A key credit agency warned Monday that a Zika outbreak could hurt the stream of hotel and sales taxes that underpin large portions of debt for both Miami and Miami-Dade County.
Moody’s said Washington’s unprecedented action of advising pregnant women against travel to an area within the country — namely the Miami neighborhood of Wynwood — was unlikely to cause financial problems anytime soon, given that the Zika outbreak there landed during the slower summer tourism season. But should advisories remain in the fall — or even into the busy winter tourism season — the “revenue streams could experience declines.”
The issue is particularly sensitive for Miami-Dade, which uses hotel taxes to fund a string of high-profile projects that were advertised as not needing property taxes to be built. Those include Marlins Park, the Pérez and Frost museums, and soon-to-be-finished renovations at the Miami Dolphins’ stadium, which is set to receive up to $5 million a year in hotel taxes as a bonus for recruiting large events to the improved facility, including the Super Bowl.
The Dolphins deal includes a provision that frees Miami-Dade from paying the incentive if it falls short of hotel taxes, but some hotel-tax debt requires the county to dip into other funds to make up a shortfall. The Moody’s report also cites sales tax as vulnerable to a tourism downturn from Zika. That tax funds general government expenses, while a pair of half-cent sales levies are reserved for the county’s Jackson hospital network and its transit system.
In its report, Moody’s said sales tax and revenue shared from Florida that’s tied to sales tax account for 12.4 percent of Miami-Dade’s general fund, the nearly $2 billion pool of money that relies on property taxes for most of its revenue. Miami has less exposure, with no citywide hotel tax and a general fund that relies on sales taxes for just 5 percent of its revenue.
Local governments rely on Moody’s and its competitors, Standard and Poor’s and Fitch, to rate their ability to repay bonds sold on Wall Street. Those bonds are how governments borrow money, and the bond “ratings” influence how much interest the governments must pay. The higher the interest rate, the more likely the government might default.
At the moment, Miami and Miami-Dade both carry the second-highest rating from Moody’s: double-A, which constitutes “very low credit risk.” Miami has a slightly better report from the for-profit credit agency: with a “positive” outlook, rather than Miami-Dade’s “stable” outlook. That suggests an upgrade is more likely for Miami than Miami-Dade, which expected to stay the same.
In its report, Moody’s called the U.S. Centers for Disease Control and Prevention’s Aug. 1 advisory that pregnant women steer clear of Wynwood a “credit negative” for Miami and Miami-Dade. That doesn’t mean a downgrade is coming, but that the Zika situation could be a factor in a downgrade. The CDC warning was the first time Washington had advised against travel to an area inside the United States, and Moody’s said the advisory is bound to cause economic problems for Miami-Dade.
“The warning will likely reduce travel to the region, affecting key sources of tax revenue linked to tourism, including sales, gas and tourist development [bed] taxes,” the report stated.
Hotel-tax reports for August won’t be available until next month, but the summer was already showing pockets of weakness before the Zika cases surfaced.
Revenue from the two hotel taxes charged on the mainland in Miami-Dade — a 2 percent tax that funds general tourism expenses and a 1 percent tax tied to sports stadiums — started dropping below prior-year levels in April. They had not flipped to growth as of July, posting a decline of less than 1 percent. Overall, the taxes are up about 2 percent, thanks to strong performances last fall.
The 3 percent tax charged at hotels countywide continued to grow throughout the summer, with a 4 percent gain for the year.
Michael Hernández, spokesman for Miami-Dade Mayor Carlos Gimenez, said the county’s tourism bureau has not yet detected a decline in hotel bookings but that the Zika’s fiscal impact cited in the Moody’s report is a worry.
“Mayor Gimenez is also concerned about potential impact to the tourism industry here in Miami-Dade,” Hernández said. But he said Gimenez is confident that the aggressive spraying underway in Zika will reduce the threat and long-run impact.