Published: July 02, 2010
Fitch Rates Miami Florida Special Obligations 'A-'; Outlook Negative; Downgrades GO to 'A'
TAMPA, Fla. - (BUSINESS WIRE) - Fitch Ratings assigns an 'A-' rating to the following Miami, Florida's
(the city) special obligation parking revenue bonds:
--$87.6 million series 2010A;
--$17.4 million series 2010B (taxable).
The bonds are expected to sell via negotiation on or after July 21, 2010.
In addition, Fitch affirms approximately $200 million of special
obligation bonds (streets and sidewalks) at 'A' and revises the Outlook
to Negative from Stable.
Fitch has downgraded the following outstanding bonds:
--Approximately $72 million of general obligation bonds to 'A' from
'AA-';
--Approximately $204 million limited ad valorem bonds to 'A-' from 'A+'.
The Rating Outlook is Negative.
RATING RATIONALE:
--The downgrade reflects substantially weakened financial flexibility
and Fitch's expectation that structural budgetary pressures will persist.
--The Negative Outlook reflects the city's projected fiscal deficits
over the next several years which, absent far reaching expenditure
reductions and governmental restructuring, will deplete city reserves.
--The rating on the special obligation parking revenue bonds is based on
the city's covenant to budget and appropriate available non-ad-valorem
revenue (including franchise fees, communications services tax [CST],
public service tax [PST], and intergovernmental and other revenues
comprising more than 50% of total general fund revenues in fiscal year
[FY] 2009) in the event of a shortfall in pledged revenues.
--City financial results have been volatile and characterized by
operating deficits in recent years. Miami is continually challenged to
manage expenditure growth in a flat or declining revenue environment.
--Pension costs have risen dramatically, comprising 25% of general fund
revenues in FY 2010.
--Although the economic base has weakened, particularly as it relates to
joblessness and the housing market, it remains diverse, and the city
serves an important role as a key U.S. import and export base for Latin
American and Caribbean goods and services.
--The city's debt profile is manageable and capital plans have been
reduced in recent years to address a slowdown in development and reduced
resource availability.
--For the streets and sidewalks revenue bonds, coverage of debt service
by pledged revenues remains sound despite recent declines.
WHAT COULD TRIGGER A DOWNGRADE:
--Inability to develop sufficient expenditure or revenue solutions to
make significant progress in fiscal 2011 in addressing the large
structural budget imbalance.
--Significant decline in reserves from low level expected at the end of
fiscal 2010.
SECURITY:
The special obligation parking revenue bonds are secured by a lien upon
and pledge of the city's portion of the county-levied CDT, a 3%
occupancy tax, as well as parking revenues as detailed in the parking
agreement between the city and the Marlins Stadium Operator and 80% of
the city's 15% parking surcharge in the stadium parking facilities. If
CDT and parking revenues are insufficient to pay debt service, the city
has covenanted to budget and appropriate, by resolution if necessary,
and deposit into the revenue fund in sufficient amounts non-ad-valorem
revenues lawfully available for such purpose.
--General obligation bonds are secured by the city's full faith and
credit.
--Limited ad valorem bonds are secured by a pledge of the city's limited
ad valorem tax (1.218 mill cap), as well as the city's covenant to
budget and appropriate its non-ad-valorem revenue in an amount not to
exceed 10% of maximum annual debt service (MADS).
--Special obligation (streets and sidewalks) bonds are secured by a
pledge of two county-levied local option fuel taxes, a portion of a
county-levied transportation surtax, and a portion of a city-levied
parking surcharge. The first levy fuel tax is a 6-cent tax and the
second levy is a 3-cent tax on all motor vehicle fuel sold in the county.
CREDIT SUMMARY:
Miami's financial performance has been volatile historically and remains
severely pressured. Over the last several years the city's fixed
operating costs grew rapidly, particularly for public safety, and the
rate of expenditure growth to support increasing pension obligations was
staggering. Pension costs are projected to compose 25% of general fund
revenues in FY 2011. General fund performance was notably weaker than
previously expected in FY 2009; the vast majority of the larger than
anticipated deficit was the result of a transfer of $28 million from the
general fund back to the capital projects fund to replenish the prior
year's transfer to support general fund operations. Total fund balance
at the close of FY 2009 totaled $40 million of which $24 million was
unreserved, equal to 4.3% of spending and transfers. Recent projections
show that the city will end FY 2010 with a $20 million reduction in
general fund reserves which leaves little financial cushion to the
cash-strapped city. Factors contributing to the shortfall in FY 2010
include property tax collections performing below budget(collections
were at 90% compared to budgeted rate of 95%); shortfalls in licenses
and permits and charges for services, the result of construction project
slowdowns; a one-time litigation payout ($3.4 million) and higher than
anticipated medical claim payments related to workers' compensation.
