Nov 19 Fitch Ratings has assigned a rating of
'BBB+' to the following non-ad valorem revenue bonds of the City
of Miami, Florida (the city):
-$47,385,000 special obligation non-ad valorem revenue
refunding bonds, series 2012 (Port of Miami Tunnel project).
The bonds will be sold by negotiation the week of December
3. Proceeds will refinance an outstanding note in the principal
amount of $45 million scheduled to mature Jan. 5, 2013. Proceeds
of the note were used to fund the city's required contribution
to the acquisition and construction of the Port of Miami Tunnel
and Access Improvement Project.
In addition, Fitch affirms the following ratings:
--$41.5 million general obligation (GO) bonds, series 2002A,
2002B and 2003B at 'A-';
--$137.4 million special obligation non-ad valorem revenue
bonds (street and sidewalk improvement program), series 2007 and
2009 at 'A-';
--$70.6 million special obligation revenue bonds, series
2011A at 'BBB+';
--$101.3 million special obligation parking revenue bonds
(Marlins Stadium project), series 2010A and 2010B at 'BBB+';
--$198.5 million limited ad valorem tax bonds at 'BBB+'.
The Rating Outlook is revised to Stable from Negative for
the GO and special obligation bonds, and remains Stable for the
limited ad valorem tax bonds.
All special obligation revenue bonds, including the proposed
issuance, are backed by the city's covenant to budget and
appropriate legally available non-ad valorem revenues, by
amendment if necessary, in an amount sufficient to pay debt
service on the bonds. The availability of non-ad valorem
revenues to pay debt service is subject to the funding of
essential government services and obligations, but does not
create a specific pledge of or lien upon non-ad valorem
revenues. The city's non-ad valorem covenant is cumulative and
continues until the bonds have been fully paid.
The special obligation parking revenue bonds are secured in
the first instance by the city's portion of the county's 3%
transient rental accommodations tax (the convention development
tax, or CDT), a percentage of city parking surcharges on
baseball stadium garages, and certain other parking revenues
related to Marlins Park.
The special obligation street and sidewalk improvement bonds
are secured in the first instance by the city's portion of the
county's 6th cent and 3rd cent local option fuel taxes, the
city's portion of the county's transportation surtax (sales
tax), and a portion of certain city parking surcharges.
The GO bonds are secured by the city's full faith and credit
and unlimited ad valorem taxing power.
The limited ad valorem tax bonds are secured by a pledge of
ad valorem taxes not to exceed 1.218 mills, as well as the
city's covenant to budget and appropriate non-ad valorem revenue
in an amount not to exceed 10% of maximum annual debt service
KEY RATING DRIVERS
OUTLOOK REVISED TO STABLE: Fiscal pressures remain, but risk
to near-term negative rating action is lessened following strong
results in fiscal 2012 that boost the city's reserve levels.
Fitch also considers as positive recent efforts to control
spending, largely through labor-related savings.
RECURRENT MANAGERIAL CHANGES: Frequent turnover in key city
management raises concerns with respect to budgetary management
and oversight, recordkeeping, financial reporting, internal
controls, and institutional knowledge.
SOUND ECONOMIC FUNDAMENTALS: Miami retains favorable
long-term prospects that will leverage its role as a premier
international trade center and tourist destination. Fitch
anticipates intermediate-term stabilization in the recent
economic weakening, particularly as it relates to joblessness
and housing declines.
WEAK DEBT POSITION: Key debt metrics are on the high side
and the city's pension funded ratios are considered somewhat
low; however, future capital needs have been scaled back,
additional issuance plans are manageable, and Fitch views
recently negotiated pension savings as a positive.
STREETS AND SIDEWALK BONDS: The 'A-' rating for the special
obligation streets and sidewalks revenue bonds reflects the
solid 2.2x coverage of MADS in fiscal 2012 from the primary
pledged revenue sources and absence of additional leveraging
plans. The rating on these bonds is capped at the city's GO
NON-AD VALOREM REVENUE BONDS: The 'BBB+' rating of the
special obligation non-ad valorem revenue bonds and parking
revenue bonds is notched down from the GO rating on the city,
which reflects risk to the absence of a specific lien on
revenue, and inability to compel the city to generate sufficient
non-ad valorem revenue to pay bondholders.
