Keynote Luncheon

Transcription:

Announcer (00:08):

Good afternoon. While everyone is eating, I want to take a moment and introduce our keynote speaker, Chris Spencer. Chris is currently the Executive Director of the State Board of Administration, which manages The State of Florida's investment funds and as I understand it is still in a dual role and so he'll speak to us a little bit about that as well. Chris previously worked in the political and public policy field in both Chambers of the Florida Legislature, the Executive Branch, and in the private sector as well. He served as Chief Legislative Assistant to the State Senator Jeff Brandes and State Representative Clay Ingram. Let's give a hand for Chris Spencer.

Chris Spencer (01:03):

All right, can you hear me all right? This thing works. This is my first time using one of these, so that's awesome. Yeah, so thank you for the introduction. My name is Chris Spencer. I'm currently, I'm about to become the Executive Director of the State Board Administration. The governor appointed me about a month ago and I was confirmed by the cabinet. However, I'm still currently the state's Budget Director in the Executive Office of the Governor. I oversee the Office of Policy and Budget in the executive office of the governor. I'm not allowed to start the new job until after we sign the budget. I'll talk a little bit about the annual budget that is currently waiting for the governor's approval. So a little bit of a dual hat role right now, but very excited to go and join the awesome team that I know everyone in this room works with over at the State Board of Administration.

(01:46):

So I'll talk to you a little bit today about Florida's fiscal picture and really the last six years going back to the start of the DeSantis administration of what things have looked like in Florida and then shift from there into a couple of topics that some of the panels have already touched on that I know are hot topic issues, ESG. We'll talk a little bit about what Florida has been doing on the ESG. Front. Property insurance has been a big topic of discussion for us, and then also affordability and resiliency has been a big topic for Governor DeSantis and so we'll talk a little bit about that and then I'll close out with looking ahead what you should expect in Florida at least for the next two years, but I think probably something that will be consistent beyond the next two years, but what the future should look like here from a policy and fiscal standpoint in Florida.

(02:34):

So the Florida fiscal picture I think is great. I mean, we've already talked about some of the previous panels, talked about how growth really drives the state of Florida. I have no slides, so I have a little, this is my TED talk, so welcome for that. So obviously in Florida we are a major net in migration state. We have on an annual basis, our population grows by roughly on average the amount of the entire population of the City of Orlando. Now that's within the actual city lines of Orlando, not the entire metro area, but the state of Florida grows pretty rapidly in a population basis. We also are a great tourist state as those of you who don't live here but like to come here for vacations. Everyone seems to want to come to Florida, 140 million people come and visit Florida, and that helps us to drive a lot of our sales tax collections.

(03:21):

Again, as those of you in the room who live here already know Florida does not have a personal income tax. It's actually in our constitution that we cannot have a personal income tax. We're very proud of that. So that means that we are largely driven by our collections from sales tax. 76% of all of our revenues for the state are derived from sales tax. Now, everyone always assumes that means that that's reliant entirely on our tourism industry. If you have over a hundred million people coming in every year, that must be a significant portion of your sales tax. It's not actually the case. Most of our sales tax are collected from our domestic residents here in the state of Florida that spend on an annual basis. And so that was a question when we were doing our ratings agency meetings during COVID about what's going to happen to our state revenues as a result of the significant reduction of tourism and migration around tourism, particularly international.

(04:17):

And as I'll talk about here in a second, our revenues were not impacted by that. If anything, the amount of revenue growth that we had from Florida residents spending money in the state of Florida actually more than made up for any impacts that we had on that tourism base. So largely driven from our domestic residents here, but just for a little bit of just to understand how much with that growth in Florida, what that means on a budget standpoint, what I deal with is the budget In 2018, the enacted budget prior to Governor DeSantis coming into office was $88.7 billion. Now, the most recent budget that was just passed by the legislature two months ago that we're waiting to act on was enacted by the legislature at $117.5 billion and we're not a biennium state, so that's annual budget. So the budget has clearly gone up over the period of time reflecting the fact that our revenues have significantly increased and residents coming into the state has significantly increased.

