Three bond offerings by the city of Miami totaling $153.5 million were a shell game. The money was moved around from the city’s construction fund to the general fund to hide a big hole in the city’s budget and make it look to investors and bond rating agencies like the city was sitting pretty when its financial health was really in a deadly tailspin.
This shell game started in 2007, and finally the Securities and Exchange Commission has concluded its years’ long investigation into the three 2009 bond offerings — an investigation that came after a Miami Herald report revealed that the city’s then-budget director moved $37.5 million from the capital budget to the general budget, all in an effort, it seems, to inflate the city’s required reserves before the bond offerings.
The SEC now accuses Miami’s former budget director Michael Boudreaux of making “materially false and misleading statements and omissions about certain interfund transfers.” Mr. Boudreaux says he’s being made a scapegoat, and that the mayor at the time, Manny Diaz, city commissioners, then-city manager Pete Hernandez and others signed off on the deal. The legal system will work out who’s right, but this much is certain:
Miami has been here before, and it’s unconscionable that officials would risk the city’s financial well-being, with needed projects like sidewalks, neighborhood security and road repairs — along with money needed for pension fund payments — to hide that it was spending more than it had.
As city taxpayers know all too well, Miami had to go into emergency negotiations with its labor unions to toughen contracts and balance the bottom line after the damage was done. A lot of city workers were let go during the Great Recession once the inflated numbers were discovered.
The SEC is charging Miami with violating an SEC cease-and-desist order from 2003 for “similar misconduct” that went back to 2001. Worse still, this is the first time the SEC has accused a city of continuing wrongdoing after a cease-and-desist order has been entered against it.
Yes, the mayor, manager and financial officers are now different. Still, the turmoil is palpable.
Mayor Tomás Regalado says the city’s handling of finances has vastly improved, but that’s hard to believe when you consider that in the past three years and counting, the city has had four city managers, five finance chiefs, three budget directors and we’re just missing the partridge in a mango tree. It’s ridiculous!
The city is fighting SEC allegations that Miami misled the credit rating agencies about the transfers before the bond offerings. Miami officials maintain the rating agencies knew about the transfers. Again, the legal system will get to the truth, but there’s a deeper fundamental problem about the city playing fast and loose with tax dollars. In 1996, public administrator Merrett Stierheim, brought into the city to help unravel another budget mess, uncovered a $68 million shortfall, and that was only the tip of the mismanagement until then-Gov. Lawton Chiles appointed a Financial Oversight Board.
As Mr. Stierheim noted last week in a Herald column, “It is an insult to all that hard work to learn that some critically important lessons have since been ignored.”
The SEC, meanwhile, has now turned to examining the financing deal involving the Miami Marlins’ ballpark, paid for mostly with Miami-Dade County bonds. There may be more trouble to come, which will mean taxpayers will have to cough up more if the credit rating tanks. Outrageous.