NARROW LIMITED AD VALOREM COVERAGE: The maximum millage rate
pledged to bondholders results in a narrow 1.36x debt service
coverage ratio, which serves as the basis for the 'BBB+' rating.
Risk to significant decline in housing prices appears to have
tapered off, and the city's tax base registered positive annual
growth for the first time in four years in fiscal 2013.
FISCAL 2012 OFFERS INJECTION TO GENERAL FUND RESERVES The
city is currently projecting an operating surplus after
transfers of approximately $37.7 million or the equivalent of
7.9% of operating expenditures and transfers out. The impressive
year-end surplus would largely fall to the assigned and
unassigned fund balance, which would increase the city's
unrestricted resources (the sum of the unassigned, assigned, and
committed fund balance under GASB 54) to more than $54 million
or 11% of spending.
Fiscal 2012 would mark the second consecutive year the city
has been able to add to reserves, and follows a four-year period
during which a total of $112.8 million was drawn from general
fund balance largely driven by actual revenues that failed to
meet original budget expectations, rising pension costs, and
consistent over-spending, particularly with respect to public
Though improved, the city's reserves remain below its
financial integrity policies, which call for an unassigned
balance equal to 10% of the prior 3-years' average general fund
revenue, and an additional 10% to fund long-term liabilities.
BALANCED BUDGET ADOPTED FOR FISCAL 2013
The city adopted a balanced budget for fiscal 2013 that does
not appropriate existing reserves. Budgeted revenues total
$503.2 million which is approximately $9.3 million below
projected fiscal 2012 revenues. The budget does not rely on
non-recurring sources to fund operations, and maintains a tax
rate at 7.57 mills (an adequate cushion under the statutory cap
of 10 mills).
The city was able to reduce its recurring labor costs by
more than $34 million for fiscal 2013 to help close a budget gap
of approximately $40 million or 8% of spending. Labor savings
include $12 million in pension plan reforms and $16.8 million in
actuarial modifications, chief among which was extending the
amortization period of its pension plans to 20 years (which
remains fairly conservative compared to most local governments)
from the current 15 years. The city's annual pension cost in
fiscal 2013 is budgeted at $66.3 million (or about 13% of
general fund spending) compared to $84.8 million (or 16% of
spending) in fiscal 2010.
The budget also includes a $10.9 million appropriation for
revenue shortfalls, which the city has established in the last
several years to mitigate risk to appeals and tax collections
that declined to a very low 87% in fiscal 2010 (collections have
since improved to a still below-average 92%-93%; by state law,
the city is required to budget at a 95% collection rate). An
additional $5 million is set aside to fund unanticipated
expenses as required pursuant to city ordinance.
FINANCIAL URGENCY DECLARATION
The city has declared financial urgency pursuant to Florida
law in each of the prior three years. The city was ultimately
able to negotiate contracts with labor effective for fiscal
years 2012-2014; however, the city unilaterally imposed $76.9
million in reductions for fiscal 2011 through various
modifications to the existing collective bargaining agreements.
These savings were instrumental in the city's narrowly
positive operating results for the year. Nonetheless Fitch
believes the ability to foster a constructive relationship with
labor is a more productive long-term management strategy, and is
hopeful that the city's recently negotiated labor contracts
represents a step in that direction.
One of the risks to financial urgency is the potential for
legal challenge. The police and fire unions are seeking
reimbursement of the budget savings imposed in fiscal 2011. To
date the city has successfully defended its ability to declare
financial urgency before both the Florida courts and the Public
Employees Relations Commission (PERC). Fitch's rating assumes
that an adverse outcome, if rendered, would be addressed in a
manner that does not have a meaningful impact on the city's
budget or reserves.
