the asset values ​​and wealth of Florida households and making Florida’s housing market less attractive. Weather risk potentially affects all categories of credit health: economic, financial, governance and leverage.

Exposure to PFAS can make women 40% less fertile

Finally, there is a documented link between fertility and exposure to per- and polyfluoroalkyl substances (PFAS) present in Florida’s drinking water, soil, and groundwater. The above statistic comes from the Icahn Mount Exposomics Research Institute, which studied women affected by drinking water and everyday household products.

In short, there is no direct evidence to support the “new” theory that women’s freedom of choice weakens credit scores. However, the concerted focus on increasing fertility through women’s freedom of choice legislation could distort the results of the credit scoring model in surprising ways. Moreover, restricting environmental protection could perversely result in “eternally” higher infertility rates.