Moodys Negative Outlook Does Not Dampen Local Spirits As Miamidade City Say Positioned Well Given Circumstances
Written by Risa Polansky on April 23, 2009
By Risa Polansky
Bond rating agency Moody’s Investors Service has put a blanket negative outlook on the entire US local government sector.
Area finance officials aren’t alarmed.
The finance chiefs for both Miami-Dade County and the City of Miami say the local governments are well-positioned considering today’s economic circumstances.
"There are thousands of different types of US local governments that they’ve included in this overall negative outlook, and what the document is really saying is that they’re just going to place additional scrutiny on the various ratings," said Miami-Dade Finance Director Carter Hammer.
The report does not single out any governments by name, he noted, and Moody’s is to continue rating each local government individually.
"Granted, every local government is feeling the effects of the change in the economy," Mr. Hammer said. "However, Miami-Dade County is very well-diversified and positioned to stand much better than, for instance, some counties that don’t have a diverse revenue source."
Larry Spring, the City of Miami’s chief financial officer, is also optimistic.
"We have a handle on our issues, so I’m not expecting a bond downgrade for the city," he said.
Moody’s assigned the blanket negative outlook with the economy in mind.
"This is the first time we have assigned an outlook to this extremely large and diverse sector," the document’s summary says. "This negative outlook reflects the significant fiscal challenges local governments face as a result of the housing market collapse, dislocations in the financial markets, and a recession that is broader and deeper than any recent downturn."
The Moody’s report in its conclusion acknowledges the negative outlook doesn’t necessarily mean there will be a rash of downgrading across the US.
"While we expect most local governments’ ratings will be maintained, the emphasis on the elements discussed above may well result in increased rating revisions for US local governments," it says.
The county and city are feeling the effects of the economic elements referenced in the report.
Miami-Dade County revenues are to be down almost across the board in the upcoming fiscal year, projections show.
The extent of the hit to next year’s budget is unclear as officials await property valuations from the county appraiser, but revenue estimates for other streams such as sales and gas taxes are expected to drop between this and next fiscal year.
The county’s budget chief, Jennifer Glazer-Moon, has said cuts will be at least as deep as last year — around $200 million.
Michael Boudreaux, budgeting director for the City of Miami, has said he awaits property assessments and state revenue projections to get a clearer picture of how the city’s budget will be impacted.
The city has cut tens of millions the past two years.
Both governments have meetings with rating agencies coming up later this month.
"We’ve been fortunate the last few rating presentations," Mr. Spring of the city said. "While there are concerns that we have about revenues and expenditures moving forward, we’re going to still present our case with them."
The city has positives to report, he said, including strong management, an informed commission and a recent clean audit by an outside agency.
"We’re forward-looking, we do a five-year plan, we’re focused on our pension costs and our healthcare costs…it’s a whole slew of things that they look at," Mr. Spring said.
The county is also taking measures to adapt to economic constraints, Mr. Hammer said.
Departments across the county government are trimming their budgets, he said.
To avoid dipping into revenues this year and to prepare for cuts next year, county administrators asked departments to cut their expenditures by at least 3%.
"We’re making the necessary budget reductions to follow the trends," Mr. Hammer said.
He pointed out also that "Miami-Dade County has an over $4 billion investment portfolio that’s conservative, and it does beat our benchmarks. We are also rated in the high-quality section of both Moody’s and Standard & Poor’s and Fitch for our debt ratings."
The city has also generally received A plus ratings by all three rating agencies, Mr. Spring said.
Officials from both governments are to meet with rating agencies later this month as they prepare to hit the bond markets to secure debt to build a $633 million-plus baseball park for the soon-to-be Miami Marlins.
County commissioners agreed this month to allow the administration to issue up to $563 million in bonds to finance the stadium.
Mr. Hammer noted that Moody’s negative outlook on municipalities refers to governments’ general funds, and the baseball bonds are to be backed mostly with tourist taxes.
It "was more of a general report of their general revenues and the general financing activities for municipalities. It wasn’t specific to something like what we’d be doing on the baseball transactions," he said.
Still, tourist tax revenue streams are down, and the county plans to name non-ad valorem funds as a secondary pledge on the bonds.
Administrators insist it won’t be touched.
"We have done a number of analyses where we expect this to stand on the primary revenue streams," Mr. Hammer said.
The city has several bond issuances coming up, including baseball, streets, homeland defense and others.
If the bond rating agencies were to downgrade the city or county’s ratings, bonding would be more costly, but not impossible, Mr. Spring said.
It "would certainly increase the cost associated with bonding because people would want a higher interest rate return. It would be considered riskier bonds," Mr. Spring said. Also, bond insurance could cost more.
"It would generally increase the cost of your bond issuance," he said. "It wouldn’t necessarily stop your ability to bond."