$45 million PortMiami tunnel dig payment threatens Miami’s finances
A $45 million payment that’s due in January is but the latest financial thorn raising fears of a meltdown in the city of Miami.
08/30/2012 5:00 AM
08/31/2012 11:56 AM
As pressure builds to balance its budget, the city of Miami is staring down another potential financial calamity: Come January, the city must pay off $45 million on a short-term loan that helped fund the PortMiami tunnel dig.
The Omni Community Redevelopment Agency, a city board that assumed the debt, is working to secure private financing to pay off the loan, executive director Pieter Bockweg said Thursday. But if the CRA comes up short, the city will be on the hook.
“It could drive the city into bankruptcy,” Miami Commission Chairman Francis Suarez said.
The tunnel loan payment is but the latest crisis-du-jour for Miami, which is already trying to plug a budget hole, replace key finance managers, negotiate with restive federal securities regulators and placate nervous bond raters.
Some City Hall observers and former employees say it’s another sign Miami is hurtling toward a financial meltdown — and an urgent reminder of the days when Miami’s finances were so dire that Gov. Lawton Chiles appointed a state board to oversee the city’s budget.
“It’s a mess, and it’s only getting worse,’’ said former Assistant City Manager Frank Rollason. “The city is on the brink of a financial emergency.”
Mayor Tomás Regalado downplayed concerns Thursday, saying there was no chance Miami would face financial ruin.
“We will have a balanced budget, one way or another,” he said, noting that the city manager can use layoffs or furloughs as a last resort to balance the books.
For the tunnel loan, Regalado said he is confident the CRA can obtain financing, either through a bond issue or engaging a private equity firm.
“The city will not be on the hook for the payment,” he said.
Miami is already struggling to close a $40 million gap in its $485 million operating budget. So far, efforts to negotiate concessions from the four labor unions have been unsuccessful.
City Manager Johnny Martinez tried to declare “financial urgency,” a legal maneuver that would have allowed the City Commission to force employee concessions. But last week, a Miami-Dade circuit judge said the city commission — not the city manager — has the authority to invoke the law. The commission has not taken any action since.
If that weren’t enough, three key money managers resigned their posts. And on Wednesday, Moody’s Investors Service announced plans to review the city’s budget and its “long-term financial stability.” The private credit agency has already warned it may downgrade Miami’s credit rating because of a U.S. Securities and Exchange Commission probe into city bond issues.
The city has limited options moving forward, mostly because last month, the commission voted to lower taxes. The new rate, $8.47 for every $1,000 of taxable assessed property value, has already been advertised to property owners as required by law.
Commissioner Michelle Spence-Jones wants to try to reverse that decision.
“If we have the opportunity to raise the [tax] rate, which we do, we should open it up for discussion instead of slashing salaries and making cuts that could hurt our employees,” Spence-Jones told The Miami Herald.
City Attorney Julie O. Bru said the commission could have raised the tax rate earlier this month, but the window outlined in state law has now closed.
“What constrains the city from adopting a new millage rate that exceeds the advertised rate is the calendar,” she said.
Even if time was plentiful, it is not clear if Spence-Jones could win the other two votes needed to raise taxes. Moreover, Regalado has promised to veto any increase to the tax rate.
In the latest blow, the $45 million payment is due in January for the city’s share of the PortMiami tunnel dig. The city and Miami-Dade County both chipped in on the project.
The city initially financed its contribution with a $50 million letter of credit from Wachovia Bank. In 2010, city officials converted the letter of credit into a two-year loan with a $45 million balloon payment due in 2013.
The Omni CRA, a special taxing district that uses a portion of property tax revenue to fund redevelopment in the blighted Omni neighborhood, had always intended to pay off the city’s bank loan through a bond issue, said executive director Bockweg.
Last year, the City Commission determined the CRA might face difficulty qualifying to issue its own bond, and voted instead to move forward with a $140 million city bond issue that could pay off the tunnel loan, among other outstanding obligations. But former CFO Larry Spring later scaled back the bond issue to $70 million, leaving the tunnel loan unfunded.
Subsequent attempts to issue a bond were derailed by turnover in the city’s finance department and news that the SEC had launched an investigation into earlier Miami bond issues, Bockweg said.
“We thought it was best that we hold off until the conclusion of the investigation, or until we had an understanding of the outcome,” Bockweg said. “We didn’t know how another bond issue would affect our rates or how it would affect the debt service payments.”
Earlier this summer, the SEC determined Miami had misled investors about the city’s financial health in advance of 2007 and 2009 bond issues, and threatened to impose financial penalties. A separate investigation into bonds used to finance the Marlins ballpark is ongoing.
Bockweg said the CRA must move forward now because the clock is ticking on the loan.
Miami Commissioner Marc Sarnoff, who chairs the CRA, said there is ample time to refinance, complete a bond issue or take the debt to the private equity market — the three options currently under consideration.
“We can get this done in time,” he said.
But observers point to the city’s record of dealing with looming financial problems at the last minute.
Former City Manager Merrett Stierheim said it is time for the mayor and commissioners to “be realistic” about the city’s finances and show some leadership by making tough decisions.
First up: Declaring financial urgency, as the court said they could, despite facing political ramifications.
“It looks like a first-class mess,” he said.
Miami Herald staff writers Douglas Hanks and Charles Rabin contributed to this report.
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