NEW YORK--(BUSINESS WIRE)--
Fitch Ratings has affirmed the following ratings for Miami-Dade County,
Florida (the county):
--$250 million general obligation (GO) bonds, series 2005 at 'AA';
--$128.6 million public service tax revenue bonds, series 2006, 2007A,
and 2011 at 'AA';
--$1.48 billion transit system sales surtax revenue bonds, series 2006,
2008, 2009A, 2009B, 2010A, 2010B, and 2012 at 'AA-';
--$78.9 million public facilities revenue bonds (Jackson Health System),
series 2009 at 'AA-';
--$316.2 million professional sports franchise facilities tax revenue
bonds, series 2009A,B,C,D, and E at 'A+';
--$61.9 million special obligation bonds, series 1996B at 'A+';
--$751.3 million subordinate special obligation bonds, series 2005A,
2005B, 2009, 2012A, and 2012B at 'A+'.
The Rating Outlook is Stable.
Please see the end of the press release for a description of the
security provisions for each of the bonds rated herein.
KEY RATING DRIVERS
MODEST FINANCIAL FLEXIBILITY: The general fund reserve position remains
improved from the trough of the recession, but Fitch still views it as
thin for the rating category. Financial challenges associated solving a
fairly sizable budget gap for fiscal 2015 are a growing concern.
FAVORABLE ECONOMIC POSITION: Fitch expects the broad expanse of the
economy and its significant depth to stimulate growth and lend stability
to the rating over time.
MODERATE DEBT: Overall debt levels are moderate as are costs for pension
and retiree health benefits. The debt structure back-loads repayment of
principal, which could impair the county's ability to finance future
SPECIAL TAX RATINGS: The ratings assigned to the public service tax
revenue bonds and transit system sales surtax revenue bonds reflect the
broad-based nature of the pledged revenue streams and respective
coverage of debt service.
COVENANT DEBT: The rating on the public facilities revenue bonds
(Jackson Health System) and professional sports franchise facilities tax
revenue bonds both reflect the county's covenant to budget and
appropriate non-ad valorem revenues to secure bondholders - the latter
is a notch lower as this covenant can be released if pledged taxes on
rental accommodations equal at least 150% of MADS in each of the
preceding two fiscal periods.
CONVENTION DEVELOPMENT TAX BONDS: The rating on the senior and
subordinate special obligation bonds (convention development tax)
reflects the thin coverage of debt service by pledged convention
development tax (CDT) revenues supplemented by the county's covenant to
apply its share of the local government one-half cent sales tax to cover
any shortfalls in CDT revenue.
BUDGET BALANCE: General creditworthiness is most sensitive to the
maintenance of an adequate financial position and the county's
willingness and ability to address existing budget gaps without material
reliance on non-recurring solutions.
SPECIAL TAX BONDS: The ratings on the various special tax bonds are
sensitive to changes in debt service coverage. The transit system sales
surtax revenue bonds would appear most susceptible to negative rating
pressure given plans for significant additional issuance.
MODEST RESERVE POSITION
Entering fiscal 2014 the county's general fund unrestricted fund balance
totaled $213.5 million or 11.3% of operating expenditures and transfers
out. Included within the unrestricted fund balance is an emergency
contingency reserve of $42.9 million. The county's reserve position,
ranging from 4% and 12% of spending since fiscal 2000, has been very
modest compared to other 'AA'-category counties rated by Fitch.
BUDGETARY CHALLENGES A GROWING CONCERN
Consecutive general fund operating deficits of $3.9 million and $23.4
million in fiscal 2012 and 2013, respectively, are not overly concerning
when viewed in context of a general fund budget in excess of $1.8
billion. However, Fitch views with some concern certain budgetary
decisions that are counter to achieving structural balance. The fiscal
2014 budget relies on $26 million in one-time revenue, which follows the
use of $9 million from the emergency contingency reserve to fund
operations of the fire rescue district in fiscal 2013.
Furthermore the board of county commissioners voted to discontinue a 5%
employee healthcare contribution effective January 1 (for employees
covered under collective bargaining), which appears to be a reversal of
progress made several years ago in controlling labor costs. The cost of
this action, an estimated $24 million annually for the general fund, was
not built into the current year budget. The county has not released a
formal mid-year projection for the current fiscal year, but estimated
property tax revenues are down about $20 million due to appeal activity
which may ultimately come out of fund balance.
The mayor has yet to propose a detailed plan to close the budget gap for
fiscal 2015, currently estimated between $100 million to $150 million.
Revenues will likely perform better than the forecast assumes based on
preliminary estimates for fiscal 2015 taxable assessed value and other
indicators. Significant service delivery reductions including
government-wide layoffs remain possible, and the outcome of upcoming
labor negotiations will have a significant impact on the county's
financial position. Unfortunately, new contracts are not expected until
after the September budget hearings. Fitch will monitor the upcoming
budget deliberations and labor negotiations closely, noting that the
current level of reserves does not offer much margin for error going
forward or a significant resource to address existing budgetary
HISTORY OF UNEVEN OPERATING RESULTS
General fund operating results have been variable over an extended
period of time, often sensitive to broader economic conditions that
impact its property and sales tax revenue streams. Approximately 50% of
general fund revenue is derived from property taxes, and while the
county has adequate capacity to increase tax revenue within the
statutory cap, raising taxes has historically been difficult from a
policy point of view. The county's fiscal 2014 tax rate of 7.33 mills is
also somewhat high relative to peer in-state counties.
