Miami May Seek State’s Help; S & P Lowers City’s Credit Rating

Miami’s worsening fiscal picture has city officials discussing a possible state takeover of its finances and even bankruptcy, and Standard & Poor’s Corp. on Wednesday cut the city’s credit rating to junk bond levels.

Mayor Joe Carollo notified Florida Gov. Lawton Chiles that the city is in a “financial emergency,” opening the door for the state to impose some form of financial oversight.

In a meeting with Chiles this week, Carollo raised the possibility of declaring bankruptcy if city officials aren’t able to gain wage concessions from unions and implement revenue-producing measures, said Robin Prunty, an S&P; analyst.

“Our decision was based on the limited progress we’ve seen to date,” Prunty said.

Miami faces an estimated budget deficit of about $68 million, or about 20% of its overall budget. The city’s commissioners declared a fiscal emergency last month and fired the city’s outside auditor as news of the deficit became public.

The deficit could be even larger than expected, though a revised figure wasn’t available. Miami and Florida officials did not return calls seeking comments.

If the city files for bankruptcy, its debt rating could fall further.

“It is not clear if the state has adequate authority to effect any necessary changes in order to assure timely payment of debt service,” Prunty said.

S&P;’s downgrade of the city’s bond rating to B from BBB could make it more expensive for the city to borrow if it needs access to capital markets to fund operations.

About $15.1 million in general obligation bonds were affected by the cut. Most of Miami’s $172 million in tax-backed debt is supported by bond insurance, allowing it to retain the AAA rating of the insurance companies.

Moody’s Investors Service Inc., Wall Street’s other major credit-rating company, left its rating unchanged at Baa, though its outlook remains negative, said John Incorvaia, a Moody’s analyst.

Miami’s financial situation took a turn for the worse last week after the city’s commissioners rejected a plan to double garbage fees to help raise revenue. The commissioners are expected to meet again in two weeks to review a possible recovery plan.

Although the city has the capacity to address its financial problems, the willingness of city officials to take action is “highly questionable,” Prunty said.

A bankruptcy filing could let the city nullify union contracts and renegotiate lease agreements to realize more savings, allowing the commissioners to avoid taking less popular measures.

Miami’s financial problems and a city government bribery scandal prompted a petition campaign to dissolve the government and have services taken over by surrounding Dade County.

Other troubled cities such as Troy, N.Y., and Bridgeport, Conn., recently used state oversight boards to help rectify their finances. Congress set up an oversight board for District of Columbia finances last year.