Moody's Investors Service downgraded Coral Gables' issuer rating to Aa1 from Aaa on Tuesday due to the city's historically narrow financial reserve position. Its total general fund balance as a percentage of operating revenues historically has been around 8% and "well below" the median for a Aaa-rated credit, said Moody's analyst John Nichols.
The fiscal year-end 2009 financial reserve position weakened after large budgetary variances in revenue streams associated with building and zoning permit fees, he said. A $4.8 million operating deficit reduced total general fund reserves to $4.9 million, or a narrow 4% of operating revenues. Available fund balance, including the city's unreserved portion of general and debt service funds, also fell to 3.8% of operating revenues.
Nicholas said the city anticipates a surplus for fiscal 2010 of approximately $5.2 million, which is expected to boost the total general fund balance to $10.2 million, or 8.5% of operating revenues. Additional liquidity in the debt-service fund is expected to boost reserves to 8.9% of operating revenues.
"Although reserves are reported to increase back to historical levels, they continue to trend well below the median for Moody's highest rating category," Nichols said. "Moody's anticipates that the city's financial reserve position will remain narrow but stable over the near term due to management's conservative budgeting practices and willingness to cut expenditures if necessary."
In addition to the issuer rating change, Moody's downgraded the city's non-ad valorem revenue debt rating to Aa2 from Aa1, affecting approximately $28.2 million of rated outstanding obligations financed through the Sunshine State Governmental Financing Commission, though the payments are backed by a covenant to budget and appropriate legally available non-ad valorem revenues.
"The Aa2 non-ad valorem revenue rating reflects the ample, but declining, level of legally available non-ad valorem revenues supporting the Sunshine State loans," Nichols said.
Coral Gables is located 10 miles southwest of Miami and has a population of 45,000, much of it affluent. It is home to more than 100 multinational corporations as well as the University of Miami.
The city has a total of $60.7 million of outstanding debt financed through the Sunshine State Governmental Financing Commission.
"The city's minimal debt burden is expected to remain manageable, with no significant debt plans in the near future," Nichols said.