Reporting Tim Kephart
MIAMI (CBSMiami.com) – Despite public pronouncements from local officials that the city of Miami is stable, two major bond ratings services have downgraded the city’s ratings which will continue to make investors leery about investing in the city, and could cost the city millions.
Monday night, Fitch Ratings gave the city of Miami bonds a BBB+ rating. Fitch said the rating downgrade came from persistent budget problems and erosion of narrow reserves in 2010. Fitch also placed the city’s rating on negative watch.
“The city faces significant challenges to improve its substantially constricted financial flexibility and adhere to established financial policies,” Fitch said in a press release about Miami’s ratings.
Fitch said that Miami’s financial situation has been “volatile” and characterized by operating deficits in recent years.
In addition, Fitch said Miami is constantly challenged with coming up with money in a flat or declining economy due to joblessness and the implosion of the housing market.
Fitch’s move came just days after Moody’s had also decided to downgrade the city’s financial outlook from stable to negative. Moody’s outlook indicated the city could be in deep trouble if major changes aren’t made soon.
Moody’s said the city’s inability to balance the budget, along with a drop in tax revenues, has left the city vulnerable financially with little flexibility and little improvement expected in the near-future.
Moody’s said Miami faces challenges of “achieving structural balance and rebuilding reserves; severity of housing market correction; and dealing with key city management turnover.”
Moody’s and Fitch also said that an unfair labor practice lawsuit by city police and firefighters, other class-action lawsuits, and a Securities and Exchange Commission investigation could further endanger the city’s credit rating.
For the long-term, Moody’s said the credit rating will depend on the city’s ability to balance the budget and restore reserves to the normal levels as set by the city. The city has to do all of that in “an adverse economic environment that impedes revenue growth.”