BROAD NON-AD VALOREM BASE
All of the city's special obligation bonds are backed by the
city's covenant to budget and appropriate non-ad valorem
revenues to pay debt service. Non-ad valorem revenues are
sizeable in absolute terms and diverse, budgeted at $276.1
million in fiscal 2013 including $88.4 million in franchise and
utility taxes, $40.3 million from license and permits, $88
million in service charges, and $26.1 million in local
government half-cent sales tax receipts. MADS on all special
obligation bonds is $41.7 million, including the proposed
Fitch notes that annual debt service on the parking revenue
bonds and street and sidewalk improvement bonds are
self-supported from their respective primary pledged sources at
a coverage ratio of approximately 1.2x and 2.2x, respectively.
The rating on the parking revenue bonds reflects the city's
non-ad valorem covenant, whereas the solid coverage and
diversity inherent in the revenues pledged to the street and
sidewalk improvement bonds support the higher 'A-' rating.
ADEQUATE COVERAGE ON LIMITED AD VALOREM BONDS
The limited ad valorem bonds millage is set at 0.9 mills for
fiscal 2013, providing an adequate margin for a 'BBB+' rating
against the 1.218 millage cap. The maximum levy would generate
approximately 1.36x coverage of MADS based on fiscal 2013
taxable assessed value (TAV) of $31.3 billion and a 93%
Fitch calculates the fiscal 2013 TAV could decline by 26.7%
before the maximum pledged millage rate would fail to cover MADS
by at least 1.0x. In contrast TAV declined by less than 20% in
aggregate from its peak value in fiscal 2009 through fiscal
2012, and has improved by 3.2% on the year in fiscal 2013.
ELEVATED DEBT LEVELS TEMPERED BY ABSENCE OF MAJOR BORROWING
The city's debt metrics are on the high side, largely owing
to overlapping debt of the county and the school district. This
concern is somewhat offset by the manageable scale of the
capital improvement plan, which totals approximately $350
million through 2017 (or less than 1% of market value) for all
general government projects. The city does not presently have
any new money issuance plans.
The city's tax-supported debt service budget for fiscal 2013
is $65.9 million or 12% of general fund and debt service
spending. Combined with pension costs, the burden of servicing
the city's long-term liabilities approximates a sizable 25% of
The city administers single-employer pension plans for
police and fire, and for general employees and sanitation.
Funded ratios are somewhat weak, at approximately 71% on a
combined basis assuming a Fitch-adjusted 7% investment rate of
return. The city pays the actuarial required contribution (ARC)
annually. Recent reform efforts should help control the rate of
growth in the pension liability going forward. The city funds
retiree health care costs on a pay-go basis, at a cost of less
than $10 million in fiscal 2013 which is about one-quarter of
DIVERSE ECONOMIC BASE FEATURING SOUND GROWTH PROSPECTS
The area economy is diverse with a large international
component, and the presence of healthcare, higher education, and
professional and business services balance the tourism component
of the city's economy for which it is so well known. Wealth
levels are below average, and the poverty index is double that
of the nation.
The city's unemployment rate has consistently been higher
than that of the state and U.S. for at least the past decade
despite a track record of favorable job growth largely due to
its strong in-migration patterns. Miami's unemployment rate
remains elevated at 10.5% in August despite 4% growth in August
employment year-over-year, which compares favorably to the 2.2%
rate of improvement in Florida and growth of 1.6% nationally.
The city's employment base also increased by 4.1% in
calendar year 2011 following a significant 15.7% contraction
between 2007-2010 due to several losses in the construction and
real estate sectors. Global Insight forecasts non-farm
employment growth will average 2.4% per year through 2014 within
the Miami-Fort Lauderdale-Miami Beach metropolitan statistical
As noted earlier the city's TAV increased by 3.2% in fiscal
2013, and the August Case-Shiller Home Price Index for Miami
indicates a 6.6% increase in prices from one year ago.