MOODY'S ASSIGNS Aa3 RATING TO SUNSHINE STATE GOVERNMENTAL FINANCING COMMISSION'S (FL) REVENUE BONDS (MIAMI-DADE COUNTY PROGRAM): OUTLOOK IS NEGATIVE

Aa3 RATING AND NEGATIVE OUTLOOK AFFECTS OVER $560 MILLION IN SUNSHINE STATE OBLIGATIONS REPAID FROM MIAMI-DADE COUNTY LEGALLY-AVAILABLE NON-AD VALOREM FUNDS

Miami-Dade (County of) FL
County
FL

NEW YORK, Mar 21, 2011 -- Moody's Investors Service has assigned a Aa3 rating to the Sunshine State Governmental Financing Commission's (FL) $28.9 million Revenue Bonds, Series 2010A-1 ($14.4 million) and Series 2010B-1 ($14.4 million) (Miami-Dade County Program) and $253.7 million Revenue Bonds, Series 2011A (Miami-Dade County Program). The outlook is negative. At the same time, Moody's is assigning underlying ratings of Aa3 to the Commission's $112.95 million Multimodal Revenue Bonds, Series 2010A and $112.95 million Multimodal Revenue Bonds, Series 2010B (Miami-Dade County Program) issued in December 2010, as well as the Commission's $53.8 million Multimodal Revenue Bonds, Series 2011 B ($26.9 million) and 2011 C ($26.9 million) (Miami-Dade County Program) being offered concurrently. The outlook on the underlying multimodal bond ratings is also negative. Finally, the Aa3 rating on all outstanding rated non-ad valorem obligations is affirmed, and the outlook is negative. For all Sunshine State obligations issued on behalf of Miami-Dade County, these obligations are payable, pursuant to Loan Agreements, from Miami-Dade County's (FL) covenant to budget and appropriate legally-available non-ad valorem revenue (after payment of essential services and bonds having a prior claim on certain non-ad valorem funds). In addition, the multimodal bonds are secured by a letter of credit with JP Morgan Chase Bank, N.A.

Proceeds of the Series 2010 A-1 and B-1 bonds convert $30.4 million of multi-modal bonds to a fixed rate. Proceeds of the Series 2011A bonds refund $204 million variable rate county project bonds and $55.5 million variable rate county port loans and achieve some net present value savings. The multimodal bond issues replace the previous Dexia credit facility with a JP Morgan Chase Bank, N.A. letter of credit for three years. Legal security includes a liberal anti-dilution test and no debt service reserve on these offerings.

On March 15 county voters voted to recall the County Mayor and a one of the county's commissioners. In addition, this week the County Manager also resigned and was replaced by the Assistant County Manager. These abrupt management changes in key county positions is significant, although we expect the county to continue to operate effectively under the leadership of the newly-appointed County Manager, who has worked with the county for 27 years, and remaining commissioners, until another mayor is either appointed or voted in, without a material impact on county daily operations. The county's general obligation bonds are rated Aa2 with a negative outlook.

RATINGS RATIONALE

The Aa3 rating considers the county's favorable level of available non-ad valorem revenues, although the county's weakened financial position, exacerbated by ongoing tax base declines, place material stress on non-ad valorem funds which have become increasingly important in funding ongoing county operations. The expected self-supporting nature of debt service on the majority of non-ad valorem obligations (primarily from various county enterprises) is an important rating factor. The negative outlook recognizes the county's materially-weakened financial condition, continuing depressed economic indices and some exposure associated with expiring credit facilities on a modest amount of non-ad valorem obligations (after this refunding). Also, the severely-weakened financial condition of the county-owned hospital (Jackson Health Care System) could potentially require an additional county financial commitment, which would weigh heavily on the county's credit.

STRENGTHS

- County's sizable and diverse economic and tax base

CHALLENGES

- County's ongoing depressed economic conditions

- County's rebuilding cash and reserves in an adverse revenue environment

- Unsettled political environment

DETAILED CREDIT DISCUSSION

SUNSHINE STATE

The Sunshine State Governmental Financing Commission is a public body created in 1985 to provide common financing to a limited number of qualified governmental entities in Florida. The Commission is governed pursuant to an interlocal agreement and operates independently of its member governments. Loans are made to participants pursuant to a Loan Agreement. The agreements related to the current offerings stipulate that loan repayments from Miami-Dade County (Obligor) to Sunshine State will be made from the obligors' non-ad valorem revenues. The county's participation in the Sunshine State loan program requires that maximum debt service on all non-ad valorem ("covenant") obligations must be no more than half of identified legally available revenues.

