SEC CHARGES

Finance scandal: City of Miami never learns

 
 
STIERHEIM
STIERHEIM
C.M. GUERRERO / EL NUEVO HERALD

mrstierheim@msn.com

The city of Miami’s financial mismanagement that prompted current charges by the Securities and Exchange Commission is inexcusable. Questionable also is the apparent absence of appropriate City Commission oversight, including serious questions that should be answered by the city’s external auditors.

In late 1996, as pro bono city manager of Miami, we uncovered a $68 million shortfall in a recommended, once approved 1996/97 city budget. As illegal as that was, I felt that the city’s December 1995 $73 million revenue bond issue for the pension system, which seriously understated the city’s poor financial condition, was even more egregious.

Some of the proceeds ($25 million) from that bond issue were posted in the 1994/95 budget after (!) the fiscal year ended, and $35 million more was recorded as pension revenue in the then current 1995/96 budget. There were few bond funds left, yet another $35 million in revenue was shown in the proposed budget, an early indication that the proposed budget was based on smoke and mirrors.

Afterwards, the actual budget deficit rose very quickly to $68 million and we were forced to totally reconstruct the proposed budget. As a matter of prudent fiscal policy, spending long-term revenue bond funds to meet annual pension fund requirements only serves to dig a deeper financial hole, with compounded bond interest, in the city’s future.

That 1995 bond issue was the basis for the SEC’s 2003 “cease and desist” order following extensive hearings during which I was a witness. When I took the stand at that hearing, I was surprised to see the attorney defending the city because, with commission authorization, I had hired him to sue the city’s external auditors, which we had previously fired.

While in office I also accepted the city internal auditor’s resignation. To their credit, the fact that former Finance Director Diana Gomez and former Internal Auditor Victor Igwe raised red flags, in writing, over the questionable transfer of capital funds to shore up general fund operating deficiencies, serves to bring responsible players into the picture depending on who received those memos. The fiscally irresponsible practice that they objected to was a standard financial practice for the city of Miami in 1995/96 and before.

Unfortunately, the 1996 “City of Miami Financial Recovery Plan” that I formally presented to the mayor and City Commission on my last day as interim manager, when Ed Marquez was appointed city manager, never received the wide public discussion and recognition it should have.

About an inch thick, the report set forth, in some detail, all the reasons why the city faced potential bankruptcy including serious management deficiencies. In addition to my recommendations, it also included specific recommendations from 43 pro bono corporate leaders and career public servants who were assigned to 12 separate task forces that embraced all aspects of the city’s operations.

Unfortunately, the level of mismanagement in the city extended far beyond fiscal matters, so the Miami Financial Oversight Board appointed by Gov. Lawton Chiles used the “Recovery Plan” as a road map to force members of the City Commission to face up to their basic fiscal responsibilities. Task force members did a truly outstanding job over a period of 60 days and it is an insult to all that hard work to learn that some critically important lessons have since been ignored.

City Commissioners Willy Gort and Tomás Regalado (now mayor) were on that 1996 Commission; however, I’ve suggested many times that all Miami elected officials, managers, and department directors should read that Recovery Plan and evaluate what has and what still remains to be corrected.

An independent, objective and publicly disclosed operational and financial analysis, with comparisons, should be called for, particularly in view of the current SEC charges.

Former Miami City Manager Merrett R. Stierheim also served twice as manager of Miami-Dade County. He is also a former superintendent of the Miami-Dade County school district.

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