BRADENTON, Fla. - Fitch Ratings downgraded nearly $2 billion of Miami-Dade County’s outstanding water and sewer revenue bonds to A-plus from AA-minus on Friday.
The rating outlook on the debt is stable, Fitch said.
The downgrade comes as the county plans for an extensive debt program to cure problems related to consent decrees for the Southeast’s largest public water and sewer system.
According to Fitch analyst Kathy Masterson, financial margins of Miami-Dade’s combined water and sewer system have declined because of various reasons such as no rate increases in fiscal years 2012 or 2013, the transfer of $57.2 million of system revenues to the county’s general fund in fiscal 2011 and 2012, and increasing debt service costs.
“Fitch views rate flexibility of the system as limited,” Masterson said. “Debt service costs are projected to increase again in fiscal 2016 if new debt is issued, as currently contemplated, assuming the use of capitalized interest to phase in costs.”
The county’s water and sewer department’s fiscal 2013 budget included a forecast to increase retail water and sewer rates by 9% in fiscal 2014 and 6% thereafter.
Discussion of the fiscal 2014 budget is expected to include rate increases, Masterson said, adding, “Fitch expects there may be pressure to hold rates lower.”
The water and sewer department’s 15-year capital plan calls for $10.2 billion in improvements, many related to state and federal consent decrees.
Within the typical five-year planning period, the county projects $1.9 billion in needed capital improvements, which will require $1.34 billion in new bonding, according to Masterson.
Miami-Dade’s water distribution network covers 7,700 miles and its wastewater mains and pipes traverse more than 6,000 miles.
The systems serve 422,000 water customers and 340,000 retail wastewater consumers, in addition to wholesale water and sewer services to more than a dozen municipalities in the county.
Some system components are more than half a century old.
The current estimate to repair the most deteriorated sections of the county’s water and sewer system is about $1.1 billion, of which $364.2 million is related to the water system and $736 million to the sewer system, according to reports by the county, which has been in negotiation with regulators for well over a year.
On Nov. 8, the County Commission directed the mayor to identify new revenue in addition to sewer rates that could be used to “accelerate” the necessary repairs and mitigate rate hikes due to the county’s ongoing recovery from the recession.
The commission asked the mayor to prepare a report in 90 days, and include whether repairs could be funded with general obligation bonds or other revenues, such as convention development taxes.
Fitch said its stable outlook on the lower rating reflected the belief that the county will raise rates in fiscal 2014 “to preserve financial margins, sufficient liquidity, and meet required capital spending.”
The water and sewer revenue bonds are also rated Aa2 by Moody’s Investors Service and A-plus by Standard & Poor’s.