LTC 064-2009 Moody's Affirms City's Aa3 General Obligation Bond Rating and A1 Non Ad Valorem Ratingr.
~ ,"~~11~ ~,~~I~~ ~~~,~.~ 2009M~;F~-9 PN 1a~07
~i ~ ,,ter , ., ,~
OFFICE OF THE CITY MANAGER
NO LTC# 064-2009 LETTER TO COMMISSION
ro: Mayor Matti Herrera Bower and Members of the City Commission
FROna Jorge M. Gonzalez, City Manager ~.~. _ _/ --
DATE: March 9, 2009
suR~FC_T Moody's Affirms City's Aa3 General Obligation Bond Rating and Al
Non Ad Valorem Rating
The purpose of this LTC is to advise you that Moody s Investor Service has affirmed
the City's Aa3 General Obligation Bond Rating and Al Non Ad Valorem Rating.
Moody's report (copy attached) stated that the Aa3 rating is based on the City's
established national and international tourism and entertainment-based economy, a
substantial tax base along with well-managed financial operations characterized by
consistent operating surpluses, and average debt burden. This rating is an above
average rating which is two levels above the median rating of A2.
The continued strength of this rating is especially noteworthy given Moody's outlook
in their January 2009 "Credit Uncertainties: Public Sector 2009" report where they
state that they ".....expect that there will be a higher number of negative rating
actions than in other recessions of the past 40 years as some issuers experience
disproportionate levels of stress, which materially affect creditworthiness." Further
they add that "States and municipalities will experience varying levels of stress,
depending on their capital structure; those with more variable or auction rate debt,
and those dependent upon cash-flow borrowing for operations, are particularly
vulnerable to credit market turmoil." The City has no auction rate debt, is not
dependent on cash-flow borrowing for operations and has only 53.4 million in
outstanding variable rate debt (Sunshine State Loan Pool) which is currently being
refinanced to a fixed rate by the Pool.
Moody's believes the tax base will remain stable with modest growth given
sustained strength in the tourism market and ongoing development. From 2004 to
2009, the City's assessed valuation increased at an average annual rate of 17.3%,
however, the growth rate declined in 2009 to 0.2% compared to 20.6% in 2008.
This sharp decline is mainly attributed to property reappraisal and depreciation,
while $204 million of tax roll growth is attributed to new construction. The City's
unemployment rate of 4.1 % remains below the state and national medians. For FY
2008, hotel occupancy rates remained stable ai 72.2% despite the addition of 3,000
new hotel rooms.
Additionally, Moody's noted the City's solid financial management with historically
stable reserve levels. Despite new property tax legislation, preliminary results for
FY2008 show that the City expects to generate six million dollars to total General
Fund surplus in addition to maintaining an 11 % contingency reserve and a 5.49%
operating reserve.
Moreover, Moody's expects the city's average debt levels to continue to decline
given the limited future borrowing plans, significant self-supporting enterprise debt
obligations, and average amortization of principal.
If you have any questions or need additional information, please feel free to contact
me.
JMG:PDW
Walker, Patricia
From: GID - Moody's Investors Service [epi@moodys.com]
Sent: Tuesday, February 10, 2009 4:51 PM
To: Walker, Patricia
Subject: Miami Beach (City of) FL
MOODY'S AFFIRMS MIAMI BEACH'S (FL{ Aa3 GENERAL OBLIGATION BOND RATING AND Al NON AD VALOREM
RATING
TOTAL OF $53.4 MILLION IN RATED OUTSTANDING GENERAL OBIIGATION BONDS
Miami Beach {City of] FL
Municipality
Florida
NEW YORK, February 10, 2009 - Moody's Investors Service has affirmed the Aa3 rating on Miami Beach's (Fl) $53.4
million outstanding general obligation bonds, secured by the city's general obligation unlimited tax pledge. The Aa3 rating
reflects the ciy's substantial tax base with an established national and international tourism and entertainment-based
economy, well-managed financial operations characterized by consistent operating surpluses, and average debt burden.
