(Updates to put credit outlook and ratings in seventh and eighth paragraphs.)
Dec. 14 (Bloomberg) -- Miami-Dade County, Florida’s largest public borrower, may find its credit standing “at stake” because of a federal probe of accounting practices that froze $180 million of transit funds, a local official said.
The Federal Transit Administration, which oversees $10 billion of U.S. funds for local transportation, suspended grants to the county last month after an audit uncovered “serious accounting deficiencies,” Brian Farber, the agency’s associate administrator, said in a statement. “Extensive corrective actions” will be necessary to reverse the freeze, he said.
U.S. auditors are investigating how Miami-Dade accounted for payroll and cash payments on buses, and whether it withdrew federal funds for non-transit activities such as union-activity costs, said Ysela Llort, assistant county manager. No report has been submitted yet, she told county commissioners. A prolonged freeze may harm the county’s standing with credit-rating companies, Llort said.
“At stake is any future action that we might take in our bonding program,” she said at a Dec. 7 meeting. Delays in restoring the funds, meant for construction, repairs and bus purchases, may harm the county’s reputation as “a trustworthy organization” that can be rated “accordingly,” Llort said.
The suspension of grants isn’t unusual, Paul Griffo, a Federal Transit Administration spokesman, said in an interview yesterday.
“It’s a normal part of FTA business,” he said via telephone from Washington. “Hundreds” of agencies have had their funding suspended and then reinstated, he said.
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings have a negative outlook on Miami-Dade, which has about 2.4 million residents, according to U.S. Census Bureau estimates.
S&P rates Miami-Dade’s general-obligation bonds AA-, its fourth-highest grade. Moody’s and Fitch rate them third-highest, at Aa2 and AA. Miami-Dade has $17.8 billion of debt outstanding, the most of any Florida municipality, according to data compiled by Bloomberg.
Revenue backing general-obligation bonds fell 11 percent in fiscal 2009, Moody’s said in an Aug. 2 report. The county has closed $800 million of deficits over the past three years, according to the current year’s proposed budget, as joblessness curbed tax collections. Unemployment reached 13.1 percent in October, 3.5 percentage points higher than the national average that month.
Impact on Rating
“Depending on what the findings are, it may or may not affect the rating,” Le Quach, the New York-based S&P analyst who covers Miami-Dade, said in a telephone interview yesterday about the U.S. audit. It “seems like a basic administrative thing right now.”
Moody’s won’t “speculate about any future rating changes,” John Cline, a New York-based spokesman, said in an e- mail yesterday. Michael Rinaldi, a Fitch analyst in New York, didn’t comment.
Miami-Dade notified the ratings companies that the federal grants were frozen, said Frank Hinton, the county’s bond analyst.
“The FTA has not given us any findings in our audit,” Hinton said in a telephone interview Dec. 10. “As such, we don’t know how to respond. We anticipate they didn’t get the information they wanted and when they do, everything will go back to normal.”
The county, which allocates about a fifth of its budget to transportation, was awaiting reimbursement of $50 million from the federal program, Ryan Elliott, an analyst with the county’s Office of Strategic Business Management, said at the Dec. 7 commission meeting.
After the county knows which problems prompted the freeze, it should be able to resolve them by early March, County Manager George Burgess said at the meeting.
“All of these issues are quite curable,” he said. The county has already addressed some, including firing two employees, Burgess said.
The county anticipates a “prompt resolution of the issues,” Victoria Mallette, a spokeswoman, said in an e-mail yesterday. “We have already implemented an action plan.”
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