FAVORABLE PROTECTION AFFORDED BY LEGALLY-AVAILABLE NON-AD VALOREM REVENUES

Moody's believes that while the county's covenant to budget and appropriate from legally-available non-ad valorem revenues affords favorable security, the county's use of these revenues to support (directly and indirectly) a very significant amount of county obligations dilutes its effectiveness. The county has identified approximately $857.8 million in available non-ad valorem funds in fiscal 2010 (unaudited) in relation to $170.8 million in MADS (2011) for all non-ad valorem obligations (including the current issue and self-supporting obligations paid from enterprise funds) either paid from non-ad valorem funds or ultimately backed by non-ad valorem funds. Only about 21.1% of all non-ad valorem total debt service is actually paid from covenant revenues, with the remainder paid from other county sources, primarily enterprise revenues. The county's covenant pledge either supports or is the ultimate security for over $2.13 billion in varied county bonds and loans. Non ad valorem revenues, which are used to pay operating expenses, are an increasingly important budgetary funding component, as property taxes continue to decline due to both the weakened economy and statewide tax reform. Total available non-ad valorem revenues declined over 11% in fiscal 2009 (from 2008) due to declines in several major revenue components including sales and other taxes as well as reserves, declining only marginally (0.8%) in fiscal 2010 (unaudited). Over-leveraging of this pledge could restrict future financial flexibility, especially as other revenues continue to stagnate. Additional non-ad valorem obligations are not precluded in the Ordinance.

COUNTY FINANCIAL OPERATIONS CHALLENGED BY DECLINES IN MAJOR REVENUE SOURCES; SIZABLE BUDGET CUTS IMPLEMENTED

Although county officials have taken steps to cure recurring budget gaps caused by declines in major county revenue sources, targeted reserve levels have narrowed considerably. Given the depressed economy and declining major revenue sources, additional budgetary challenges face officials going forward. Operating surpluses through fiscal 2007 improved cash and reserve levels considerably, with fiscal 2007 total General Fund balance increasing to 18.1% of revenues ($404.9 million), unreserved balance at 8.2% of revenues ($183.8 million), and the emergency contingency reserve at 2.8% ($62.9 million). The county's overall financial condition has narrowed in the last two years through fiscal 2009, with a total $109 million reduction in General Fund balance to $296.3 million (14.1% of revenues) and an undesignated balance of $90.8 million (4.3% of revenues). However, the county's emergency contingency reserve increased to $72.9 million (3.5% of revenues) in fiscal 2009. For fiscal 2010, officials anticipate a marginal increase ($507,000) in preliminary unaudited total General Fund balance (to $297 million, about 15.1% of revenues) and a decline in emergency contingency reserves to $32.1 million (1.6% of revenues). Current plans are to add $18 million to $20 million to the emergency contingency reserve annually to achieve a self-determined level of $100 million. However, forecasted budgetary gaps would have to be addressed for this to occur. The emergency contingency reserve is budgeted at $53 million in fiscal 2011 (3.28% of revenues). Additional reserves of about $34.6 million are also budgeted for fiscal 2011 and, together with the emergency contingency reserve, total $87.6 million or 5.4% of the operating budget. The county code requires rebuilding the reserve over a lengthy seven-year period but is loosely worded regarding annual contributions or total amount. The 2011 operating budget includes a 13.4% tax rate increase and a modest $33.3 million of one-time revenues (excluding another $25.1 million budgeted transfer from the water and sewer system which is expected to continue going forward).