Concurrently, Moody's has also affirmed the Al rating on the city's $3.5 million non-ad valorem obligations related to the
Sunshine State Governmental Financing Commission (SSGFC{ loan.
SIGNIFICANT AVAILABLE REVENUES TO REPAY NON-AD VALOREM BONDS
Moody's believes that the city's non-self supporting debt is manageable in relation to identified repayment sources.
Officials have identified $92.1 million, which net of $27.8 million needed to pay essential services leaves
$64.4 million of legally available non ad valorem revenues in relation to the maximum debt service of $9 million on all
non ad valorem obligations. Norwd valorem funds are an important component of the ciy's budget to help pay for ciy
operations. Nonad valorem obligations include $3.5 million invariable rate obligations issued through the Sunshine State
Governmental Financing Commission.
STABLE TOURISM MARKET AND MODERATED TAX BASE GROWTH
Moody's believes the city's tax base will remain stable with modest growth given sustained strength in the tourism market
and ongoing development projects. The city's economy is focused on tourism and maintains an established national and
international identity that contributes to high quality tax base development. Despite the addition of 3,000 new hotel rooms
in 2008, the hotel occupancy rate remained relatively stable at 72.2% compared to 74.2% in 2007. Resort tax revenues
have also continued to grow annually with preliminary figures quarter four 2008 yielding an 1 1.8% increase over quarter
four 2007. Ciy officials report continued strength in local sales and ongoing development of large scale retail projects
continues unabated.
The ciy's assessed valuation has increased at a robust average annual rate of 17.3% from 2004 to 2009, but the growth
rate declined significantly in 2009 to a modest 0.2% compared to 20.69'° in 2006, 24.6% in 2007, and 24.3% in 2006.
This sharp decline is primarily athibutable to properly reappraisal and depreciation, as reflected in the 2.3% decrease in
full valuation in 2009, which had previously averaged a robust 25.5% annually from 2003 to 2008. New construction
represented $204 million of fiscal 2009 fax base growth, approximately one-fourth o4 the new construction experienced in
fiscals 2006 and 2007. Moody's believes this declining trend may continue given the sustained downturn in the real estate
market. However, new and ongoing construction continues to move forward which may offset the declines in existing
propery values. Officials report multiple hotel, condominium, and retail development projects that have been recently
completed or are currently under construction that may add up to $1.5 billion to assessed valuation in the next two to three
years. Moody's believes international investment has helped minimize the economic downturn's impact on the city's
economy.
Additionally, as commercial construction projects have come online, business vacancy rates have remained in the 12% to
13°% range in recent years, down from about 24% in fiscal 2002. The city's unemployment rate at 4.1 % (as of November
2008) remains below stale and national medians, 7.3%and 6.5%, respectively.
The city's per capita income is above average at 130% of state and national medians, while median family income is only
73q° of the stale median. Housing values are approximately three times state and national averages, and full value per
capita is a substantial $399,817 (316%of state median}, reflective of the significant commercial presence.
WELL-MANAGED FINANCIAL OPERATIONS WITH HEALTHY RESERVES
Moody's expects the city's financial operations to remain healthy given solid financial management and historically stable
reserve levels. The city has achieved consistent operating surpluses over the last decade which contributed to the
maintenance of a health General Fund balance of $44.1 million (17.5% of General Fund revenues) in fiscal 2007. The
city has a policy of maintaining an 1 1 % contingency reserve, calculated as a percentage of current year budgeted
expenditures, and has consistently exceeded this threshold with a fiscal 2007 contingency reserve of $36.4 million (14.4%
of revenuesJ.The fiscal 2007 $6.3 million operating surplus was primarily driven by excess interest earnings and building
permits, as well as general expenditure savings as the city prepared for the impact of new property tax legislation. The
surplus would have been
$ 13.4 million higher, but the city transferred these excess funds to the capital projects fund, in line with its policy of
transferring 50% of operating surpluses to the capital projects fund. A portion of the capital transfers ($2.5 million) was
funded with 0.182 mills of the city's total operating millage that is designated for capital purposes.
