ATLANTA - The passage last week of a constitutional amendment in Florida to limit property tax growth is likely to crimp the finances of local governments in the state and could eventually result in bond rating downgrades, Moody's Investors Service said Friday.

"Moody's does not anticipate any immediate rating changes as a result of the amendment," the rating agency said in a research report. "However, because the amendment could have a negative impact on the financial performance of local governments, some ratings could be revised over the longer term.

"The amendment's effect on a municipality's bond rating will depend on the extent to which the amendment constrains the growth in that issuer's property tax revenues and how the municipality manages under such constraints," the report continues.

The ratings of special tax revenue bonds as well as general obligation debt of Florida local governments could come under pressure, Moody's said.

"For some general governments, special tax revenues, which may grow at a more rapid rate than property tax revenues, may be relied upon more heavily to fund current operations," according to the report. "Consequently, the bonding capacity of those revenue sources may be reduced and bondholder security for outstanding special tax obligations may be affected."

The amendment, which was passed last Tuesday, caps the annual growth in the assessed valuation of residential property in Florida at 3% or the Consumer Price Index, whichever is less. In passing the measure, Florida joins a growing number of states such as Massachusetts, California, and Colorado, which have imposed limitations on the growth of tax revenues.

Ed Marquez, finance director of Metropolitan Dade County, said that he did not expect the passage of the amendment to cause immediate fiscal problems for the county, which encompasses Miami. "The amendment is a concern, but our feeling is that because it is not as restrictive as limits in some other states, things could have been worse," Marquez said.

School districts in Florida are apt to be particularly vulnerable to the new spending caps because their operating revenues are limited to property taxes and state funding, the report notes. In Florida, all cities, counties, and school districts are limited to an operating property tax rate of $10 per $1,000 of assessed valuation.

"Rapidly growing school districts have been able to meet new expenditure needs by capturing growth in property values and increases in assessed value from new construction," the report says. "Significant cuts may be necessary for some districts to maintain financial stability."

In addition, passage of the amendment could reduce school districts' issuance of certificates of participation, usually paid out of capital outlay property taxes.

The report also notes that the new measure could have an especially damaging effect during an inflationary economic climate.

"A return to rapid inflation could create a significant gap between local property tax revenues and the cost of service delivery for some jurisdictions," it says. "This could result in the need to make difficult decisions about which expenditures to cut, as revenue raising options are limited."

Finally, even though state government in Florida does not derive any revenue from property taxes, it, too, could come under pressure because of the amendment, according to Moody's.

"Pressure could be placed on states' own finances as a result of potential demands from local governments for additional revenues to meet unfunded needs," the report says. "With property tax growth constrained, there may be pressure to re-examine the entire method for school district funding, with a potential shift in the emphasis on funding schools from the local property tax base to the broader statewide tax base."

The effect of the referendum on local governments' bond ratings in Florida will be assessed on a case-by-case basis, said Marcy Edwards, the Moody's vice president who manages the agency's Southeast ratings.

"We want to stress that the impact of this amendment is going to be gradual and long term," Edwards said in an interview Friday. "But if nothing else is done, it could well lead to eventual downgrades."

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