Officials have made about $1.4 billion in cuts in total countywide budgets from fiscal 2008 to fiscal 2011, largely through expenditure reductions (significant internal and back-office support), collective bargaining concessions, use of one-time revenues (for both recurring and non-recurring expenses) and the elimination of roughly 3,058 positions (27,647 remaining). Budgetary reductions are material and have weakened the county's cash and equity position appreciably. Another anticipated 5% tax base decline next year (fiscal 2012) places added strain on operations in the absence of increased revenues. Financial projections currently identify structural imbalances of about $187 million in fiscal 2012 (including UMSA) to $302 million in fiscal 2015 (including UMSA), which are more modest than what the county has dealt with recently. Notwithstanding expected challenges of restoring budgetary structural balance despite a confluence of opposing factors, maintenance of adequate reserves for a government the size of Miami-Dade is an important rating criterion.

The county is self-insured for health care, and officials expect a manageable increase in employee contributions. The county has an estimated $67 million self-insurance deficit at the end of fiscal 2010. The county is part of the state-administered pension plan, which is anticipating a significant increase in funding requirements in the last quarter of fiscal 2011. The county is contributing 100% of the annual required contribution (ARC) for the pension program. A September 30, 2010 GASB 45 (OPEB) liability is now estimated at $336.7 million with an annual required contribution (ARC) of $30.9 million. The county currently funds the OPEB ARC on a pay-as-you-go basis annually ($20.6 million in fiscal 2010). The county has no funds invested with the SBA currently, but maintains most of its investments in U.S. treasury and agency obligations with a smaller portion in commercial paper.

COUNTY HEALTH CARE SYSTEM'S CRITICAL FINANCIAL CONDITION COULD FURTHER STRAIN COUNTY FINANCES

The county's hospital system, Jackson Health System (JHS), is experiencing severe financial difficulties, with an extremely narrow 18.4 days cash on hand ($82 million) projected at the end of fiscal 2010. The hospital system was in violation of its rate covenant for fiscal 2009 and fiscal 2010 (September 30). The health system has hired an independent consultant and is reportedly implementing its recommendations in phases throughout the term of the study. The county has $368.4 million in debt on behalf of the hospital that is backed-up by the covenant to budget and appropriate non-ad valorem revenues in the form of a Debt Service Reserve Fund replenishment. The debt is effectively paid from a health care sales tax from first funds that are received and paid directly to the county, acting as its own trustee. In addition to the health care sales tax, the county also subsidizes hospital operations with a maintenance of effort subsidy (MOE) predicated on 11.873% of the General Fund budget excluding ad valorem and gasoline taxes plus 0.6667 mills of the tax roll at 95% (maintenance of effort). The county advanced both sales tax and MOE funds in fiscal 2010 to ease the cash flow crunch. A similar procedure for the current fiscal year (2011) has been requested, but requires approval of the Board of County Commissioners. It is uncertain at this time whether further hospital financial deterioration would require the county to take over the hospital and possibly appoint an oversight board. Additional financial support from the county could further weaken the county's overall tenuous financial condition and weigh heavily on its credit strength.

The SEC is conducting an investigation of the Jackson Health System and has requested documentation related to the public offering of the PHT Series 2009 Bonds as part of a formal investigation of PHT's financial conditions and projections.

MODERATE DEBT LEVELS WITH MANAGEABLE NON-ENTERPRISE BORROWING EXPECTED

Moody's expects the county's debt burden to remain manageable given moderate non-enterprise borrowing expectations. The county has an overall debt burden of 2.4%, which is manageable given the size of the tax base and population. Debt service costs of about 5.5% of fiscal 2009 total operating revenues are moderate. The county's $21.1 billion multi-year capital program is heavily weighted towards enterprise systems, especially aviation, transit, water and sewer, and seaport. The plan envisions the issuance of $17 billion in net bond proceeds (81%), $8 billion of which has already been funded, although the plan includes projects presumed to be funded with debt, which may not be realized. County voters have approved a separate one-half cent sales tax for transportation, which Moody's believes will help fund the county's significant transportation infrastructure needs. The $2.925 billion general obligation bond authorization (Building Better Communities-BBC), approved by voters in 2004, addresses several segments of county infrastructure needs. Both of these authorizations reflect positively on county efforts to maintain and improve infrastructure. Currently, over three-quarters of the county's net direct debt is special tax debt, with the remainder being general obligation bonds. Borrowing plans over the next two fiscal years (FY 2011 and 2012) include: $425 million in water and sewer bonds (in 2012); $534 million in Transit-related debt (in 2011 and 2011); $525 million funding of the BBC (G.O.) authorization (including the current offering and a $225 million commercial paper program to be established in 2012) and $262 million in additional non-ad valorem obligations (including $75 million for Jackson Memorial Health System).

