BRADENTON, Fla. — Moody's Investors Service last week became the second national rating agency to place a negative outlook on Miami's debt because of the city's weakened financial position.
Moody's also affirmed the A2 rating on $33.9 million of outstanding general obligation bonds, and affirmed the A3 ratings on $243 million of limited ad valorem bonds as well as $106 million of non-ad valorem obligations, which include $37.4 million of taxable pension bonds and $68.6 million of loans.
"The rating affirmations and revised outlooks reflect the city's continuing and severely weakened financial condition due to a combination of revenue declines associated with property tax reform and the depressed economic conditions exacerbated by uncontrolled pension increases, rapidly rising health care costs, and poor budgetary practices that have made adherence to established financial principles unsustainable," said a report by Moody's analyst John Incorvaia.
Last October, Fitch Ratings placed a negative outlook on the city's A-rated GOs citing "concern that the city would be unable to maintain satisfactory financial flexibility over the next several years given sizeable cost pressures in an exceptionally weak revenue environment with uncertain prospects for recovery."
Standard & Poor's rates Miami's GOs A-plus.
More about the city's financial problems came to light two weeks ago when Miami commissioners learned that the city would close fiscal 2009 with a $53.6 million deficit.
Officials also face a projected deficit of $28 million by the end of the current fiscal year if actions are not taken to cut the budget or find other sources of revenue.
Before the extent of the deficit was revealed, the Securities and Exchange Commission last fall had already begun an investigation to determine if Miami properly disclosed its financial condition to investors in bond documents.
That probe came on the heels of the city's internal audit, which said budget practices violated some of the 13 "financial integrity principles" that Miami officials adopted following a fiscal emergency in the 1990s that required state oversight for a number of years.
That financial meltdown led the SEC in 2003 to find that Miami violated federal securities laws when it hid financial problems from investors in the early 1990s. The city was ordered not to violate disclosure laws again.
While Moody's report last week did not mention the SEC investigation, it called the city's budget practices "poor."
"Despite the implementation of financial and debt principles, recent declines in revenues associated with property tax reform and a struggling economy as well as rapidly rising fixed costs have posed significant challenges in maintaining structural balance and adherence to financial policies," Incorvaia said.
"Revenue shortfalls and poor budgetary practices" have driven the city's current deficit, which is expected to reduce total fund balance to about $39.97 million in fiscal 2009 from $93.6 million in 2008, he said.
That violates Miami's financial policy requiring the reserve to equal 10% of the average amount of general revenues over the prior three years, or $90 million in fiscal 2010. The city is preparing a two-year plan to bring the reserve balance into compliance.
Amidst the financial difficulties, Miami needs to sell $120 million of revenue bonds to build a parking garage for the new Major League Baseball stadium that is already under construction. That sale has been put on hold.