When Daniel Alfonso was named Miami’s budget director in August 2011, he was greeted with a bare-bones city budget composed of a few pages of numbers — a far cry from the 300-page spending breakdowns most cities offer residents.
“That’s basically what I was given, a spreadsheet,” said Alfonso, now the city’s chief financial officer. “I’m looking at the spreadsheet and all I could say was, ‘wow.’ ”
The city was the target of a federal investigation into its finances after years of debilitating budget deficits that cut reserves razor thin. Employee salaries and benefits were being slashed to balance the books, and top financial administrators were leaving at a furious pace.
Two years later, challenges remain, after the U.S. Securities and Exchange Commission recently came down hard on the city for the “shell game’’ played by Miami financial leaders when they sold bonds in 2007 and 2008. Still, reserves are growing, the city’s books are balanced for the first time in six years, and leadership is stabilizing.
“We’re trending up,” said Jose Fernandez, the city’s newly hired finance director.
What accounts for the change? Certainly, hungry home buyers gobbling up real estate and lower pension payouts have helped shore up the city’s finances.
Perhaps more important, though, is that over the past two years Miami has raided Miami-Dade County of experienced financial administrators.
Alfonso spent 17 years at County Hall, serving as a budget coordinator before joining Miami. Two months ago, the city hired 21-year county employee Fernandez to head up finance. He was County Hall’s controller for PortMiami.
Later this month, Christopher Rose will join the city, adding 15 more years of county experience, mostly in the budget office. And City Manager Johnny Martinez, who worked most of his career with the Florida Department of Transportation, spent three years at County Hall before coming to Miami in 2010.
That amounts to 56 combined years of management skills overseeing multi-billion-dollar budgets and leading tens of thousands of employees at one of the largest governments in the southeastern United States.
Ed Marquez, the county’s deputy mayor who oversees finance, said the ex-county staff left with good reputations.
“The people they’ve hired have very good qualifications and they’re fiscally savvy people, they’re talented people. So I’d expect them to do well with the city,” said Marquez, a former city manager for Miami.
The roots of Miami’s most recent financial crisis were planted long before the current administration took office in November 2009. As property taxes poured in from 2005 through 2007, the city’s reserves were dwindling, mostly to pay off mounting pension costs.
A bulging $141 million reserve fund in 2003 had dwindled to $10 million seven years later. A series of Miami Herald articles in 2008 explaining how financial leaders were transferring money from construction accounts to operating accounts to balance the general-fund budget caught the attention of the SEC, which launched its investigation.
When Mayor Tomás Regalado was elected in 2009, he inherited budgets with whopping shortfalls. Leaders balanced the books by cutting salaries and benefits, mostly from 2,500-plus unionized employees. Some firefighters who had seen sharp salary hikes lost up to one-third of their total compensation.
Meanwhile, the mayor’s picks for financial stewardship at City Hall kept leaving, exacerbating the problems.
As the unions warred with the politicians and staff, key financial administrators abandoned ship at an alarming rate: Since 2009, the city has had four city managers, three chief financial officers, four budget directors and three directors of finance.
Yet because of the recent hires and a healthier reserve, the city’s financial picture is looking brighter, financial experts say.
The 2014 proposed budget has no deficit, and contains reserves of $57.5 million, edging closer to the $96 million required under a city financial integrity ordinance. That requirement was created in the aftermath of the SEC’s last investigation into Miami a decade ago, when the regulatory agency issued a “cease and desist order” because Miami — facing a dire financial emergency — was caught using bond money to mask a $68 million budget deficit.
Financial experts say the city, while still having a ways to go, may be on the path to stability with all the new appointments.
“Danny’s hiring people he trusts,” Marquez said of Alfonso, the city’s new CFO who hired Fernandez and Rose.
That’s a good start, said John Incorvaia, who analyzes Miami’s finances as senior vice president for investor services for Moody’s Corp. Though the city’s credit rating has sunk and his firm recently gave Miami a negative outlook, he said he’s cautiously expecting improvements with pension costs down , the city balancing its books with recurring revenues, and the recent hires.
“I’m not convinced yet that all the adjustments for long-term stability have been made,” Incorvaia said. “With those things in place, the ship is certainly pointed in the right direction. Hopefully, the hires will stay in place. They have some pretty respected county people.”
The new crew faces major challenges from the SEC. Two weeks ago, the federal agency completed its four-year investigation and imposed yet another cease-and-desist order, after finding the city was engaging in the same behavior it had promised to fix when it went to the bond market and represented that the city’s finances were stronger than they really were.
The city was charged with civil securities fraud. It is contesting the charges.
The SEC said it was the first time the agency has alleged further wrongdoing by a municipality already under an existing cease-and-desist order. It is seeking penalties against Miami and former budget director Michael Boudreaux, who was fired. His lawyer has said Boudreaux is being made a scapegoat.
The city remains the subject of yet another SEC investigation, focusing on $500 million in bonds the city and county sold to pay for the Marlins’ new ballpark in Little Havana.
Regalado, Commission Chairman Marc Sarnoff and Miami-Dade Commission Chairwoman Rebeca Sosa have spoken informally with SEC investigators about that case, but Regalado said he expects to give a sworn statement soon.
The roller coaster of financial instability is a reminder of 1996, when Miami was in such financial turmoil that Gov. Lawton Chiles created an oversight board to take control of the city’s money and stave off potential bankruptcy. It remained in place for five years.
Robert Beatty, one of the board members, said with city leaders not having the stomach to increase taxes, it’s critically important that Miami beef up its reserves even more than they are now.
“I applaud the city for having reached a $50 million-plus reserve, but that’s just over half way to where they should be today,” said Beatty, publisher of the South Florida Times. “They must move more aggressively to stabilize finances and increase the reserve.”
Beatty said you only need to look at Detroit’s recent bankruptcy filing to see what can happen if a city’s finances are neglected. The key to municipal financial health, he said, is in hiring the right people and listening to them.
Alfonso, the CFO, said that’s what’s happening under his watch.
“Just look at the facts,” he said. “This year, we balanced a budget without any cuts. And I’m committed to staying in the city.”