(05:22):

As a result of that, though Florida's lucky, Florida is a state that has the line item veto authority in the constitution for the governor. Not all states have that. I travel to a lot of other conferences where we have other representatives from governor's offices and the states that don't have line item authority, they're very envious of the states that do have line item authority. Governor DeSantis has vetoed 6.5 billion dollars of individual appropriations since he took office using that authority. And just for context, that's bigger than the annual budget of Wyoming. So we invoke the veto pen pretty frequently. There are some years when the governor has made substantial vetoes. There was a year where the governor vetoed two and a half billion dollars in one year, and then there are some years where the veto pen is not as liberally used and only a hundred or $200 million.

(06:12):

I can't give any inside inside details on what this year's vetoes will look like. The governor is still working on that, but there will be vetoes this year and that will only add to that number of total vetoes that the governor has invoked under his constitutional authority. But in addition to that, the governor since 2018, and with the governor's leadership, I know Charlie talked a little bit about our debt reduction program. I'll get into more detail about that in a minute. We've made a very aggressive approach of trying to pay down our state's debt since 2018. Overall debt in the state of Florida is down 25% and the overall tax supported debt in the state of Florida is down $5.8 billion. And that's something that we're very proud of. That's something that I'll talk about in a few minutes about our accelerated debt reduction program, but that's something that Florida has made a priority to limit the amount of new tax supported debt issuances.

(07:09):

Obviously tax supported important, right? Because we do have a regular financing schedule in our infrastructure investments over at the Department of Transportation and with our Flora Turnpike Enterprise as part of our infrastructure investments. So I want to talk a little bit about COVID because obviously Florida had a significant I think, story to tell about COVID and just like Larry was saying about his boss when the mayor of Miami ran for president, everyone wants to start talking about what Miami did. Well, obviously my boss ran for president and everyone want to talk about what Florida did. So during COVID, we were obviously a state that opened up early in many cases, never closed, but also stayed open through the duration of the pandemic. And I think that that really paid dividends in the form of reversing a lot of the earlier worst case scenario projections of what COVID was going to have as an impact on our revenues and economic performance.

(08:06):

Just for some background, so most states do this, but for those of you in the room that don't deal with state revenue forecasting processes, Florida is a consensus estimating state. So we have revenue estimating conferences that meet periodically throughout the year. It's very drawn out dull stuff, but it all builds up over time into a final consensus estimate that we use to base what our revenue projections are going to be. It starts with demographic estimating and then goes into domestic economic forecasting and then national forecasting. And then we get in all the details of every little fund source that feeds into the state's revenues and then forecast what we think our revenues are going to be. So that happens about three times a year. Sometimes it can be invoked more frequently if major circumstances change and we think that it's going to have a significant impact to our revenues.

(08:56):

We did that a couple times during COVID, not because of a negative reason. We ended up doing it for a positive reason, which I'll explain. So first in August of 2020 when the pandemic was raging, everyone around the world was trying to figure out how to get their hands around what a response to the pandemic was going to look like. All of the economists and some people in this room work for some of the companies that had their economists saying It's going to be the worst economic performance, the biggest downturn ever since records. We're going to lose so much revenue in the states that we're not going to be able to support any of our existing debt. We're not going to be able to ever issue any new debt, we're not going to be able to make any economic investments. Those initial forecasts were very dire.

(09:43):

And we look five years out when we talk about our revenue forecasting, our five-year forecasts in August, and that revenue estimating conference reduced cumulatively over those period of time are projected general revenue collections by $12.4 billion. And for US, general revenue is about a third of our budget. The other third is federal funds mostly tied up in Medicaid. And then the third is trust fund revenues, which we have dedicated revenue sources that come from things like speeding tickets or from vehicle registration that go into specific trust funds and fund certain things. So GR is the thing that everyone cares about. That's what makes the Greece go for all the gears in state government. So if we were looking at $12.4 billion reduction over a five year period of general revenue, that's pretty bad and it made everyone pretty concerned that this was going to have a generational effect on the ability of the state to function.

(10:40):

However, that did not materialize. Actually, the opposite ended up happening and just a few months later in December, we had to convene the estimating conference again because we were seeing that this massive forecast decline month by month of revenue was coming in. It's somewhat just like they did the opposite. If we had reduced may estimates or if we had reduced September estimates by 500 million, we ended up outperforming by a billion for that month. And that was all because of the increased activity, people coming to the state of Florida and spending money here because the state of Florida was not in a lockdown situation like a lot of other states in the area were in Tallahassee, we're really close to 30 A. So I dunno if anybody in the room ever makes it over to 30 a the panhandle, it's one of the most beautiful places in the state.