Despite new property fax legislation that "froze" properly taxes of the 2007 level and resulted in a $15 million property
tax levy decline, preliminary fiscal 2008 results indicate another $6 million surplus due to excess building permit revenue,
one-time close outs of capital projects, and salary savings from unfilled positions. The city will likely transfer half of this
surplus to the Capital Projects Fund for future use. Fiscal 2008 operations included $7.5 million in payyo capital, which
the city budgets for annually to alleviate Future borrowing needs.
A constitutional property tax reform measure (Amendment 1), passed by voters in January 2008 and effective fiscal 2009,
doubled the current homestead exemption to $50,000, made the Save Our Homes valuation limit on homesteaded
property portable up to $500,000 and included exemptions for non-homesteaded properly. The city benefits from the fact
that only 30% of the residential property in the city is subject to homestead exemption which has kept values in most
Florida municipalities artificially lower since growth is capped to the lesser of CPI index or 3%. The constitutional limitation
reduced property tax revenue by $3 million, which along with reduced intergovernmental revenue and natural budget
growth created a total budget gap of $14 million in fiscal 2009. Officials funded this budget gap with a $4.5 million cut
in capital transfers, a $4.3 million cut in services, $4.5 million capital spending cuts,
$3.2 million in new revenues, and a $1.2 million increase in the resort tax transfer into the General Fund. Management
reports year-to-date operations are on track with budget with resort taxes and building permits performing better than
budget and officials are closely monitoring expenditures and cautiously filling vacant positions. Moody's believes the city's
financial position will remain healthy given conservative budgeting practices and a proactive management team that has
responded well to revenue shortfalls.
AVERAGE DEBT BURDEN; SELF-SUPPORTING ENTERPRISE DEBT PLANS
Moody's expects the city's average debt burden will continue to decline given limited future borrowing plans, significant
self-supporting enterprise debt obligations, and average amortization of principal (60% retired within 10 years}. The city's
direct debt was an average 0.7% of full valuation at the end of fiscal 2008, which excludes self-supporting water/sewer,
stormwater, and parking debt obligations that comprise approximately 40% of all outstanding debt obligations. The overall
debt burden increases to a stillaverage 1.5% of full value and incorporates the city's pro rata share of overlapping county
and school district debt obligations. High per capita debt levels at $6,319 is indicative of an infrastructure needed to
provide for a large seasonal population as opposed to a smaller permanent population. Debt service costs have moderated
to a still above-average 10.5% of 2007 operating expenditures from a much higher 16.4% in 2005, in part reflecting the
ciy's significant amount of special tax bonds. A large $45.6 million of special tax bonds for pension funding are currently
outstanding. The ciy also has approximately $67.8 million in tax increment bonds outstanding secured by tax increment
revenue and a subordinate pledge on the resort tax. Future borrowing plans are limited to enterprise-related debt and
officials may borrow up to
$175 million in late 2009 or 2010 for water/sewer, stormwater, and parking infrastructure needs, but this debt is
expected to be self-supporting from user fees and will not materially impact the ciy's debt profile. The ciy has one variable
rate debt obligation outstanding, the $3.5 million (SSGFC}, which represents 19° of the ciy's outstanding debt and future
debt issuances are expected to be fixed rate. The ciy is not part' to any derivative contracts.
KEY STATISTICS
2007 Population (est.): 85,036 (3.3% decrease since 2000)
FY 2009 Full Valuation: $28.6 billion
FY 2009 Full Value Per Capita (as ~° of FL and US): $399,817 (316% and 4143'°j
1999 Per Capita Income (as %of FL and US): $27,853 (129.29'° and 129%)
1999 Median Family Income (as 9° of FL and USJ: $33,440 (73% and 67%}
1999 Median Home Value (as % of FL and US): $334,400 (317% and 280%}
Unemployment (November 2006}: 4.1%
Direct Debt Burden: 0.7%
Overall Debt Burden: 1.5%
Payout of Principal (all bonds}: 60% (10 years) and 68.4% (15 years)
FY 2007 General Fund balance: $44 million (17.5%of General Fund revenues]
FY 2007 Reserved General Fund balance for contingencies: $36.4 million (14.4% of General Fund revenues]
FY 2007 Operating Fund balance (includes General, Non-major Special Revenue, and Debt Service Funds): $96.7 million
(37% of Operating revenues]
Total Outstanding Direct Debt: $242.9 million ($53.4M rated GO debt and $3.5 million rated Non Ad Valorem debt}
RATING METHODOLOGY USED AND LAST RATING ACTION TAKEN
The principal methodology used in rating Miami Beach, Fl was "Local Government General Obligation and Related
Ratings," which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Index of Special
Reports - U.S. Public Finance. Other methodologies and factors that may have been considered in the process of rating this
issuer can also be found in the Credit Policy & Methodologies directory.
