Fitch Ratings has become the third major rating agency to downgrade Miami’s general obligation bond rating ahead of a financing to build parking garages for the Marlins’ new baseball stadium, which is under construction.
Fitch downgraded approximately $72 million of outstanding GOs to A from AA-minus and approximately $204 million of limited ad valorem bonds to A-minus from A-plus. The rating outlook is negative.
“Miami’s financial performance has been volatile historically and remains severely pressured,” said a report by Fitch analyst Kelly McGary.
“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,” the report said.
Pension costs are projected to compose 25% of general fund revenues in fiscal 2011. The vast majority of the weakened general fund performance was a larger-than-anticipated deficit that resulted from the transfer of $28 million from the general fund back to the capital projects. Recent projections show that the city will end fiscal 2010 with a $20 million reduction in general fund reserves, “which leaves little financial cushion to the cash-strapped city,” McGary said.
Factors contributing to the shortfall in fiscal 2010 include property tax collections at 90% compared to the budgeted rate of 95%, declines in licenses, permits, and service fees due to construction slowdowns, and higher-than-anticipated medical claim payments for workers’ compensation.
Moody’s Investors Service already downgraded the city’s GOs to A1 from Aa3 and its non-ad valorem obligations backed by the city’s covenant pledge to A2 from A1.
Standard & Poor’s dropped the GOs to A-minus from A-plus and its covenant to budget and appropriate debt to BBB-plus from A.
Both agencies also assigned negative outlooks.
The city on July 21 plans to price $105 million of special obligation parking revenue bonds to build parking garages and surface lots for the new stadium. Those bonds have been rated A-minus by Fitch, A2 by Moody’s, and BBB-plus by Standard & Poor’s.