(11:27):

Used to be very undiscovered, not anymore. COVID basically discovered it for everybody in the country, but a lot of us in Tallahassee would go over to 30 A for the weekend. We were still in the emergency operation center during COVID working 16 20 hours. I slept in there multiple times and you'd go over to the first Saturday and just try to get out of Tallahassee. And there were so many people there, it was more packed than during the peak of any of their summer seasonality that they would have for visitors in that part of the state. I largely think that a lot of these increase in our sales tax collections came from the panhandle because there were still some restrictions in some parts of the state on the municipal level closer down to this area in Southeast Florida. So regardless, collections of revenues skyrocketed. So in December we reconvened the estimating conference and here's how much we re-added back just for fiscal years 21 and fiscal years 22, they came back and added $11.8 billion.

(12:24):

So remember they reduced by 12.4 billion for five years going out to fiscal year 25. They came back and added 11.8 just for those two years and then another 14.8 billion for the remainder of the forecast out to fiscal year 25. So I mean, as Charlie said, we had more money than we know what to do with, and that's the same time that everyone's debating what to do with federal relief dollars a RP Act cares. We had already gone through the CARES dollars, but the ARPA dollars are starting to show up and what are we going to do with ARPA money now that we're getting into 2021 and we have this massive surplus. At one point we had state reserves in excess of $24 billion, which is higher than they've ever been before. And just for reference, back in 2018 when I told you we had an $88.7 billion annual appropriations act reserves at that point we're about $7 billion.

(13:22):

So about 8% or so for this budget right now, the one 17.5 that I mentioned reserves our forecast to be at 16 billion, by the way, Charlie, not 15. So you should update that on the chart from when we go to New York next week. But that's because of continued collections of revenues and excess of our forecasts even for this last month, over $300 million more collected last month than had been forecasted. So clearly this significant impact did not occur that the economists had forecasted, and so we did not decide to fire our economists. No one could have predicted that this was going to be the outcome of what happened as a result of the policy effects on the state's economic and financial performance. However, what it did result in is that looking now fiscal year 25, which is the fiscal year start July one for next year, we're looking at 48 billion of total general revenue collections going back to pre COVID before anyone ever could have thought that a pandemic was going to happen, fiscal year 25 was the fifth year out in our five year horizon.

(14:31):

And they were thinking that with our great economic performance that they were forecasting and all of the migration occurring that we were going to have $38 billion. So we have $10 billion more in general revenue for fiscal year 25 than pre pandemic estimates had predicted for fiscal year 25. So I say all this to say Florida isn't a great spot. We can help out Miami on some of your projects, but I'll get to that in a minute about some of the projects that we're working on actually for our local cities and states. That's kind the Florida story. A lot of that occurred because of the things that we do in Florida that we feel are very important Through all of that, delivering tax relief, 5 billion in tax relief to Floridian since 2019, the debt reduction program, $200 million that the governor initiated as a new proposal to try to pay down debt faster than just amortizing it out $200 million last year.

(15:33):

That enabled us to defease $400 million of state debt, 500 million more to that program that'll enable us to go above and beyond that for an accelerated reduction that we're on forecast. And don't quote me to this, but we're hoping to target, we can try to aim for a 50% total reduction of the entire state's tax supported debt by the end of the DeSantis administration. That would be huge. That's something that's very important to both the governor and to our state legislature, and we're going to continue to try to put more resources towards that. But it's not just about not spending money, right? You have to prioritize the investments that you will make. And I'll talk a lot more about some of the bigger programs that we created over the last couple of years that are important towards affordability for housing and insurance resiliency and environmental spending.

(16:19):

But we were also able to do significant investments in increasing pay for our teachers. We've put $5 billion over the last four years into increasing teacher pay. We've been able to do bonuses to hire law enforcement and permanently increase pay for our local sheriff's deputies and our state employees have gotten three years of pay increases one year at 5.35%, which was a weird number. They just picked whatever the inflation was that month and that's what they put in the budget. And then the next year was 5% and this past year was 3%. So not huge numbers, but when you take in the context of state employees prior to that hadn't gotten significant pay increases in over a decade trying to move and invest resources in a way to make sure that we can stay as competitive as possible in the labor market. And then lastly, and this is something obviously moving into my new role at the SBAI feel is really important that we were able to accomplish the governor's taken pension reform very seriously, and this is not a sexy issue that people go and campaign on.

