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 normal.”
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 match.
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.
Regards,Doug HornigWhiskey & Gunpowder
August 18, 2010
Pingback: Tweets that mention Oil Spill Just the Beginning of Florida's Troubles -- Topsy.com
Pingback: Mitchieville » Blog Archive » Green Shoots & Leaves
Dear Mr. Hornig:
This is a thorough, enlightening presentation, thank you. Residents are sure to find the oil spill resolves itself far sooner than their other woes.
On the whole, a good summary.
But I’m a little shaky on “ground zero for baby boomers” …. for now, it seems like an advantage for Florida to be a retirement destination. SS & Medi* are Federal programs, so it doesn’t seem quite right to me to say that other FL workers will be supporting retirees on a 1:1 basis. And I thought the elderly were actually doing better financially than most other age groups (not saying much there), so they will be boosting the economy by spending their monthly checks.
Perhaps the fear is that the Feds will eventually be forced to make drastic cuts in SS, and then the retirees will be stuck in poverty in FL? Maybe better off there, rather than freezing up north?
Grert bio. Didn’t know there were still counties that had only one traffic light.
The Feds might fund SS and Medicare, but retirees are also entitled to a whole lot of other programs that cost the state. And even if they didn’t, even the rumor of trouble from that sector might be enough to ignite a flare up.
I had really thought that California would be the one that broke first, unleashing the avalanche of states defaulting and declaring bankruptcy. Hmmmm maybe Florida will take that “honor”. Maybe we should all form a pool, place our bets eh? Lol….
Pingback: Week in review « Craig W. Wright
I don’t see much new information here, but then I’ve been watching fairly closely since all this kerfuffle began. So far, most of the focus has been on the money numbers. Very little thought apparently given to the social consequences which are already growing. So far, not all that much violence, but vandalism and burglary are way up. Among other things, destruction of property by stealing copper and fixtures for sale as salvage or junk–which leaves foreclosures unusable or near-unmarketable.
"There are two sides to every coin," as the saying goes. And nowhere is that phrase more apt than in matters of money, especially as regards the U.S. Federal Reserve. Today, Mark Spitznagel squares off against none other than Paul Krugman to discuss that very topic. What follows is sublime entertainment. Read on...
As long as markets exist, there will people who try to predict where they are headed. Of course, no one can know for sure. And as Greg Guenthner explains, their prognostications can sometimes do more harm than good. Read on...
A massive storm recently blanketed the U.S. northeast. And as it did, most people ran to their thermostats to keep warm. But staying warm and cozy this winter comes at a price, even with the U.S. nat gas boom in full swing. Today, Matt Insley explains why, when it comes to nat gas prices, seasonality definitely matters. Read on...
Like it or not, size does matter. But contrary to a popular saying, bigger is not always better. Especially when it comes to the size of the state. Marc Faber explains why a world of smaller states might function better than one dominated by excessively large "superpowers." Read on...
Pope Francis recently warned people to beware the "tyranny" of capitalism. Hmmm... Would that be true capitalism and trust in free enterprise? Or the crony capitalism we're currently saddled with? Bill Bonner explains why, even though capitalism is easily corrupted by the capitalists, that doesn't necessarily mean it is a bum creed. Read on...
The average postwar U.S. expansion has lasted 58 months. In the midst of major policy dislocation in Congress and at the Fed, we are at month 52 of the current expansion, which began in June 2009. But we are running out of time – and luck.