LTC 152-2003
CITY OF MIAMI BEACH
Office of the City Manager
Letter to Commission No. 1')'2- 2 CJD'3
~
Subject:
Mayor David Dermer and
Members of the City Commission
Jorge M. Gonzalez \.y-~
City Manager U - 0
UPGRADE OF CITY BOND RATINGS
Date: July 3, 2003
To:
From:
I am pleased to advise you that Standard & Poor's has upgraded their rating on the City's
bonds from an A+ to an M- which is the second upgrade for the City from this firm in six
months. In addition, Moody's has affirmed their A1 rating and has upgraded their outlook
for the City from stable to positive. Both ratings were performed during the agencies visits
to the City where presentations were made coupled with extended City tours.
This is a very significant accomplishment for the City of Miami Beach and reflects
continuing efforts to improve our financial position by all of you, the Administration and
particularly by our Chief Financial Officer, Trish Walker. Further, this upgrade brings our
ratings to the highest level the City has ever enjoyed.
The Standard & Poors rating report indicates the upgrade was "based on sustained strong
financial performance bolstered by established fiscal policies, and strong reserve levels
along with ongoing growth and diversification in the tax base". Particular mention was
made of the City's role as a local, regional, and international year-round tourism
destination, the strong growth of a large tax base and strong financial performance and
position.
Moody's rating affirmation and change to a positive outlook is based on the City's solid
tourism/entertainment based economy, well-managed financial operations and
manageable debt load. The rating also recognizes that while the softening of the tourism
market as well as rapid budgetary growth are issues facing the City, the long-term credit
fundamentals remain positive.
This second upgrade in a six month period is particularly significant because of its timing.
Standard and Poors advises that during the year following September 11 , most states and
many cities experienced financial difficulties, especially those whose economies are largely
dependent on tourism revenues. Further, they acknowledged that the City of Miami Beach
successfully navigated those challenging economic times because of prudent fiscal policy
and management, diversification of the economic base and continued growth.
Particular mention is made of the City's contingency fund for emergencies along with the
strength of reserves in City's enterprise funds. It was also noted that the City's "local
economic base remains centered in tourism, but continues to diversify with a growing
health care and entertainment industry presence". The City continues to host high profile
events, such as MTV's inaugural Latin America Video Music Awards, and the Art Basel Art
Fair "which should continue to positively impact hotel occupancy rates and prices, resort
tax revenues and overall tourism trends." Additionally, the report reflects the City's strong
financial performance and position, ongoing economic growth and diversification of its tax
base. Copies of the rating reports have been attached for your review.
These reports were issued in conjunction with the City's sale of the remaining authorization
of $62,465,000 General Obligation Bonds which were approved by referendum in
November 1999. These Bonds will be sold and closed later this month.
JMG/PDW
Walker, Patricia
From:
Sent:
To:
Subject:
Moody's Investors Service [epi@moodys.com]
Monday, June 30,200312:48 PM
Walker, Patricia
Miami Beach (City of) FL
MOODY'S ASSIGNS Al RATING TO MIAMI BEACH (FL) SALE OF $62.5 MILLION GENERAL OBLIGATION
BONDS, SERIES 2003; OUTLOOK POSITIVE
Al AFFIRMATION AFFECTS $106.3 MILLION GENERAL OBLIGATION BONDS, INCLUDING THIS ISSUE
Miami Beach (City of) FL
Municipality
Florida
Moody's Rating
Issue
Rating
General Obligation Bonds, Series 2003
Sale Amount $62,465,000
Expected Sale Date 07/11/03
Rating Description General Obligation
Al
NEW YORK, June 30, 2003 -- Moody's Investors Service has assigned an Al rating to Miami
Beach's sale of $62.5 million General Obligation Bonds, Series 2003. We have also affirmed
the Al rating on $106.3 million general obligation bonds, including this offering. At this
time we have also revised the outlook on the city's general obligation bonds to positive
from stable. The bonds are secured by the city's unlimited general obligation pledge. The
Al rating and positive outlook are based on the city's solid tourism/entertainment based
economy, well-managed financial operations and manageable debt load. The unique nature of
this resort community with it's high-end condominium and hotel development and it's
national and international identity has been beneficial as regards private investment in
the community. The rating and outlook also recognize that while the softening of the
tourism market as well as rapid budgetary growth are issues facing the city, long-term
credit fundamentals remain positive.
