Fitch Rts Miami-Dade County, FL Transit Sys Sales Surtax 'AA-'; Outlook Stable; GO Outlook Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following Miami-Dade County, Florida transit system sales surtax revenue bonds:

--$13,355,000, series 2010A;
--$203,905,000 series 2010B (federally taxable - Build America Bonds - direct payment).

The Rating Outlook is Stable.

The bonds are expected to sell via negotiation on Aug. 25, 2010.

In addition, Fitch affirms the following ratings and revises the Rating Outlook to Negative from Stable:

--$844 million general obligation (GO) bonds at 'AA';
--$157 million public service tax revenue bonds (UMSA public improvements) at 'AA';
--$29 million special obligation bonds (courthouse center project) at 'AA-';
--$374 million public facilities revenue bonds (Jackson Health System) at 'AA-'; and
--$319 million professional sports franchise facilities tax revenue bonds at 'A+'.

Fitch also affirms the following ratings with a Stable Rating Outlook.
--$770 million transit system sales surtax revenue bonds at 'AA-';
--$75 million special obligation bonds (convention development tax) at 'A+'; and
--$551 million subordinate special obligation bonds (convention development tax) at 'A+'.

RATING RATIONALE:

--The Outlook revision to Negative on the county's 'AA' GO rating and 'AA-' rating on bonds supported by a covenant to budget and appropriate (CB&A) non-ad valorem revenues reflects the county's weakened financial profile, related to a severely stressed housing market and decline in economic activity, as well as the potential for further fiscal deterioration should appropriate action not be taken to resolve a persisting budgetary imbalance. The Outlook revision also affects the public service tax revenue bonds based on Fitch criteria that applies a ceiling for special tax bond ratings equal to the issuer's GO rating.
--The 'AA-' rating on the transit system sales surtax revenue bonds reflects the general creditworthiness of the county and a pledge of a one-half cent sales tax levied throughout Miami-Dade County. Fitch expects stable pledged revenue performance and adequate coverage over the long-term supported by the county's growing population base and a broad, diverse, and internationally focused economy.
--Debt ratios are expected to remain moderate given manageable non-enterprise fund borrowing plans. Pressures do exist however associated with the implementation of a robust capital improvement program.
--The 'AA-' rating on the special obligation bonds (courthouse center project), public facilities revenue bonds (Jackson Health System), and professional sports franchise facilities tax revenue bonds reflects the county's CB&A non-ad valorem revenues to pay debt service or replenish debt service reserve fund deficiencies.
--The 'A+' rating on the professional sports franchise facilities tax revenue bonds reflects the county's CB&A non-ad valorem revenues as well as a provision whereby the county can be released from such covenant if pledged taxes on rental accommodations equal at least 150% of maximum annual debt service (MADS) in each of the preceding two fiscal periods.
--The 'A+' rating on the special obligation bonds (convention development tax) and subordinate special obligation bonds (convention development tax) is based on the secondary pledge of the county's share of the local government one-half cent sales tax, which is shared on a pro-rata basis and provides satisfactory coverage of total debt obligations and certain contractually obligated prior payments.

KEY RATING DRIVER for the transit system sales surtax revenue bonds:

--Maintenance of adequate debt service coverage given the county's plans to issue a substantial amount of additional debt under this financing program which will likely yield tighter overall margins and increased vulnerability to unanticipated reductions in pledged revenues at the present rating level.

WHAT COULD TRIGGER A DOWNGRADE on the GO and CB&A non-ad valorem obligations.

--Management's inability to solve future budget gaps with recurring revenue and expenditure solutions could trigger a downgrade. Fitch concerns center on the county's weakened financial profile following consecutive fund balance draws from fiscal 2008 to fiscal 2010 (projected) and the challenge of closing sizable gaps forecast through fiscal 2015.

--The county's hospital enterprise fund continues to operate at a deficit. While the county's legal financial commitment is defined and currently manageable, further fiscal deterioration of the Public Health Trust could exacerbate the county's budget problems putting downward pressure on the rating.

SECURITY:

The transit system sales surtax revenue bonds are secured by a first lien on revenues from a one-half-cent sales surtax levied countywide, net of an administrative fee to the state not to exceed 3% of proceeds and another 20% of proceeds distributed to cities within the county that were incorporated at the time the tax was approved. Also pledged are hedged receipts and federal direct payments. Issuance of additional parity bonds requires MADS coverage of 1.5 times (x) by historical pledged revenues, and issuance of subordinate debt requires 1.25x MADS coverage.

CREDIT SUMMARY:

The county is projecting 0.8% growth in pledged transit sales surtax revenues to $139.3 million in fiscal 2010 which would result in 2.1x coverage of MADS following issuance (excluding the BABs subsidy). The county has identified approximately $1.48 billion in additional transit financing needs through 2016 which, if issued as parity debt, would lower coverage to 1.22x by fiscal 2020 based on revenue assumptions of 1% growth in fiscal 2011, 3% in fiscal 2012, and 5% per year thereafter. Fitch views the revenue assumptions cautiously, and will monitor the county's ability to manage coverage to the 1.5x additional bonds test (ABT)_ threshold, as the ability to scale back issuance plans is somewhat limited according to officials.

