Bond Rating and Fiscal Capacity

I.                    Introduction

Different jurisdictions have different credit liabilities. Various evaluations of municipal bonds. A large spread of interest rates for individuals (0-25%) but for municipal bonds it's NOT So

1.      Frank’s law of big numbers

80,000,000 city of Miami bond to clean up roads

1% of that is 800,000 (80k)

average maturity is 15 years

15x80k=1,200,000 over life time of bond

2.      S&P/Moody’s/Finch people listen to big operations

They are nonpartisan/ when speak, people pay attention. Lower rating on a government makes increase cost of borrowing money/ with high-interest rates

3.      Bond Evaluators look at:

a.       Economic base

b.      Management practices

c.       Political climate

d.      The better side of capitalism—look for the objection of credit worthiness

e.       Databases with/between jurisdictions

4.      Fiscal capacity—to receive a bond/how to rate it

a.       Linear programming, regression approach, point system, overlap and GO vs. other

b.      Most municipalities have  “toolbox of taxes”

Property taxes

Utility taxes

User fees (fire, selective services, etc. Garbage)

Misc. (cell phone taxes, light, water, gas)

Permits

Fiscal Capacity		City A (Miami)	City B (Adventura)
	Property taxes Utility taxes User fees Misc. Permits	8 7 8 5 7	2 3 4 2 3

The mill is 1$/? For what?

Every jurisdiction can draw on political systems

Some areas can draw move on these than other

So bond ratings change with the age of a city.  Miami is older and has more debt than Adventura which is younger and has lower ratings…

5.      Socio-physiological/look at how much poverty relates to economic base

20/30% below poverty line

how much can a county’s dept accrue?

Depends on the property tax base-met 1 to 10% of property value or the per capita income

In FL—cities and counties increase % per capita debt comparison states and cities

Ratings System

AAA AA A BB

Junk Bonds BB B C D –bond is not paying on interest or principal

6.      Per Capita Debt

In FL-slightly below the median income

Biotec company hub sets up in Dade county 2 times and still will not move in, why? Politics

So S&P/Moody/Finch looks at per capta income

Not just dept in absolute terms but who can pay

Aviation bonds=A ratings on Revenue Bonds

Dade County have General Obligation bonds=A/or AA