(17:27):

No one likes to talk about things like fixing the way we amortize lifespans over for pension beneficiaries or reducing the assumed rate of return so that we can make sure that we're getting as much contribution from participating public employers as possible. But those are some of the things that we were able to do over the last few years that continues to put the State's Pension Fund, which is the sixth largest public pension fund in the United States into a better financial position. We're currently funded at around 83 80 4%, which is healthy and we want us to obviously see that go up and reduce our UAL, but we were able to reduce the assumed rate of return for the pension, which is the basis by which contributions are made on the employer side from as high as 7.7% before the governor took office to now we're down to 6.7% and I think that we're going to continue to take that down.

(18:19):

I know a lot of local governments not in Florida because we stay on it around the country, try to use that as a tool to try to reduce their annual financial contributions and that commitment they have to make to their pension. But we take a very long-term approach to viewing the importance of making sure that enough resources are being put into our obligations for our police firefighters and teachers and public employees so that those pension dollars will be available to them when they need them. So I want to talk about insurance because that was something that came up in the last panel and I assume I haven't been to all the panels this morning. I assume that there've been more discussion around insurance. It's something that we talk about with the rating agencies the last two years that we've been up there, rising cost of insurance has been a national issue.

(19:01):

It's been acute in Florida. Again, I like to blame a lot of that in the fact that my boss was running for president, so they want to talk about what's going on in Florida. However, insurance has been going up and there's a lot of factors that go into why insurance will be more expensive. There's the cost of reinsurance. So a lot of this goes back into the effects that inflation has had overall in the insurance market and in Florida we have a very diverse insurance industry. We have dozens of domestic admitted carriers, and then we have some of the larger national carriers. Our domestic admitted carriers rely heavily on risk transfer to Bermuda and London reinsurers. And when we experienced the pressures from increasing interest rates driven by inflationary pressures coming out of federal large out of Washington dc, the amount overall in the reinsurance market, the allocations available to Florida went down as the overall pool of reinsurance capital around the world went down, that drove up premiums.

(20:05):

The result of inflation on the cost of replacing a house, 40, 50% run-ups on cost of labor, of lumber of concrete. All of these things going up substantially are driven into the actuarial basis by which the rates are derived. And so we look at all these things over the last couple of years and we were trying to figure out what can a state do? We can't control inflation. We can't control the fact that inflation is driving up a lot of this cost in actually covering a risk like a residential home. We can't control the fact that median home prices in Florida went from $270,000 in 2019 to over $400,000 at its highest point is still now hovering around there. We can't control all those factors, nor would you want to turn that back. By the way, you don't want someone's home value to go down.

(20:56):

So what can we control In Florida, the answer was our tort environment. And over the last two years, but really kind of building up to a crescendo last year of major tort reform, we were able to accomplish what we think is going to be the single most impactful thing that will stabilize Flora's insurance industry. So I'll take you back on a little journey through time on some of the things we've done in tort because we do believe that this is going to be the single most driving factor that will start to stabilize, which we believe that we're in the year right now where premium growth should be stabilizing and then hopefully go down over time going back to 2022. So in 2022, the legislature was still in this process of trying to address all the problems in the insurance market of looking at what problems had arise at the time.

(21:45):

For those of you who are Floridians and are unfortunate people that pay attention to legislative session every year going back years and years, you'll know what I'm talking about. The game of whack-a-mole in the insurance industry, they would go after sinkhole there. There is all of a sudden massive problem of sinkholes in Florida that happened overnight. So they addressed sinkhole coverage. Then there was issues with water damage and burst pipes and that sort of thing. They went and they tried to address water pipes, then it was roofs. And finally we said, why is it that every five or six years, some specific issue seems to be an existential crisis to the entire insurance industry? And the common denominator below all of this was the litigation environment, the ability to go and drive up significant amount of attorney's fees as a result of litigating any possible type of claim in the property insurance industry.

(22:39):

And so we decided that it was the year to go after attorney's fees. So in 2022, they went after attorney's fees that relates to roof claims, also went after assignment of benefits where you as the policy holder, assign your benefits to a contractor who then probably is in partnership more than likely with a law firm that then goes and initiates litigation to go and try to recover. And then you may have a 10,000, $12,000 roof, but there's a hundred thousand dollars of attorney's fees tied to that and that gets litigated into oblivion. So we went after that also in 2022 in response to hearing from a lot of our domestic insurers in Florida about the lack of availability of affordable reinsurance in the state, we created the WRAP program. We didn't create these acronyms, but the wrap program that was established by the legislature stands for reinsurance to assist policy holders and $2 billion was set aside for our insurers on a mandatory basis.