Aside from two special tax issues that total $145.9 million (backed by TD Bank and Wells Fargo credit facilities), the county has most variable rate exposure related to loans with the Sunshine State Loan Program ($546.4 million total, with only about $211 million directly related to non-enterprise systems). This amount will be reduced to $256 million after a concurrent sale through the Sunshine State which is mostly fixed rate bonds, and all of the remaining Sunshine loans will be related to the Seaport. About $320.5 million of the Sunshine State loans are backed by a Dexia Credit Local letter of credit (expiring June 2 and August 1 of 2011) with another $225.9 million backed by a JP Morgan Chase bank letter of credit facility through December 2013. For the JP Morgan facility there are no rating triggers that would terminate the facility and any repayment of un-remarketed bonds would be at an increased rate. The Dexia facilities are currently being replaced in the aforementioned concurrent Sunshine State financing with fixed rate bonds except for a $53.4 million portion that will be included in the JP Morgan facility. There are also five basis swaps on special tax debt, $536.5 million notional amount, with all five requiring collateral posting (one below the A3 rating level and four below the Baa1 rating level). No collateral posting is currently required. Four of the swaps are with Loop Financial Products and are guaranteed by Deutsche Bank. Under the four swaps with Loop Financial: two have the county paying SIFMA divided by 0.604 and receiving LIBOR plus 1.77%; under one other, the county pays SIFMA divided by 0.604 and receives LIBOR plus 1.65343%; and under the fourth swap, the county pays SIFMA divided by 0.604 and receives LIBOR plus 1.43%. Under the fifth swap with JP Morgan Chase, the county pays SIFMA plus 23.5 basis points and receives CPI plus 0.50% of $10 million and 0.70% of $25 million. Recent mark-to-market values (March 10, 2011) on the swaps are a positive $12.4 million to the county. There are also about $140.7 million in various non-enterprise county debt service reserve sureties with several insurers whose ratings have been downgraded. In each instance, there is reportedly no stated requirement to substitute or fund those sureties in cash.

The county has obligations to 10 outstanding lease in-lease out (LILO) agreements that were defeased with guaranteed investment contracts (GICs) held by Ambac (rated Caa2), FSA (rated Aa3) and AIG (rated Baa1). One agreement relates to the county's Metro Center, and nine relate to maintenance and parking facilities and technical equipment of the county's transit enterprise. Due to the downgrade of GIC providers, the county is in technical default on 4 of the 10 agreements. In each case, the county is negotiating with the investor (Bank of America) to remedy the technical default. In one case, the county has posted $6.7 million (valued at $9.4 million at end of FY 2010) in collateral to Rabo Bank to bring the transaction back into compliance. The county estimates that if it had to post collateral on the other four transactions currently in default, $11 million of additional collateral could be required. If, however, the county were required to fully collateralize the transactions, it could require up to $38.2 million.

BROAD-BASED ECONOMY WITH DOMESTIC AND INTERNATIONAL TOURIST IDENTITY

The county's sizable economic base is diversified by tourism, trade, banking, and manufacturing industries. Tourism remains a primary economic component and is bolstered by the county's airport and seaport operations as well as significant hotel/motel accommodations throughout the county, especially in Miami and Miami Beach. The leisure and hospitality sector accounts for over 10% of area non-agricultural employment. The number of tourists increased 22.6% to 12.1 million over the last 10 years through 2008 before declining 1.6% to 11.9 million in 2009. Tourists are also roughly split between domestic and international originations that feed from several markets. The economic impact of tourism is estimated to have increased 36.2% over the past 10 years to $17.3 billion annually ($17.1 billion in 2009). International trade, about 8% of the county's gross domestic product, appears to be turning more favorable as its major trading partner, Brazil, has demonstrated resiliency in the global recession.

