SEC accuses South Miami of defrauding bond investors in downtown parking garage deal

A South Miami parking-garage controversy that has sparked political clashes, malpractice lawsuits and firings reached a climax Wednesday, when the Securities and Exchange Commission accused city officials of defrauding bond investors about the downtown facility’s tax-exempt status.

In a civil action, the SEC charged the city with misleading those investors about the tax-exempt eligibility of $12 million in bonds sold to build the five-level parking garage and retail complex that opened in late 2007. In the order, the federal commission accused South Miami officials of failing to disclose that they had jeopardized the tax-exempt status of two bond sales by “impermissibly loaning proceeds from the first offering to a private developer and restructuring a lease agreement prior to the second offering,” according to an SEC statement.

The order noted that in 2011 the city settled with the Internal Revenue Service by paying $260,325 in taxes and by taking out a new long-term bank loan of about $1.2 million to cover the additional costs of the private-public parking project after it was deemed taxable.

The city also was ordered to cease violating SEC laws and to hire an independent consultant to oversee its compliance on municipal bond disclosures over the next three years.

“Municipalities in South Florida and elsewhere cannot rely on a lack of internal procedures or experience in debt offerings to excuse fraudulent disclosures made to investors,” said Eric I. Bustillo, director of the SEC’s Miami regional office.

City officials seemed relieved that the decade-long controversy may finally be over.

“It is not costing us a heckuva lot more than it originally did, [but] it’s been a major annoyance,” said South Miami Mayor Philip Stoddard, who inherited the problem when he took over the city’s top political post in 2010.

That year, Miami-Dade’s property appraiser ruled that the parking garage at 5829 SW 73rd St. was subject to property tax. The appraiser concluded that because a private developer operated the garage, it ought to be taxed.

When South Miami worked out an agreement with developer Mark Richman to run the garage, officials allowed Richman to collect all revenues. From that money, the developer must pay the city a yearly base rent plus a certain percentage of gross revenue. He must also pay the property taxes.

Although city taxpayers don’t have to pay property tax on the garage, they don’t receive any property tax from it either. The reason: The deal with Richman said the city must waive its share of those taxes.

According to the property appraiser’s office, the county estimated the taxable value of the garage and attached retail space at nearly $10 million — double earlier assessments, which only covered the retail portion of the garage. That part had been taxable all along.

The project dates to 1997, when the city issued a request for proposals to develop the South Miami Municipal Garage.

The Florida League of Cities, acting as a conduit, issued a series of bonds in 2002 and 2006 to finance its construction.

Bryant Miller Olive, the city’s bond counsel at the time, issued opinions that the bonds were tax-exempt. City Attorney Luis Figueredo supported his opinion.

Now, the city is suing both attorneys for malpractice.

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