(23:35):

So there was no premium associated with this. There was a rate online that was established in the bill during a special session and they had a choice to take it one year or defer it to another year. Hurricane Ian happened. The WRAP program was totally absorbed and we had no insolvencies as a result of any of those hurricane impacts. Fast forward a year, we had another session on insurance. We created the Fora program. Again, we didn't create that acronym and I have no idea what it stands for, but a billion dollars was set aside in the for program and there was a premium associated with that, and it was an opt-in program. And just to show how the perception in the insurance industry of the availability or affordability of reinsurance just from 2022 to 2023 had changed. Only five carriers in Florida actually bought in and participated in the for program.

(24:26):

Even though we were doing a statutorily prescribed rate online, that was probably depending on what layer below the CAT fund you were buying into, more attractive than anything you could have gotten in the private market. Only five took part in the for program. And again, no insolvencies as a result of Hurricane Adalia or any of the other events that we had last year. As a result of that, also, we took on the final Holy Grail last year in tort reform, which was abolishing the floors one-way attorney's fee statute entirely and going to what most other states have, which is that you pay your fees if you lose and you don't pay your fees and you can recover fees on either direction. Florida had an antiquated statute in place where only the attorneys for the policy holder could recover fees from the insurer if they win.

(25:21):

The insurer could not recover fees if the insurer wins and the case was frivolous. So by abolishing that we just go back to the normal way that attorney's fees are handled for any other type of litigation in the state, and we've already seen a significant reduction in the amount of claims that have been filed with an intent to litigate. We also remedied civil remedy statutes, which there was a Supreme Court case rule ruling here in Florida from 2016 that has essentially said if you're an insurance company and you invoke your right and your contract to do an appraisal on your policy that you can be accused of operating in bad faith. And if you're operating in bad faith and then you go to a jury trial and lose, then any judgment associated with that bad faith claim cannot be recovered through your rates has to come straight out of your surplus.

(26:08):

So what's every insurance company going to do? They're going to settle every bad faith claim they ever get because they're not going to want to go and run the risk of going to a jury where everyone loves their insurance company, right? So a jury is going to absolutely be impartial and objective on any claim that is raised against an insurance company. So we fixed that and as a result, again, like I said, we've seen a significant reduction in the amount of litigation around residential property insurance policies. We think that that's going to have a meaningful impact on premiums. And again, that's the thing that as a state we can control. Florida was ranked a judicial hellhole for over a decade by a lot of tort reform advocates around the country, Florida, after the bill that we had just passed on. Tort reform has been removed from the list of judicial hell holes in the country.

(26:56):

So we take that as a badge of honor. And just as a little bit of a side note on that, just to show that the stability of our insurance industry is growing, we have eight new insurers entering the state of Florida. Some of them are public already. I can't say the names of the other ones that'll be announced over the next few months, but we have eight new carriers coming in and citizens has peaked. We believe that the depopulation efforts that are ongoing now are going to bring citizens back down to a rate in the next year or so back to prior to when they started to have their significant increase up to almost 2 million policies. So affordable housing is a big piece of this too, right? Because we're talking about affordability for insurance, we've got to talk about the affordable housing question. Governor DeSantis changed the dynamics in affordable housing in Tallahassee, particularly around how much we fund towards affordable housing.

(27:48):

To my knowledge, he's been the only governor going back as far as we have records for, and we still have mainframe. So we still have a lot of records going back as far as we have records for only governor to have recommended every single year full funding of the state's affordable housing programs. That's the SADOWSKI programs. We have two trust funds, one ship, one sail, very nautical theme. These programs go towards building multifamily units. They also go towards providing assistance, loan coverage, down payment assistance for new home buyers, and they go towards incentives to build a large array, mostly multifamily, but some single family as well. The governor has recommended full funding of that program every single year. Doesn't mean the legislature always fully funds it, but he's recommended full funding every year. And why is that important? It's important because the legislature, when the governor sets the bar over here and his annual recommended budget, the legislature can't just go all the way the opposite.