Bond proceeds will be used for renovation and improvement of fire stations, recreational
facilities and other city infrastructure projects. This relatively large issue exhausts a
total $92.5 million 1999 voter-approved authorization for fire safety, parks and beaches,
and neighborhood improvements. The bonds are expected to be insured by an insurer rated in
Moody's highest category. Subject to review of appropriate documentation, the bonds are
expected to carry the insurer's Aaa financial strength rating.
CONTINUED STRONG GROWTH IN TAX BASE REFLECTS HOTEL, RESIDENTIAL AND COMMERCIAL
CONSTRUCTION
Moody's believes current construction and redevelopment in the city will sustain strong
tax base growth for at least the next three years. Construction of several high-end
condominium units, private investment in hotel renovation and construction, and commercial
expansion continue to contribute to solid tax base growth after a period of decline in the
mid-to-late 1980's. The tax base has more than doubled between fiscal 1997 and 2004 to
$12.2 billion, and estimated market value is in excess of $14.5 billion. Annual average
tax base growth has been 12.2% in the past five years, with more recent increases of 15.5%
(est.) in 2003 and 14.5% in 2002. Expectations are for continued tax base growth at
somewhat lower rates. Over $517 million in hotel projects, $845 million in apartment/
condominium projects (2,815 units), and new retail stores and restaurants will continue to
contribute to tax base expansion. Commercial expansion has developed more rapidly since
2000, not only in areas like Lincoln Road and Normandy Drive, but in more traditional
commercial areas such as Collins Avenue. Retail occupancy rates are in the high 90
percentile suggesting the potential need for additional retail expansion. Higher Class A
1
office vacancy rates of about 24% reflects some uncompleted projects but also some
overbuilding in this sector.
The city's economy is focused on tourism and maintains an established national and
international identity that contributes to high quality tax base de velopment. The number
of tourists had been steadily increasing through 2000, particularly international
visitors, but has fallen off in 2001 with some recoupment seen in 2002. International
tourism has been depressed more recently but domestic visitors, who have a shorter length
of stay, has been steady. Visitors staying in Miami Beach reportedly account for 42% of
the 10.5 million visitors to the Metro-Dade area in 2001. The 2% resort tax has increased
37.8% in the last five years including an 11.7% drop in fiscal 2002 to $17.5 million. Thus
far for seven months of fiscal 2003, the resort tax is up 11% over the prior year. Hotel
occupancy rates (60.5%) and average room rates ($133.14) were down in 2001 and 2002, but
partial information for the last seven months through April 2003 indicates a rebound in
both areas reportedly due to a few major events that have taken place in the city.
Sustainability of this trend will be closely monitored.
After real estate, the largest employment sector is retail trade and services with nearly
17,000 jobs and an economic impact of $839 million; followed by food/beverage and hotel
which employ 16,550 and 12,044 people and have an economic impact of $546 million and $428
million respectively. Other sectors such as a growing entertainment industry (film, music,
and television), as well as photography, cultural development (symphony, ballet, museums,
art
center) and a health care sector have added some needed depth to the economy. The
entertainment industry accounts for approximately 1,900 jobs with an estimated economic
impact of about $193 million. Business travel is also an important segment of the economy
with convention activity posting over 900,000 delegates, 2.6 million room nights, and
nearly one billion dollars in expenditures in 2002.
City resident per capita income is about 130% of the state average, while median family
income is only 73% and housing values are over three times the state average. Unemployment
is above average at 9% for February 2003 partly a result of the labor force growing at a
faster pace than jobs and also reflecting a weakened hotel industry.
WELL-MANANGED FINANCIAL OPERATIONS; OPERATING TAX RATES REMAIN STABLE AFTER PERIOD OF
DECLINE
Moody's expects the city's financial operations to remain solid given growth in revenues
and maintenance of adequate reserve levels, although budgetary growth has been rapid.