Additional budgetary pressures are evident in the general fund's support
for Miami-Dade Transit (MDT) and Jackson Memorial Hospital (JMH),
budgeted at $168 million and $138 million, respectively, in fiscal 2014.
The county's contributions to these entities are formulaically
determined, somewhat limiting discretionary spending flexibility.
Conversely, the county's cost for servicing its debt, pension, and other
post-employment benefits (OPEB), a key pressure for many local
governments, remain affordable at 13% of governmental spending.
FAVORABLE LONG-TERM ECONOMIC PROSPECTS
Fitch believes Miami-Dade's economic fundamentals remain an important
credit strength. The employment base of the Miami-Fort Lauderdale-West
Palm Beach metropolitan statistical area (MSA) is significant in its
size with nearly 2.8 million non-farm jobs and well represented across
employment sectors. Certain vulnerability exists given a dependence on
housing and tourism, which is the case for most local governments in
Florida. Home prices continue to rebound strongly, and the
attractiveness of the Miami market is reflected in a full market value
per capita exceeding $100,000.
The county owns and operates significant transportation assets, most
notably the Port of Miami and Miami International Airport, which support
its role as an international gateway, particularly to Latin America and
the Caribbean. A desirable geographic location and abundance of
recreational amenities position Miami as a significant destination for
leisure travelers and retirees. Economic activity driven by visitors
somewhat tempers the weak income and poverty metrics of the county. The
county's unemployment rate was 7.5% in March, hovering above the state
and U.S. as has generally been the case historically.
MODERATE DEBT AND RETIREE LIABILITIES
Fitch estimates the county's overall debt at a moderate 3.4% of market
value or $3,505 per capita. Carrying costs are affordable, as noted
previously, but reflected therein is the very slow pace of principal
amortization at 30% of all tax-supported debt retired in 10 years.
Absent continued revenue growth this slow pace of amortization could
hinder the funding of future capital needs.
Capital needs are significant with $14.9 billion in future project costs
identified, but mostly tied to the operation of the water and sewer
utility system ($12.6 billion). Additional tax-supported issuance plans
are not expected to have a meaningful impact on the county's overall
The county's general government pension liability is limited to its
participation in the Florida Retirement System, which is relatively
well-funded. OPEB obligations are modest compared to the county's
resource base and annual payments on a pay-as-you-go basis are fairly
close to the annually required contribution.
VERY STRONG COVERAGE ON PUBLIC SERVICE TAX BONDS
The 'AA' rating on the public service tax revenue bonds reflects
continued strong coverage of debt service, with fiscal 2013 receipts
totaling $119.1 million or 9.5x MADS. These revenues are an important
funding source for general operations of the county, creating a
practical impediment to over-leveraging. Another favorable rating factor
is that the performance of this revenue stream is driven by consumption
of essential electricity, water, and gas utility services. The
telecommunication component of the revenue stream, which accounts for
roughly one-third of total pledged revenues, continues to soften
reflecting increased industry competition; however, given strong
coverage levels Fitch does not view this as a concern.
TRANSIT SALES TAX SHOWING STRONG GROWTH
The 'AA-' rating assigned to the transit system sales surtax revenue
bonds reflects adequate coverage debt service, with fiscal 2013 receipts
totaling $172.9 million or 1.67x MADS. Coverage is viewed as being
fairly thin for the rating category, thus more susceptible to any
downshifts in the economy and sales tax performance. The sales tax is
imposed on all transactions occurring in the county that are subject to
the state tax on sales, use, services, rentals, and admissions, and thus
its base is considered very broad.
Recent revenue performance has been very strong. Revenues improved for
the fourth consecutive year in fiscal 2013 (a 6.7% increase) and have
now rebounded 25.1% following the cumulative 9.7% loss experienced in
fiscal 2008 and 2009. However, the county plans to fund approximately
$430 million of MDT capital needs with additional debt over the next 3-4
years which will suppress improvement in the debt service coverage
ratio. The additional bonds test requires a 1.5x coverage requirement
for parity indebtedness and 1.25x for subordinate debt.
RATINGS INCORPORATING NON-AD VALOREM COVENANT
The 'AA-' rating on the public facilities bonds reflects the county's
covenant to budget and appropriate sufficient non-ad valorem revenue to
replenish any draws from the DSRF. The DSRF is funded with cash equal to
MADS ($24.9 million). The county's legally available non-ad valorem
revenue totaled approximately $820 million in fiscal 2013 after
adjusting for debt service on other non-ad valorem supported debt. Fitch
notes that despite a history of operating difficulties at Jackson
Memorial and rate covenant violations the DSRF has not been tapped to
pay bondholders. Significant operating expense reductions has led to
much improved hospital net revenue performance and debt service coverage
reported at 5.0x in fiscal 2013.
