ATLANTA - Standard & Poor's Corp. last week revised its outlook on Miami's A-plus-rated general obligation bonds to negative from stable, citing continuing economic and budgetary stress.
The change in outlook affects $10 million of GOs scheduled for sale this Wednesday and $56.8 million of outstanding parity debt. The action follows an outright downgrade of the city's long-term debt by Moody's Investors Service, which on Wednesday lowered the GO rating to A from A1.
"We see Miami in a precarious position and have definite concerns about its long-term viability," said Richard Marino, a Standard & Poor's director. "But we also feel that for the time being the city is managing its problems."
Mr. Marino said his agency's concerns focus on the increasing service demands on the city that have resulted from a wave of immigration over the past decade. With its weakening property tax base and the slowing of state-distributed sales taxes, he said, the city will have a difficult time meeting those demands.
But Mr. Marino said, "a bond rating is based not only on an issuer's demographics, but what is done with those demographics."
Commending Miami for "maintaining financial stability in the face of serious stress," he noted that the city has been able to avoid general fund deficits by cutting spending and transferring excess reserves from other funds. He also praised Miami for its relatively low level of outstanding debt, and for recent refinancings that have reduced total debt service costs.
In addition, Mr. Marino noted the city is well-positioned to benefit from growth in international trade, and has been taking advantage of the improving economic climate in Latin America.
A report issued by Standard & Poor's elaborates on Mr. Marino's evaluation.
"Miami's single-A plus rating reflects the city's continued gradual economic diversification, despite recent recessionary declines; strong fiscal management practices that have enabled the city of maintain a stable financial position during the past two fiscal years; limited taxing flexibility and a manageable debt burden."
The report also notes that "rising property tax delinquencies and an epidemic increase in tax appeals, which has contributed to a projected 3.8% decline in the city's taxable assessed valuation for the next years, may place further financial pressure on the city."
"Further economic deterioration and/or significant depletion of the city's financial reserves over the next year or two will likely result in a rating downgrade," the report warns. "It is not, however, probable that Miami's GO bond rating would fall below the single-A category."