Moody's gives Miami bonds 'A' rating seven years after city hit financial bottom
By Susan Stabley
For the first time since the City of Miami fell into a $68 million deficit in 1996, a Wall Street agency has given the city's bond rating a major upgrade.
Moody's Investors Service has upgraded the city's rating to A3 from Baa1 for $74.6 million in parity general obligation bonds.
"It's been pretty remarkable," said Miami Mayor Manny Diaz. "In 18 months, we've gone from junk to an 'A'-rated city."
The higher the bond rating, the less it costs a city to borrow money. And a rating upgrade brings an improved financial reputation.
On May 9, Fitch Ratings upgraded its outlook on a pair of city bonds to Positive from Stable. Fitch's grades, though, remained unchanged - BBB+ on the city's $96.5 million in outstanding unlimited tax general obligation bonds and BBB on its outstanding $156.4 million limited tax general obligation bonds.
The change in outlook means Fitch would consider upgrading the city's rating during the next one to three years if the situation continues to progress. The agency noted in a report that the city has been able to follow sound budgeting principals and healthy financial reserve polices after a state oversight board was disbanded last year.
"The financial results have been sound, and there has been a consistent surplus over the last several years, especially looking at this first year without an oversight board," said Rebecca Rhynhart, assistant director for public finance with Fitch.
Bill Leech, who manages Moody's Southeast ratings, described Miami's turnaround as steady.
"Practically every year, there has been an upgrade," said Mr. Leech. "The city has really increased its financial position. It's fairly strong now."
In December 1996, Moody's rated Miami Ba1, below investment grade. The city was upgraded to Baa3 in December 2000 and Baa2 a year later. In March, the city was bumped up to Baa1.
Meanwhile, Standards & Poor's has held its BBB+ grade for the city, issued in December 2001. Robin Prunty of S&P said her company typically works in two-year increments. She did say that Miami's financial improvements have "been pretty rapid considering how fiscally healthy they are now."
The news follows last week's decision by the Miami City Commission to refinance debt through a $25 million bond issue. The money will be used to re-fund $19.22 million in principal on the city's $31.86 million 1993 issue and will result in a savings of $1 million. The new bonds would mature July 1, 2013, and the 1993 bonds would mature July 1, 2004, through July 1, 2009.
Underwriters for the bonds are Jackson Securities, Lehman Brothers, Morgan Stanley & Co., JP Morgan Securities and UBS Paine Webber.
Moody's assigned the sale of $22.1 million of those bonds - general obligation refunding bonds, series 2003 - with a rating of A3, while Fitch assigned a BBB+ .
"It's nice not to be high-risk any more," said Commissioner Joe Sanchez. "It sends a clear message that we're a well-managed city."
Uncertainty about Miami's financial stability had been a dark cloud hampering the city's ability to attract businesses, especially during the emergency crisis of the late 1990s.
"Companies were concerned about how that might affect services and future taxes," said Frank Nero, CEO of the Beacon Council, a public-private organization that focuses on job creation and economic growth. "It was constantly brought up."
"It's a remarkable turnaround, and the city should be commended."
Local officials credit the recovery to the restructuring of the city's administration, an influx of business professionals into the city staff and the guidance of an oversight board, appointed by the governor, that that created a fiscal recovery plan after the city was declared in a state of financial emergency.
"I think for the first time in 25 years, the political climate stabilized in Miami," said City Commission Chairman Johnny Winton. "I think the oversight board was fabulous and set the foundation, and policy makers bought into the whole financial plan crafted by the oversight board."
From there, Commissioner Winton said, city leaders were able to attract investors and developers who broadened the city's tax base.
"You put that on top of a very disciplined spending process, and you end up with a phenomenal financial turnaround," Commissioner Winton said.
Gale Sittig, who led the oversight board and is now a consultant for the city, praised Mayor Diaz and the city administration for following through on the recovery plan. She said that stability in key positions also has been important.
"The end result is there is a very strong management team in place now. We're seeing the result of that in the ratings increase," she said.
Fitch said the city continues to be plagued by low wealth levels and high unemployment rates. The agency attributed the city's ability to erase its debt to revenue from land sale, increased solid-waste fees, a parking surcharge and fire fees.
For the past six years, Miami has managed to keep its general fund in the black, and there was a sizable operating surplus at the end of fiscal year 2002.
Chief Administrator Joe Arriola said Tuesday that the city has about $120 million in reserves.
He said the progress in stabilizing the city's finances has not gone unnoticed. "People are getting excited," said Mr. Arriola. "Every day, a new investor comes to town."
Mr. Arriola credited Mayor Diaz for the rating upgrades, which he said would boost the city's image. "Manny sent a very strong message, and we're really seeing the results," he said.
Mr. Arriola said he plans to pursue more refinancing of the city's debt to take advantage of lower financing costs that may become available as a result of the rating upgrade.
Commissioner Winton said it's important for the city to continue to control expenses and to create a business-friendly environment, adding to the commercial tax base.
"And that," he said, "leads to reducing taxes for the taxpayer."