The last rating action was on November 21, 2007 when the Aa3 general obligation rating and Al non ad valorem rating
of Miami Beach, FL was affirmed.
ANALYSTS:
John Medina, Analyst, Public finance Group, Moody's Investors Service John Incorvaia, Backup Analyst, Public Finance
Group, Moody's Investors Service Geordie Thompson, Senior Credit Officer, Public Finance Group, Moody's Investors
Service
CONTACTS:
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
CREDIT RATINGS ARE MIS'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT
COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY
NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL
LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT
LIMITED
TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT STATEMENTS OF
CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR FINANCIAL ADVICE, AND
CREDfi RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT
RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS
ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS
OWN STUDY AND EVALUATION OF EACH SECURfTY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING,
OR SALE.
Copyright 2009, Moody's Investors Service, Inc. and/or its licensors and affiliates including Moody's Assurance
Company, Inc. (together, "MOODY'S").
All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION
MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED,
DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN
WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT
MOODY'S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY'S from sources believed
by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors,
however, such information is provided "as is" without warrant' of any kind and MOODY'S, in particular, makes no
representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantabiliy or fitness for
any particular purpose of any such information. Under no circumstances shall MOODY'S have any liability to any person
or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or
otherwise) or other circumstance or contingency within or outside the control of MOODY'S or any of its directors, officers,
employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication,
publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or
incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in advance of the
possibiliy of such damages, resulting from the use of or inability to use, any such information. The credit ratings and
financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be
construed solely as, statements of opinion and nor statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS,
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR
INFORMATION IS GIVEN OR MADE BY MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other
opinion must be weighed solely as one factor in any inveshnent decision made by or on behalf of any user of the
information contained herein, and each such user must accordingly make its own study and evaluation of each security
and of each issuer and guarantor of, and each provider of credit support for, each securiy that it may consider
purchasing, holding or selling. MQQDY'S hereby discloses that most issuers of debt securities (including corporate and
municipal bonds, debentures, notes and commercial
paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
appraisal and rating services rendered by it fees ranging from $1,500 to $2,400,000. Moody's Corporation (MCO) and
its whollyowned credit rating agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures
to address the independence of MIS's ratings and raring processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly
reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody's website at
www.moodys.com under the heading "Shareholder Relations -Corporate Governance -Director and Shareholder
Affiliation Policy."
Moody's Investors Service Pty limited does not hold an Australian financial services licence under the Corporations Act.
This credit rating opinion has been prepared without taking into account any of your objectives, financial situation or
needs. You should, before acting on the opinion, consider the appropriateness of the opinion having regard to your own
objectives, financial situation and needs.
,r
,~
... ,' ~1{ _;(n'C'n'1'r l'1t ~~f del'."-f i.vlj ~.1r„~:d; :.
2008 Ratings Distribution Ghart (Includes Non-Public
Ratings)
?5`Yn
20".%u
15%
10°k
5°.6
0°h
2008 Local Government Ratings DisUibution
January :OJ9 ^ Speoai CortrmR ~ Mo~sUS Publ~~France~""<DOB LOCalUm4mmen Ma6cna Medians _y
Q:~ ~,`A1 Q:''y ~~' Q~ '~" Pte' ~2P~ ~3'~" ~ar~ ~~~ ~~ ~a?•
M Cities ~ Counties p School Districts