Locally, the Miami area has been markedly affected by the residential housing crisis, leading to significant foreclosure activity, initial unemployment filings and a dramatic falloff in construction activity. The number of foreclosures (REO) increased appreciably in 2008 and 2009 with the third quarter 2010 figure of 5,871 reaching a new peak, more than tripling the first quarter 2010 level of about 1,826 and indicating a continued escalating trend. Median single family home values reportedly lost about half their value from their high point to about $183,900 in August 2010, while condominium values declined even more precipitously to $104,300 for the same period. The tax base, which had grown at a solid 14.1% annual average rate over the five years through fiscal 2009, has declined 21.8% in the last two years alone through fiscal 2011 (to $192.3 billion) as a result of the economic contraction and property tax reform. Another 5% tax base decline is expected for fiscal 2012. Unemployment, at 13.2% in December 2010 (seasonally unadjusted), is high in relation to both the state (11.6%) and the nation (9.1%) reflecting increased labor force growth far outpacing job growth. Unemployment rates will likely continue to increase in the absence of any material job creation. According to Moody's Economy.com (November 2010), Miami's (MIA) recovery will be among the fastest in the nation notwithstanding the substantial weight of forthcoming house price declines, mirroring the statewide trend. Commercial construction, healthcare expansion, and the resurgence of battered procyclical industries will underpin MIA's above-average pace of job creation in 2011. Long term, MIA's growing infrastructure, strong international trade ties, and stature as an attractive international tourist destination will allow it to outperform the nation.

What Could Make the Rating Go UP (Removal of Negative Outlook):

- Restoring of budgetary structural balance

- Significant improvement in financial flexibility and reserves

- Strong and sustained economic recovery and improved wealth indices

What Could Make the Rating go DOWN:

- Continued deterioration in financial condition

- Management's inability to adequately address financial challenges

- Continued economic decline

COUNTY STATISTICS:

Security: County's covenant to budget and appropriate from legally-available non-ad valorem revenues by amendment, if necessary (after obligations having a direct pledge on specific non-ad valorem funds and after costs related to essential governmental services).

Post-Sale Non-Ad Valorem Obligations Outstanding: $2.13 billion

Non-Ad Valorem Obligation Payout,

10 Years: 34.5%

20 Years: 67.4%

30 Years: 95.5%

39 Years: 100%

Debt Burden: 2.4%

County 2009 Estimated Population: 2,531,769

Countywide FY 2011 Full Value: $265.5 billion

Full Value Per Capita: $104,854

Countywide FY 2011 Operating Tax Rate as % Statutory Limit: 82.9%

FY 2009 General Fund Balances (as % of G.F. Revenues),

Total: 14.1%

Unreserved: 4.3%

Contingency: 3.99%

Debt Burden: 2.4%

County as % State/ U.S. (2000 census),

Median Family Income: 88.2%/ 80.4%

Per Capita Income: 85.8%/ 85.7%

Median Housing Value: 118% / 103.7%

Persons Below Poverty: 17.97%

County Unemployment Rate, 12/2010: 13.2% (11.6% state; 9.1% U.S.)

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was The rating was assigned by evaluating factors believed to be relevant to the credit profile of the issuer such as i) the business risk and competitive position of the issuer versus others within its industry or sector, ii) the capital structure and financial risk of the issuer, iii) the projected performance of the issuer over the near to intermediate term, iv) the issuer's history of achieving consistent operating performance and meeting budget or financial plan goals, v) the nature of the dedicated revenue stream pledged to the bonds, vi) the debt service coverage provided by such revenue stream, vii) the legal structure that documents the revenue stream and the source of payment, and viii) and the issuer's management and governance structure related to payment. These attributes were compared against other issuers both within and outside of the issuer's core peer group and the issuer's ratings are believed to be comparable to ratings assigned to other issuers of similar credit risk.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

Outlook

The negative outlook for Miami-Dade County's non-ad valorem bonds is based on the county's materially-weakened financial condition, despite official's implementation of significant budget cuts in recent years, and continuing depressed economic indices. Also, the severely-weakened financial condition of the county-owned hospital (Jackson Health Care System) could potentially require an additional county financial commitment which would weigh heavily on the county's weakened financial condition.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

John Incorvaia
Analyst
Public Finance Group
Moody's Investors Service

Susan Kendall
Backup Analyst
Public Finance Group
Moody's Investors Service

Julie Beglin
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Jack Dorer
Director
Public Finance Group
Moody's Investors Service

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