Operating General Fund surpluses in the last seven consecutive years are the result of
conservative budgeting and property tax growth, despite a drop in tax rates from near the
maximum limit of 10 mills to 7.299 mills currently. Construction and renovation activity
as well as reappraisal has doubled taxable value from $6.0 billion in 1997 to an estimated
$12.2 billion in fiscal 2004. The city also 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 in capped to the lesser of
CPI index or 3%. The fiscal 2002 $27.9 million General Fund balance represents 21.2% of
total General Fund revenues, and the unrestricted reserve combined with a restricted
emergency reserve, established by city ordinance, totals a favorable 19.1%. The
contingency reserve, established at 11% of the operating budget, provides a good financial
cushion for the city. In addition, at the end of fiscal 2002, the city had a Parking Fund
undesignated balance of $37.5 million, a portion of which could reportedly be used for any
city purpose. Fiscal 2003 operations are expected to increase fund balance slightly and
maintain contingency levels ($17.4 million).
The city's operating budget has increased about 40% since 1998 (excluding Redevelopment
Agency pass-throughs and certain capital items) due especially to growth in fixed costs
and public safety. Most of the budgetary growth has been accommodated with the rapid
increase in property taxes from tax base growth that is expected to moderate over time.
Officials have begun to focus on controlling budgetary growth which Moody's believes is a
prudent step in maintaining financial stability. Fiscal 2004 operations are expected to be
tighter as officials deal with increasing pension contributions, higher health care costs
and a self-insurance fund deficit due to new accounting standard requirements. The city
has sizable enterprise debt outstanding especially for parking, water and sewer and
stormwater. Rate increases have been projected for the next six years for water and sewer
operations, and stormwater fees will increase from $3.25 in 2001 to $5.80 in 2006 to
support that operation. Revenue coverage is good.
2
ABOVE AVERAGE DEBT LEVEL; RAPID PAYOUT OF GENERAL OBLIGATION DEBT.
The above average city debt burden of 4.3% of full value reflects not only the city's
obligations but also its share of the substantial amount of county and school district
debt. Debt service costs are above average at 15.6% of operating expenditures, in part
reflecting the rapid payout of general obliqation bonds (prior to this issue), but also
reflecting the city's significant amount of special tax bonds. A large $46.8 million of
special tax bonds for pension funding are currently outstanding. The city also has
approximately $100.8 million in tax increment bonds outstanding secured by tax increment
revenue and a subordinate pledge on the resort tax.
In November 1999, voters approved a $92 million in General Obligation bonds for parks and
other purposes. With this issue, officials have exhausted this authorization. The current
offering more than doubles outstanding general obligation bonds and significantly slows
G.O. payout to maintain the current debt service levy. About 51.6% of the current offering
principal is repaid in the last 12 years of a 30-year schedule, when all other general
obligation debt retires.
Officials have a five-year (2003-2007) $290 million capital program with major projects
including right of way infrastructure ($57.9 million), parks and facilities ($24.8
million), and fire safety ($9.7 million). Besides the current general obligation bond
offering, the majority of the plan will be funded with enterprise-related funding sources.
KEY STATISTICS
2001 population estimate: 88,158
FY 2004 Full valuation: $14.5 billion.
FY 2004 Full value per capita: $164,005
Debt Burden: 4.3%
Payout of G.O. principal,
10 years: 39.0%
20 years: 72.2%
30 years: 100.0%
Post Sale General Obligation Bonds Outstanding: $106.3 million
FY 2002 General Fund balance (as % General
Fund Revenues):
20.6% Total
19.1% Undesignated & Reserved for contingency
Operating Tax Rate as % Statutory Limit, FY 2003: 73.0%
Per Capita Income as % State: 129.2%
Median Family Income as % State: 73.3%
Median Housing Value as % State: 317.0%
Unemployment Rate (2/2003): 9.0%
ANALYSTS:
John Incorvaia, Analyst, Public Finance Group, Moody's Investors Service Bill Leech,
Backup Analyst, Public Finance Group, Moody's Investors Service
3
CONTACTS:
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
Copyright 2003, Moody's Investors Service, Inc. and/or its licensors 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 warranty of any kind and MOODY'S, in particular,
makes no representation or warranty, express or implied, as to the accuracy, timeliness,
completeness, merchantability 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
possibility of such damages, resulting from the use of or inability to use, any such
information. The credit ratings, if any, constituting part of the information contained
herein are, and must be construed solely as, statements of opinion and not 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
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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 security that it may consider purchasing, holding or selling.
Pursuant to Section l7(b) of the Securities Act of 1933, MOODY'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 $1,500,000.