(28:45):

I mean they could, but it's not going to go well. So they move closer and closer to the amount of money that has been recommended in affordable housing, and that is evidenced by the fact that so far now we're on the fifth budget for Governor DeSantis. This all combined 2 billion in appropriations towards affordable housing the entire eight years prior to this administration, only 1 billion in affordable housing. Of course, revenues have grown. We get the revenues for affordable housing programs come from our dock stamp collections. They've gone through the roof, but at the same time, there are statutory caps on how much of those revenues go into these programs. So it can't all just be a nominal conversation about revenues going up. It's been an action conversation about being able to get those appropriations secured and funded. And then I'll skip this last one. I know I want to get to some questions.

(29:36):

Let's talk about ESG. I know that's a topic that everyone here wants to probably talk about. Love to take questions on. ESG Florida does not do ESG. We actually deliberately left a slide blank on one of our annual credit rating presentations on ESG just said, Nope, we do not do ESG. We think it's a fad and we just don't see the value in it. What we do, we do things very differently on ESG, we invest money in things like resiliency, so hardening our coastlines, hardening our public infrastructure. We have put now $1.8 billion behind a program that Governor DeSantis proposed and the legislature established. Charlie spoke a little bit about it before that provides grants on an annual basis to actually harden our infrastructure against sea level rise against intensified storms and hurricanes. We also have a program called My Safe Florida Home that does that same concept but for individual residences.

(30:34):

And we put $600 million or $600 million now so far behind the my safe Florida Home program providing grants to individual homeowners to be able to go and harden their homes against flooding against hurricanes. And every person, I shouldn't say every average person that takes part in that program sees a $1,000 decrease in their insurance premiums for their property insurance. So these are meaningful programs. We also have significantly prioritized environmental spending. Everglades restoration has been Governor DeSantis priority since the very beginning of administration. We've pumped billions of dollars into trying to accelerate projects like the EEA a a reservoir and drinking water reservoirs, storm water projects and wastewater projects, bringing some projects like the EEA Reservoir up by years towards completion and overfunding on our side of the commitment versus what the US Army Corps of Engineers is supposed to contribute each year in order to expedite those projects.

(31:32):

All of that goes towards reducing the amount of nutrient content in our public waterways, which is a significant component of our overall strategy for our environmental funding along with some of the new programs that we've established like a annual dedicated wastewater grant program created two years ago that this year is going to see a significant influx of revenues coming in from Indian gaming revenue. I know that was mentioned also by Charlie before we have this great thing in the Seminole Compact where we have at least 700 million. It'll probably be a lot higher than that every single year coming into the state and revenue from Indian gaming revenue. And this year we pledge those dollars out in law of where those dollars are going to go. A portion is going to go to the Resilient Florida program that I mentioned. Another portion is going to go to the wastewater grant program.

(32:21):

Another portion is going to go towards land management for our state forests and our state parks. And so all of that money is going towards things that are benefiting the state environmentally. So I know we have people in here from the rating agencies. I would love to see how you guys score us on ESG this year and then talked about my say, Florida Home and Resiliency. I will close it out because I know I've already gone over my 30 minutes and I want to take some questions on what to look ahead for. So everything that I've just talked about that's happening here in Florida, you should expect to see more of that. You should expect to see on the ESG front. You should expect to see that we're going to continue to say that it's a fad and we don't want to deal with that in Florida.

(33:04):

There's the legislation that was passed this year that it's going to require the state to develop a divestment plan for all of our investments in China. It doesn't mean that it's going to be immediate divestment or because that would obviously not make a lot of financial interest to go and just go into a short sale, but a plan for long-term decoupling with our investments in Chinese investments. Same thing goes with Iran. We had a special session before this past regular legislative session expanding the amount of industries in the Iranian economy that are subject to Florida's sanctions against investments in those economies. And there are several businesses that are going to end up receiving divestment from the state of Florida. You're still going to continue to see a conservative and prudent governance strategy from the state when it comes to fiscal approaches, when it comes to policy approaches, that is something that obviously Governor DeSantis has been spearheading for quite a while, but the legislature has been a great partner for us.

