The Moody’s rating agency delivered a rosier outlook for Miami-Dade County’s budget picture on Monday, upgrading the local government’s financial outlook from “negative” to “stable.”
By making the switch, Moody’s said the odds are likely that Miami-Dade’s credit rating will remain the same rather than be downgraded. Closely watched by bond traders on Wall Street and beyond, the ratings impact how much Miami-Dade must pay to borrow billions of dollars for projects and offers a yardstick on the county’s overall fiscal health.
In its report, Moody’s cited an improving budget picture for Miami-Dade after years of cuts and austerity measures. The favorable outlook comes at an opportune time for Mayor Carlos Gimenez, who imposed cuts to pay for a tax cut when he first took office in 2011 and now is running for reelection on a theme of Miami-Dade having “turned a corner” away from its past budget woes.
Moody’s cited a “markedly improving tax base and economy” and the return to operating surpluses in 2015 after a string of year-end deficits.
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The report covers about $3.3 billion worth of county debt, with about 40 percent of that backed by a special property tax assigned to making debt payments and the rest backed by sales taxes and other revenue not raised from property owners. Moody’s gives the property-tax debt a slightly higher rating (Aa2 versus Aa3) but both fall under the heading of “very low credit risk.” That’s just below the top-notch triple-A rating of “highest quality” debt offered by the for-profit ratings firm.
Ratings by Moody’s, Standard and Poor’s and other competitors are essentially scorecards on how likely a borrower is to default on bond payments. The better the rating, the less interest a borrower must pay bond holders.
Like all local governments, Miami-Dade borrows money mostly to build things, such as sewer pipes, roads, buildings and sports stadiums. Miami-Dade’s debt load was most recently in the news when the County Commission approved a plan to borrow $49 million against hotel taxes to rescue the construction budget of the Frost Museum of Science, which had already spent almost all of the $165 million Miami-Dade borrowed several years ago against property taxes to build it. The original $165 million Frost debt represents a small part of the borrowed money covered by the Moody’s report.
Governments borrow money by selling bonds, paying principal and interest to bond holders. Ratings by Moody’s, Standard and Poor’s and other competitors are essentially scorecards on how likely a borrower is to default on bond payments. The better the rating, the less interest a borrower must pay bond holders.
Moody’s called Miami-Dade’s debt load “sizable but manageable.” It said a spike in tax revenue could lead to an upgrade of the county’s credit rating. In terms of warning signs, Moody’s pointed to the county’s weakened reserves and said “further erosion” of a rainy-day fund that shrank from $73 million in 2009 to $43 million last year could bring a downgrade. The current budget projects Miami-Dade will see its first real gain in reserves since 2011, with the rainy-day fund projected to inch back up to $48 million by Oct. 1.