The 'A+' rating on the professional sports franchise facilities tax
revenue bonds reflects the county's non-ad valorem covenant as well as a
provision whereby this covenant can be released if pledged taxes on
rental accommodations equal at least 150% of MADS in each of the
preceding two fiscal periods (the county would hold an option to
reinstate the covenant if released at any point). Pledged receipts
totaled $32 million in fiscal 2013, having increased an exceptional
48.7% following a 19.1% decline in fiscal 2009. The bonds' debt service
requirements increase from $12.1 million in the current year to roughly
$30 million in bond year 2031 before reaching a maximum annual
requirement of $71.1 million in bond year 2048. Fitch estimates that
rental accommodation revenue would need to increase by a compound annual
growth rate (CAGR) of 2.4% to cover annual debt service through final
maturity without non-ad valorem support (the historical growth rate
since fiscal 2000 is 4.7%).
HIGH CDT LEVERAGE; SALES TAX SUPPORT IMPORTANT RATING FACTOR
Convention development tax (CDT) revenues remain on the upswing,
increasing 9.9% in fiscal 2013 and 57% overall since fiscal 2009 to a
total of $63.9 million. Debt service on the special obligation bonds
(both senior and subordinate) plus certain defined annual prior payments
will total $55 million next year resulting in a thin 1.15x coverage
ratio. Furthermore annual debt service and prior payment obligations
ascend gradually to a maximum of $121.6 million by fiscal 2039.
Importantly, the county has covenanted to apply its share of the local
government half-cent sales tax, totaling $140.4 million in fiscal 2013,
to pay debt service if CDT revenues are insufficient. Fitch estimates
CDT revenue would need to increase by a CAGR of roughly 3% to cover
annual debt service through final maturity without sales tax support.
The following is a summary of the security provisions for each of the
bonds rated herein:
General obligation: GO bonds are backed by the county's full faith and
credit and unlimited taxing power.
Public service tax revenue bonds: Secured by a pledge of the public
service tax (PST) levied by the county in the unincorporated areas of
the county on the sale of electricity, gas, coal, fuel oil, water
service and telecommunications (CST). The bonds are secured by a
surety-funded DSRF. The test for additional bonds requires 1.2x coverage
of proposed MADS.
Transit system sales surtax revenue bonds: Secured by a first lien on
revenues from a one-half-cent sales surtax levied countywide, net of an
administrative fee and a 20% allocation to cities within the county
incorporated at the time the tax was approved. Also pledged are hedged
receipts and federal direct payments. The bonds are secured by a DSRF,
largely cash funded. The test for additional bonds requires 1.5x
coverage of proposed senior-lien MADS.
Public facilities revenue bonds (Jackson Health System): Secured by the
gross revenues of the Public Health Trust (PHT), an independent body
responsible for the governance, operation, and maintenance of certain
county health facilities. The bonds are additionally backed by the
county's covenant to budget and appropriation non-ad valorem revenues to
replenish any draws from the debt service reserve fund on an ongoing
basis which serves as the basis for the Fitch rating.
Professional sports franchise facilities tax revenue bonds: Secured by a
1% professional sports franchise facilities tax (PSFFT) and a 2% tourist
development tax (TDT), both on the rental of facilities such as hotels,
motels and apartments countywide (except in Miami Beach, Bal Harbour and
Surfside). In addition, if the county determines that the PSFT and TDT
are not sufficient to pay debt service on any payment date or if there
is a deficiency in the DSRF, the county has covenanted to budget and
appropriate non-ad valorem revenues to cure such deficiency. The county
can be released from the covenant to budget and appropriate non-ad
valorem revenues if the PSFT and TDT in each of the preceding two fiscal
periods equaled at least 150% of MADS. The bonds are secured by a
surety-funded DSRF. The test for additional bonds requires 1.5x coverage
of MADS or 1.0x if the county covenant with respect to non-ad valorem
revenue is in effect.
Special obligation bonds (convention development tax): Secured by a
pledge of 2/3 of the receipts of the convention development tax (CDT),
which is imposed at the rate of 3% of the total consideration charged
for rental of facilities such as hotels, motels and apartments
countywide (except in Bal Harbour and Surfside) and a surety-funded
DSRF. The subordinate lien bonds are secured by a subordinate lien on
the 2/3 CDT in addition to a senior lien on the remaining 1/3 CDT and
Omni tax increment revenues up to $1.43 million annually. The
subordinate lien bonds are also secured by a cash-funded DSRF. The
subordinate CDT revenues are net of certain contractually obligated
prior payments equal to a maximum of $13.9 million per year through 2026
and $9.5 million thereafter. As additional security for all bonds the
county has covenanted to apply its share of the local government
half-cent sales tax to the payment of debt service, to the extent
necessary and available. The county has covenanted not to issue
additional senior lien bonds (except refunding bonds) while subordinate
lien bonds are outstanding. Additional subordinate lien bonds could be
issued if CDT revenue, tax increment revenue, and sales tax revenue is
1.5x the sum of all CDT bonds debt service, the prior payments, and the
debt service on any parity sales tax obligations, if any.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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