4
[02-Jul-2003] Miami Beach, Florida; Tax Secured, General Obligation
Page 1 of3
STANDARD
&POOtrS
I RATINC3SDIRECT
Research:
Miami Beach, Florida; Tax Secured, General Obligation
Publication date: 02-Jul-2003
Credit Analyst: Baltazar Juarez, New York (1) 212-438-7999; Robin Prunty, New York (1) 212-438-2081
Return to Regular Format
Credit Profile
$62.465 mil GO bnds ser 2003 due 09/01/2033
Sale date: 10-JUL-2003
AA-
UPGRADED To From
$11.900 mil. Miami Beach GO bnds (Pk Imp projs) ser 1996
dtd 10/01/1997 due 09/01/1998-2007 AAAlAA-(SPUR) A+
OUTLOOK:
STABLE
. Rationale
The upgrade to 'AA-' from 'A+' on the City of Miami Beach, Fla.'s GO bonds is based on sustained
strong financial performance bolstered by established fiscal policies and strong reserve levels, along
with ongoing growth and diversification in the tax base. Other rating factors include:
. The city's role as a local, regional, and international year-round tourism destination, along with
the city's location and participation in the greater Miami metropolitan area;
. A large tax base that exhibits no taxpayer concentration and has experienced strong growth over
the past decade;
. Strong financial performance and position; and
. Wealth levels near state and national averages, as measured on a per capita effective buying
income basis.
These factors are partly offset by:
. A historically high unemployment rate; and
. An economic base that continues to diversify (particularly in the areas of health care and the
entertainment industry), but which still remains highly dependant on the tourism industry and, as
such, remains more susceptible to economic fluctuations.
The bonds are secured by the city's full faith and credit GO pledge. Series 2003 bond proceeds will be
used to fund renovations and expansions to the city's fire stations and to acquire and equip fire trucks.
Proceeds will also be used to fund parks, beaches, and neighborhood infrastructure capital projects.
Miami Beach consists of a seven-mile-long barrier island and a number of smaller natural and man-
made islands in southern Florida, across the Biscayne Bay from Miami. The city encompasses 7.1
square miles. Its year-round population is 87,933; however, the city receives about 7.5 million visitors
annually. The city's local economic base remains centered in tourism, but continues to diversify with a
growing health care and entertainment industry presence. Within the city, the leading employer is
Mount Sinai Medical Center and Miami Heart Institute, with 3,400 employees, followed by the city itself,
with 1,650 employees. The city's unemployment rate--which has historically been above the state and
national averages--was at 8.24% as of March 2003. Wealth levels, measured on a per capita effective
buying income basis, are slightly above average.
Financial performance and position are strong, bolstered by strong reserves and established financial
policies. The city's general fund has posted consecutive surpluses over the past four fiscal years, along
with healthy reserve levels. For fiscal 2002, the city's general fund posted a small surplus of $996,000.
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[Q2-Jul-Z003] Miami Beach, Florida; Tax Secured, General Obligation
The ending unreserved general fund balance totaled $26.9 million, or a strong 20.1 % of general fund
expenditures. The city's financial position is further bolstered by additional reserves maintained in the
parking system fund. For fiscal 2002, the unreserved fund balance reported in this fund was $37.4
million. Of this amount, management reports that $25.2 million is available for general fund purposes,
which is equivalent to 18.8% of expenditures. Combining these two reserve balances, the city had
$50.1 million, or a very strong 38.9% of expenditures. For the fiscal year ending Sept. 30, 2003,
management projects a modest general and reserves in line with fiscal 2002.
Page 2 of3
The city's debt burden is moderate. Overall net debt per capita is $4,634 and 3.9% of market value.
Amortization on the series 2003 issue is slower than average, with only 22% of principal retired within
10 years, 55% in 20 years, and 100% by 2033. Debt service carrying charges, for the total
governmental funds, are moderate at 13.5% of expenditures. The updated 2003-2007 capital
improvement plan totals $289.3 million. The bulk of the plan ($207 million) is for public works projects.
. Outlook
The stable outlook reflects the expectation of continued strong financial performance and position,
along with ongoing economic growth and diversification. The outlook also reflects the expectation that
the debt burden will remain manageable going forward.
