BRADENTON, Fla. — Miami has suffered several rating downgrades in the last two weeks as the financially stressed city plans to bring a refunding to market.
The city is under investigation by the Securities and Exchange Commission for possible disclosure violations about its finances and faces a $55 million hole in its 2012 budget.
In advance of selling about $80 million of special obligation non-ad valorem revenue refunding bonds in early July, all three major credit agencies downgraded the city’s general obligation and revenue bonds, citing a failure to achieve structural budget balance over the past four years, among other problems.
Fitch Ratings lowered the city’s GO rating to A-minus from A. Moody’s Investors Service dropped its GO rating to A2 from A1. Standard & Poor’s downgraded its GO rating to BBB from A-minus. Fitch and Standard & Poor’s maintained negative outlooks.
The revenue bonds were dropped to BBB-plus from A-minus by Fitch, A3 from A2 by Moody’s, and BBB-minus from BBB-plus by Standard & Poor’s.
“It’s disappointing,” said Miami finance director Diana Gomez. “The city obviously has a lot of work ahead of it to build itself back up to better rating levels. Unfortunately, the weak economy doesn’t help any.”
Treasurer Pete Chircut said the city’s current financial problems are nothing like the previous financial emergency that led to a takeover by Florida of Miami’s budget, years of state oversight, and a cease and desist order from the SEC for failing to disclose its financial condition in bond documents then.
In the 1990s, the city failed to increase taxes and fees to support mounting pension costs and managers then covered up mistakes and rising costs until Miami almost went bankrupt.
“Back then we were different because we didn’t do the right things,” Chircut said.
Today, the city’s fiscal problems are similar to those around the country because of the recession and pressures from pension, health care and labor costs, he said. “We are not different from the rest of the country.”
In the last decade, Miami has strengthened its balance sheet and improved ratings. “In 2001, we had junk bonds and we’ve come a long way,” Chircut said.
Now the city faces a $55 million deficit and an SEC probe that began in late 2009 with the agency seeking documents and e-mails between 2006 and 2009 on a number of subjects, including Miami’s budget, internal audits and bond issues.
A number of people have given testimony to the SEC and the city is fully cooperating in the ongoing inquiry, Gomez said.
As for the budget, Chircut said city managers began working on measures a month ago to close the gap, including asking each department for 10% cuts in their budgets that may lead to layoffs and reinstating furloughs. Those two steps should save the city about $45 million, he said.
Rating analysts are troubled by the city’s low reserves, which are $13.4 million and contained in the reserved and unreserved fund balance, according to Gomez.
The city may also consider later this year restructuring some outstanding bonds to bolster reserves, Chircut said.
Miami plans to price about $80 million of revenue bonds July 12-13 to take out variable-rate demand bonds issued through the Sunshine State Governmental Financing Commission.
The city decided Thursday to insure the bonds with Assured Guaranty Municipal Corp. after determining that insurance would provide enough value to help offset the downgrade on the underlying rating, Chircut said.
First Southwest Co. is the city’s financial adviser. The upcoming bonds will be underwritten by RBC Capital Markets Inc., Bank of America Merrill Lynch, Morgan Keegan & Co., Goldman, Sachs & Co., and Raymond James & Associates Inc.