(34:08):

This year's budget, like I said, 117.5 billion may seem like they don't have a lot of fiscal prudence, but when you look at it from a per capita basis, even if the governor vetoed nothing in this year's budget, there is still a per capita decrease from last year to this year in actual spending. And the governor will obviously veto portions of this budget so that per capita decrease year over year will only grow. This legislature has pledged. They want to continue to see that right size, this budget, do not let it grow too big. And over time, I think that you're going to see a decrease in per capita spending at least for the next three to four years as the federal government can't seem to figure out how to not spend more money and incur more debt. And with that, I'd love to take some questions, please. Someone asked me about ESG.

Audience Member 1 (34:59):

You asked for it. So first of all, I do want to thank you for your candor in talking about the insurability here in Florida. I listened to the Berkshire Hathaway investor report and they cited tort reform as being a huge obstacle to having more insurance here in Florida. Likewise, in candor, I asked you to reconcile this and maybe it's despite or because my governor in California cited everything you just said. We need to find safe clean drinking water sources. We need to raise sea walls. And instead of saying despite ESG, he said, because ESG. So I'm just trying to reconcile in my head as to how you get to all this need for protective and resilient capital improvements and not cite the source of why you need it.

Chris Spencer (35:48):

So great question because we've had this conversation with rating agencies exactly to that point. You're calling it ESG, and you're saying that ESG needs to somehow have an interest higher than the pecuniary interests, but we view this as it's important to the state, number one, to reduce your exposure to risk from flooding. Obviously as a hurricane state, very prone to intensified storms to hurricanes coming in because it's not just hurricanes, it's also these severe convective events. You want to make sure that your people aren't experiencing severe repetitive losses in flood. You want to make sure that your infrastructure is protected. No one wants to see Turkey Point nuclear power plant get flooded. So those are risks that you have to go and invest money to avoid. We're not doing it because we think it's going to somehow help us with some score that's been created that maybe in the future we'll end up impacting our credit rating.

(36:44):

We're doing it because it makes sense to go ahead and reduce the potential costs in the future by investing now into those types of projects that need to be made clean. Drinking water, I mean, everyone wants clean drinking water. And in Florida, we are a conservation state. Everyone here in Florida likes to go out in the water, whether it's the beach or on a boat, down a river, through any of our springs, any of our state parks. You want to make sure that you have as pristine of a natural environment as you possibly can, and it makes sense to try to invest money in to protect that. We also have a pretty significant piece of our overall tourism. Of that 140 million people that visited Florida last year, I don't have the exact number, but there is a significant piece of that number that came here for ecotourism. They came to our state parks, they came to our springs. And so we just think that this whole conversation around do it because it's ESG is missing the point of you should be doing it because of the underlying reasons for why you should be doing it, not because there's a score attached to it. And so that's our general thinking.

Audience Member Nora Whir (37:51):

Hi Chris.

Chris Spencer (37:53):

Hey.

Audience Member Nora Whir (37:53):

So I'll remind you that I'm from S&P Global Ratings. I'm Nora Whir. I'm a Managing Director and Sector Leader. I'll remind you that S&P does not score ESG, and I think it's, thank you. One thing that you will, maybe if you've read any of our research recently or heard me speak on a panel, I think it's kind of a disservice to the market to continue to bat around ESG. I think most of market participants have gone to exactly what you're talking about. What is the actual risk? The actual risk is a physical impact from a hurricane or something like that. The actual impact from not having clean drinking water is health concerns for your community. So I guess I would try to understand what you're saying is actually all great things and what market participants, including myself, actually put Florida up on a pedestal for because you are investing all of this money, it's baked into your AAA credit rating. I guess I'm trying to understand why the narrative continues in Florida around ESG, when I think a lot of the market have moved away from that and started to identify the actual risk that you're wrestling with.

Chris Spencer (39:14):

Well, I think to that point, the market moving over there is something that we applaud, right? I mean, now it seems, that's why we say we thought of ESG as a fad. It was so focused in one direction in the conversation around the importance of ESG, but it's all getting back now to the fundamentals. And that's something that in Florida we think is a good thing. We want to make sure that there's not going to be a new thing that we have to go and monitor for in the future. This getting back to exactly what we've been talking about, what's important to make sure we have a clean environment, what is important to make sure that we have access to quality K 12 and higher education, all of those things, the fundamental reasons for that movement back to that we think is a restoration of sanity in the broader conversation. And so some people will still call it ESG, but the fact that it's getting back into the conversation around the fundamentals, I think is a very good thing, and that's something that we welcome. Any other questions? Alright, well thank you everybody.