. Economy
Miami Beach consists of a seven-mile-Iong barrier island and a number of smaller natural and man-
made islands in southern Florida, across the Biscayne Bay from Miami. The city encompasses 7.1
square miles. Its year-round population is 87,933; however, the city receives about 7.5 million visitors
annually--drawing local, regional, and international visitors.
The city's local economic base remains centered in tourism, but continues to diversify with a growing
health care and entertainment industry presence. In the tourism/hospitality sector, leading employers
include the Fontainebleau Hilton Resort (1,200 employees) and Loews Miami Beach Hotel (800). In the
health care sector, leading employers include Mount Sinai Medical Center and Miami Heart Institute
(3,400 employees) and South Shore Hospital (850).
In the entertainment industry, Sony Music International and MTV Latin America are the leading
employers. Employment figures for entertainment industry-related employers range from 103-225;
however, their economic impact is significant. In 2002, for example, MTV held its inaugural Latin
America Video Music Awards in Miami Beach. The Art Basil Art Fair, another significant event, was held
in 2002, drawing about 15,000. Various other award shows, conferences, and conventions have been
held, including the Winter Music Conference, PromaxlBDA International and MODA in Miami, the
Source Awards, and Telemundo Latin Billboard Awards. These and other high profile events that the
city has hosted (which attract significant number of visitors) should continue to positively affect hotel
occupancy rates and prices, resort tax revenues, and overall tourism trends.
The city's unemployment rate has historically been well above the state and national averages. The 36-
month average, ending March 2003, was 7.95%, compared with 4.75% for the state and 6.10% for the
nation. Furthermore, as of March 2003, the labor force totaled 47,100, down slightly from 47,500 the
previous year. Employment, which remained unchanged over the previous year's figure, totaled 43,200-
-resulting in an unemployment rate of 8.24%.
The city's wealth and income levels are near state and national averages. Per capita effective buying
income ($18,859) is 103% of the state and 102% of the national levels. Measured on a median
household effective buying income basis, however, wealth levels are well below average at 54% of the
state and 48% of the national levels.
The city's tax base is large, exhibits no taxpayer concentration, and has increased at a strong rate over
the past decade. As of fiscal 2002, assessed value (AV) totaled $10.56 billion, or a high $102,092 per
capita market value. Management's preliminary projection for fiscal 2003 AV is estimated at $12.2
billion. Growth in AV has been strong, increasing an average of 9.9% annually since 1998. Growth in
the tax base has been fueled by significant, ongoing residential and commercial construction. In fiscal
2002, the value of building permits decreased slightly, but remained strong; overall construction
remains brisk. Major residential and commercial projects are under way, with many others recently
completed or planned. On the residential side, some of the larger projects include:
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. The Continuum (phase 2). estimated at a cost of $154 million. 440 units. with a completion date
of late 2005;
. The Akoya. estimated at $130 million. 461 units. with an estimated completion date of 2003;
. The Bath Club, estimated at $125 million. 256 units, with an estimated completion date of
January 2003;
. The Muran Grande (Phase 1). estimated at $95 million. 263 units, with an estimated completion
date of summer 2003.
On the commercial side. several hotel projects are under way. including:
. Setai AmanResorts. estimated at $125 million, with 90 rooms; and
. Ritz Carlton. estimated at $100 million, with 380 rooms.
There is no concentration in the tax base. with the 10 leading taxpayers accounting for 5% of AV. Tax
collections are also strong, with the current-year collection rate at about 100%.
. Finances
Financial performance and position is strong. Fiscal 2002 general fund revenues totaled $125.6 million
while expenditures totaled $133.8 million. Annually, the city transfers funds into the general fund from
its resort tax fund to cover tourism-related expenses. After transfers in and out. the general posted a
small surplus of $996,776. and reserves (unreserved general fund balance and parking system fund)
remained strong at $50.1 million, or 38.9% of general fund expenditures. Additionally. since at least
1999, the city's three pension funds have been over-funded and management has not needed to make
contributions. In fiscal 2003, however, management will be making pension contributions to keep them
fully funded.
For the fiscal year ending Sept. 30. 2003, management projects a modest surplus ranging from
$300,000-$400.000. The ending unreserved general fund balance is projected to remain in line with
fiscal 2002 ending results. The parking system fund reserves are also projected to remain in line with
fiscal 2002 results.
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