The county's financial profile has weakened since closing fiscal 2007 with an unreserved fund balance in the general fund totaling $183.8 million or 8.4% of spending. The general fund reported net deficits aggregating $108.1 million in fiscal 2008 and fiscal 2009, resulting in an unreserved fund balance totaling $90.8 million or 4.2% of spending entering fiscal 2010. Officials anticipate drawing the unreserved fund balance to approximately $70 million in fiscal 2010. A $36 million cash carryover balance from fiscal 2010, which is reported as a subset of the unreserved fund balance, is appropriated into the fiscal 2011 budget. In addition, the fiscal 2011 budget relies on one-time transfers of $25.1 million from the water and sewer utility and $12 million from excess liability trust fund balances. The county's financial forecast identifies general fund deficits totaling $115 million in fiscal 2012 and $152 million in fiscal 2013. Fitch believes that budget imbalances, while more modest than prior year gaps, will prove even more challenging to close given the magnitude of budget cuts enacted to date and the strain on financial resources related to declining taxable values and events in the global economy.

Fitch also notes potential expenditure pressure related to the Public Health Trust (the Trust), an enterprise fund of the county responsible for the operation, governance and maintenance of several primary care centers and clinics throughout Miami-Dade County including Jackson Memorial Hospital. The Trust is experiencing significant financial strain as it struggles to balance its mission as a safety net hospital against declining resources resulting from the deterioration of the economy and an increase in non-paying patients and bad debts. Coverage on the public facilities revenue bonds issued by the county from net revenues of the Trust declined from 4.8x in fiscal 2008 to negative 7.0x in fiscal 2009. The bonds are ultimately backed by the county's CB&A non-ad valorem revenues to replenish any deficiency in the reserve fund. However, the debt is essentially repaid from a public hospital healthcare surtax received by the county and deposited into the debt service account before remittance to the Trust. Receipts from the surtax totaled $172.8 million in fiscal 2009 or 6.9x MADS. The county also subsidizes operations of the Trust with an annual maintenance of effort (MOE) contribution that will total $132.7 million in fiscal 2011. The Trust with county management is actively implementing a financial stability plan and the county expects the Trust will present a balanced budget for fiscal 2011. It is Fitch's expectation, based on discussions with the county, that no additional support from the general fund other than the MOE will be provided.

Fitch expects debt levels will remain moderate. Management continues to respond to the downturn in the economy and weakened revenue environment by revising its capital plans, though future needs remain significant. The fiscal 2011-2016 capital improvement plan (CIP) totals $21.1 billion. Debt is identified as the funding source for more than 80% of the CIP though a total of $8.8 billion has already been funded from prior year's issuances. Further, a large portion of the CIP is dedicated to various self-supporting enterprise fund units with manageable additional non-enterprise fund borrowing anticipated. The county plans to issue $2.2 billion in authorized unissued GO bonds associated with the Building Better Communities bond program approved by voters in 2004 over the next 13 years including approximately $200 million in fiscal 2011.

Miami-Dade County is the leading center of trade in the southeastern U.S. benefiting from an extensive transportation network and proximity to the Caribbean, Mexico and Central and South America. The recovery of Latin American economies could potentially provide a boost to trade, tourism, and retail sales in the region. Trade activity and jobs are down since the onset of the recession, but the sector is still viewed as a long-term source of sustainable economic activity for the region. The Port of Miami and Miami International Airport (MIA) are major cargo and transportation hubs. Recent passenger traffic trends at MIA are notably impressive given the reduction in traffic and capacity seen at many other U.S. airports since the middle of 2008. Capital expansions and renovations are underway that should enhance the overall competitive profile of each facility. The Miami Intermodal Center is a massive ground transportation hub located next to MIA and scheduled for completion in 2012 that will provide interconnectivity throughout the South Florida region and relieve traffic congestion. At the Port of Miami construction of a $600 million tunnel is expected to be complete by spring 2014 that will improve access to and from the port, linking with the MacArthur Causeway and I-395. According to the Bureau of Labor Statistics, the Miami-Dade employment base has grown by 0.8% or more than 9,000 jobs during the 12 months ending May 2010 led by gains in the education and health services sector. The rate of job growth however has not kept pace with labor force gains; as a result, the unemployment rate continues to rise, reaching a high 12.3% in May. Wealth levels are below average when compared to both the state and nation, and an above-average number of individuals living below the poverty line.

Considerations for Taxable/Build America Bonds Investors
This sector credit profile is provided as background for investors new to the municipal market.

Local Government Special Tax Bonds:
The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. local government can provide to the repayment of its long-term borrowing and, therefore, is the best indicator of its overall credit quality. The analysis of special tax bonds considers the rating the security itself can support, with the unlimited tax general obligation (ULTGO) bond rating generally serving as a rating ceiling. Special tax bonds with a broad, diverse pledged revenue stream and a strong additional bonds test can often achieve ratings on par with the ULTGO rating. Those with a narrow, concentrated, or volatile pledged revenue stream, such as a hotel tax or tax increment district revenues and/or a liberal additional bonds test, will likely be rated in the lower half of the investment- grade range.

The average local government general obligation rating is 'AA', with approximately 85% rated at or above 'AA-' and 1% rated 'BBB+' or below. The relatively high ratings on ULTGO bonds that provide the ceiling for special tax bonds reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and lack of competition for services provided by local governments. Those with low investment-grade or below-investment-grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities (including debt and post-employment benefits), and/or unusually limited financial flexibility. For additional information on these ratings, see 'U.S. Local Government Tax-Supported Rating Criteria,' dated Dec. 21, 2009, available on Fitch's Web site at www.fitchratings.com.

Applicable criteria available on Fitch's website at www.fitchratings.com:

--'Tax-Supported Rating Criteria,' dated Aug. 13, 2010.
--'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

Additional information is available at www.fitchratings.com.
Additional information is available at 'www.fitchratings.com'.

Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.