The city is facing tremendous fiscal challenges as it prepares its FY
2011 budget and the five-year forecast is grim, yielding increasing
operating deficits annually which quickly deplete city resources. For FY
2011, general fund revenues are expected to be down 9%, the result
almost exclusively of a 15% taxable assessed value (TAV) decline with no
offsetting millage increase. Most other revenues are expected to be
unchanged from FY 2010 which may be optimistic given declines in recent
years. Expenditures are projected to rise 7% with pension and salary
obligations producing the most substantial increases. City
administration has proposed far-reaching benefit changes, including the
shift from a defined benefit to a defined contribution retirement
program, to plug much of the anticipated FY 2011 $100 million operating
deficit and to fundamentally alter the structure of its operating budget.
Negotiations are ongoing with all bargaining units. The city declared
financial urgency, pursuant to FL State Statute 447.4095, to open
negotiations with the fire union prematurely. The fire union reached
impasse and a special magistrate has been assigned. The city expects
other unions to reach impasse as well. The City Commission will
ultimately have the authority to impose contracts on any unit that
reaches impasse although the political will to impose far-reaching
changes to the compensation structure is uncertain. City officials have
proposed a back-up plan in the event that negotiations are stalled or
results are insufficient to cut costs which includes massive layoffs in
all city departments, including police and fire. Fitch believes that it
is unlikely that the city will be able to accomplish its objective to
reduce operating expenditures in FY 2011 by more than $80 million almost
exclusively with salary cuts, changes to its healthcare benefits, and
dramatic changes to its pension plans but expects that it will achieve
some concessions to reduce the current budgetary gap.
The city's TAV more than doubled between FY 2004 and FY 2008, increasing
at an annual average rate of 19%. The construction boom that drove tax
base growth over the last six years slowed substantially in FY 2009 and
taxable values retracted 6% and 16% in FY 2010 and FY 2011 (on a
preliminary basis for FY 2011), respectively. Fitch expects that the
relatively manageable decline in FY 2011 may be followed by more severe
declines as sharply lower real estate values are incorporated into the
tax rolls. Housing data obtained by Fitch suggests that the city's
residential real estate market is heavily exposed to non-traditional
mortgage products, and that the foreclosure problem is severe and
worsening. Foreclosure activity in Miami is nearly three times the
national average for the most recent quarter. Property taxes provide 50%
of budgeted general fund revenue in FY 2010.
The area economy is diverse with a large international component. The
presence of healthcare, higher education, and professional and business
services balance the tourism component of the city's economy. Sector
employment statistics are well balanced between the education and
healthcare, professional and business services, leisure,
trade/transportation and government although all but education and
healthcare retracted between 2005 and 2009. Employment in the
construction sector retracted nearly 5% between 2005 and 2009, evidence
of the weakened construction environment that is additionally evident in
the real estate sector. Employment and labor trends were positive,
annually, through 2007 and retracted slightly in 2008. Recent monthly
statistics, however, indicate expansion in each at 1.4% and 2.8%,
respectively, the latter contributing to the increased unemployment rate
from April 2009 to April 2010. City unemployment rates are historically
higher than the state and nation. Direct debt levels are moderately low
and should remain so as the city finances the $573 million portion of
the capital improvement plan for which funding has been identified; the
overall plan totals $1.1 billion, notably lower than the previous
capital improvement plan (CIP). Overall debt levels are above average.
Plans for tax-supported debt in the near term are limited to bonds
secured by tax increment revenues.
For repayment of the special obligation parking revenue bonds,
Miami-Dade County agreed to provide the city with a portion of its CDT
revenues through FY 2039, subordinate to prior county commitments, for
the purpose of funding the parking facility. Debt service on these bonds
is ascending and relies on growth in the CDT, which Fitch believes is
likely over the long term. MADS on the bonds of $12 million occurs in FY
2038 would utilize a relatively small 2.4% of FY 2010 projected general
fund revenue. Non-ad-valorem revenues, which include franchise fees,
communications services tax (CST), public service tax (PST),
intergovernmental revenues, comprised more than 50% of total general
fund revenues in FY 2009.
Bond proceeds will be used to construct parking facilities, including
surface lots and parking structures for approximately 6,000 parking
spaces located at the site of the Florida Marlins Baseball Stadium. The
construction agreement provides for a fixed construction budget of $84.5
million, inclusive of a contingency. The Miami Parking Authority will
operate, manage and control the project in accordance with the city
parking agreement.
Applicable criteria available on Fitch's website at www.fitchratings.com:
--'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.
--'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21,
2009.
Additional information is available at 'www.fitchratings.com'.
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
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IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
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PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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Fitch Ratings
Kelly McGary, +1-813-224-0492, Tampa
Rachel
Barkley, +1-212-908-0514, New York
Media Relations, New York
Cindy
Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
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