BRADENTON, Fla. — Fitch Ratings upgraded Miami's general obligation bond ratings two notches to A-plus from A-minus based on the city's improved financial performance while management and legal challenges continue.
Fitch also lifted ratings on the city's other credits, raising the city's special obligation revenue bonds to A from BBB-plus, the limited ad valorem tax bonds to A-minus from BBB-plus, and special obligation street and sidewalk program bonds to A-plus from A-minus.
The outlook is stable, Fitch said in a Nov. 7 report.
"The upgrade of the GO bond rating reflects a culmination of improved budgeting practices, operating performance, and financial reserves over the prior four fiscal years," said analyst Michael Rinaldi. "The city appears poised to build on this recent momentum as the adopted budget for fiscal 2015 and multi-year forecast continues to build reserves toward the 20% policy level.
"The city's history of management turnover and lingering legal challenges "create a degree of operational and fiscal uncertainty and are viewed by Fitch as limiting rating factors," he added. "Miami is engaged in several court cases that warrant close attention."
Last year, the Securities and Exchange Commission filed a federal civil suit against the city and its former budget director charging them with securities fraud charges for making "misrepresentations and omissions to investors" in 2009 bond offering documents and financial statements allegedly designed to "mask" a deficit in the city's general fund.
If convicted Miami would become the first city ever to face a violation of a prior cease-and-desist order. The SEC in 2003 filed a cease-and-desist order based on similar charges the city now faces.
The SEC is also investigating bonds that the city sold to finance and construct parking garages for the Miami Marlins baseball stadium.
Another legal challenge involves Miami's use of Florida's financial urgency laws, which enabled the city to impose $76.9 million in union contract reductions in fiscal 2011. The police and fire unions are seeking reinstatement of the modifications.
While Fitch noted the legal cases, it also said that its GO upgrade is supported by improved operating results and financial reserves. Fiscal 2013 marked the third consecutive year the general fund recorded an operating surplus after transfers.
The unrestricted general fund balance totaled $72.9 million or 14% of spending, compared to "an extremely thin" $4 million or 0.8% of spending in fiscal 2010, Fitch said.
"The turnaround in financial performance reflects improved revenue forecasting and economic conditions but also a reduction in spending - spearheaded by the city's decision to declare financial urgency in April 2010 and resultant labor savings," said Rinaldi.
Miami Mayor Tomas Regalado called the rating upgrades by Fitch yet "another step in a string of financial victories that the City has achieved recently."
"We are gratified that Fitch has recognized the strong efforts that the city has made to become financially stable," Regalado said in a statement. The rater "specifically recognized the difficult decisions that city commissioners made in prior years when financial urgency was declared."
Regalado also pointed out concerns noted by Fitch, including the city's low pension funding ratios, high debt metrics, turnover in key management and finance positions, and various legal challenges but he did not provide any specifics about how the city is addressing those issues.
Moody's Investors Service rates Miami's GOs A2 with a negative outlook.
On Nov. 26, 2013, Standard & Poor's revised the outlook on all of Miami's debt to positive from negative while affirming the city's BBB general obligation bond rating and its BBB-minus ratings on the city's non ad valorem and limited tax debt.
