What is there not to understand? Moody’s and other credit-rating agencies can make or break a community’s budget when it comes to repaying municipal bond financing.
It happened before when Miami-Dade County officials decided to raid the emergency reserve fund to cover expenses that were well known at the time the budget was being drafted. Moody’s said that it was a bad financial strategy and downgraded the county’s bond issue rating to credit-negative.
What does that mean? It means that the credit-negative rating will tell bond buyers that there is a chance that the seller of the bond issue, in this case Miami-Dade County, “might possibly” default on the repayment of the bond issue.
Bond buyers taking that risk into consideration will demand a higher rate of return (i.e. a higher interest rate). As a result, the county — actually you and I, the taxpayers of Miami-Dade — must pay higher real estate taxes and greater fees over the years or receive less services in the future to cover the higher cost of the bond issue.
Now it is happening again. Unfortunately the news of Moody’s threat of a rating downgrade was found in the Miami Herald where few readers would even notice. It seems that the continuing story of hazing between several Dolphins football players demanded front page coverage and the news of a more expensive bond issue could only be found under an article on page 3B about a man accused of a killing being acquitted of charges.
Just what brought about the latest decision by Moody’s to announce a “credit-negative” rating? The battle between the county mayor and board of county commissioners was over the mayor’s recommendation that county employees should continue to make a 5 percent contribution toward the cost of county group hospitalization. The commissioners said the employees shouldn’t pay the 5 percent while the mayor said that it was needed. It went back and forth with commissioners voting no and the mayor vetoing their resolutions.
Finally, Commissioner Juan Zapata joined the veto override and the result: the mayor lost. No employee contribution will be required. As an aside, it should be noted that many, many employees of non-government businesses, readers of this column, do not have the luxury of a company sponsored group hospitalization plan. They are on their own to provide medical coverage. And, those that do have a company group generally pay half or more of the cost. Not a paltry 5 percent.
It’s not that our elected county commissioners are not aware of the potential cost increase in bond ratings. First, if they do not comprehend this basic fact, they should not be sitting on the commission. Secondly, they had been so advised by their own finance department, before their vote, that it could occur. Ed Marquez, deputy mayor for finance, warned commissioners of the consequences of their decision. “They [Moody’s] could downgrade us [Miami-Dade County] at any time.”
Now that the county commissioners put the $42 million cost back in the budget it is up to the mayor and the finance department to find $42 million in costs that can be eliminated from the budget. Remember the county cannot borrow funds like the federal government to cover shortfalls. Our county government, like all county governments, must balance its budgets. Add an expense someplace and you must find an equal reduction in another. That is unless we have a sufficient “rainy day fund” to cover such an unexpected expense. And, the 5 percent was not unexpected.
Marquez stated that the rating downgrade could cost the county taxpayers $111 million in higher interest over the next 20 years. However commissioners don’t have to worry. Ten, 15, 20 years from now they will not be running for reelection and how they voted in 2014 will have no relevancy.
One last question: If the county must go through another round of employee firings to cover the $42 million will those fired county employees, their families and friends vote to reelect those commissioners that voted against the employee contribution to the health plan? I doubt it!
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