Miami Gardens - Opa-locka

Opa-locka’s 'shell game' masked millions in debts

Opa-locka officials celebrate the purchase of the Town Center One building, which was destined to replace the city’s iconic but decaying city hall. It was this past spring, a time when the city had growing debt problems that had not been publicly disclosed
Opa-locka officials celebrate the purchase of the Town Center One building, which was destined to replace the city’s iconic but decaying city hall. It was this past spring, a time when the city had growing debt problems that had not been publicly disclosed

For Opa-locka Mayor Myra Taylor, it was a triumphant night of hugs and photo-ops when she declared during her packed state-of-the-city speech that the long-struggling community was no longer broken like “Humpty Dumpty.”

Uplifted by the thunderous Miami Northwestern Senior High School marching band, Taylor told the crowd of supporters gathered in late January that the city was on course “to make its mark in history.”

Weeks later, local officials took their first step toward buying Opa-locka’s most prominent building — Town Center One — as a new government center, assuring the public the city was on sound financial footing to borrow the millions to strike the deal. “This has always been part of my vision,” Taylor said at a meeting to approve the purchase.

But what Opa-locka leaders never disclosed to lenders was that the city was hopelessly broke, with barely enough cash to pay its employees as their government veered toward a multimillion-dollar collapse. Rather than bring the city glory, the $8 million Town Center deal has caught the attention of federal agents in a widening corruption investigation into the highest levels of Opa-locka’s government.

Records obtained by the Miami Herald show that Opa-locka not only failed to reveal gaping budget deficits to bondholders who helped finance the deal, but that Town Center at the time of the purchase was generating only about half the rental income it had produced in prior years.

“The city was going broke,” said Steve Shiver, the city manager who was hired in September after the deal was completed. “They had no business buying that building.”

FBI agents have been investigating allegations of kickback schemes involving other municipal deals for the past year, but the purchase of the four-story modern structure in the heart of the city is raising new interest among agents because of recent revelations of the city’s finances, according to confidential sources.

Miami-Dade County leaders recently discovered the city had spent surtax money reserved for transportation projects to cover other costs, forcing the county to cut off Opa-locka from a vital lifeline of tax dollars.

Just last week, a local Harley Davidson dealership refused to return a police motorcycle that was brought in for servicing because the city had not paid the lease since May — this, in a city with one of the highest crime rates in Miami-Dade.

Residents, already outraged by the city’s spending on leased SUVs for commissioners — more than $50,000 a year — have threatened a petition drive to oust the mayor and one of her key allies, Commissioner Luis Santiago, saying they have been responsible for one of the worst economic declines in city history.

Recently, Santiago has come under fire after calling for $300 Christmas bonuses for all employees earning less than $30,000 a year — just two months after the phone lines to City Hall were shut off because the bill wasn’t paid.

Interim City Manager David Chiverton said he was not involved in the Town Center deal, but that Opa-locka is aggressively collecting rents from the building’s mostly private tenants to pay off the lenders. “We are not taking a lackadaisical approach,” he said.

Taylor did not return calls and emails seeking comment.

As the city falls deeper into debt — including $8 million in unpaid bills — the deal over Town Center threatens to bring Opa-locka more problems at a time it already owes hundreds of vendors and its biggest creditor, Miami-Dade County.

In addition to federal investigators, the city might have exposed itself to investor lawsuits as well as a probe by the U.S. Securities and Exchange Commission, which mandates that all cities reveal money deficiencies when financing projects through public bonds, say legal experts.

“The city is required to [disclose everything],” said Jeffrey Tew, a longtime Miami securities attorney. “If there is a misrepresentation of facts or an omission, those are serious violations.”

Records show that as the city was losing massive amounts of revenue, driven partly by a 27 percent plunge in property values, officials were trying to make up the deficit by engaging in a series of troubling practices that are just coming to light.

Year after year, city officials unlawfully plugged budget holes by shifting millions reserved for roads and police to make it appear the city could pay its bills, such as payroll costs at city hall, records show. They turned to county surtax money — $800,000 restricted for road and sidewalk repairs to cover everyday bills without telling the county.

Local officials played the same game with forfeiture money — $340,000 seized during police investigations, draining that fund, too, in violation of federal law. That money must be spent on police equipment, weaponry and training.

To this day, city officials cannot provide a breakdown of how the surtax and forfeiture funds were spent.

By the time officials reached the agreement to buy the Town Center in April — with nearly half of the money coming from bondholders — the city had covered a growing problem that had not been publicly acknowledged, according to financial statements.

“They were playing a shell game with the money,” said Shiver, who was fired almost a month ago in a vote led by Taylor, who accused him of reaching out to the governor’s office for help without consulting her and the City Commission.

Tom Marko, a longtime Miami-Dade County budget analyst who was part of Shiver’s team, said the city’s practice of moving restricted funds around kept it from confronting its challenges years earlier. “It’s a formula that had to end in disaster,” said Marko, who was forced to resign the day after Shiver’s firing in November.

Miami-Dade auditors were so stunned by revelations about the city’s irregular financial practices that the county cut off any further transportation money until the city gets its house in order.

Of late, county auditors have raised questions about the city’s disclosures, finding that local officials were “unable to explain accounting inconsistencies” for the year ending Sept. 30, 2014. For instance, the city disclosed a range of deficiencies in 2013, but the following year, the city claimed there were no material weaknesses.

In reality, the city had lost $3 million in property and water and sewer revenues at a time when most Miami-Dade cities were rebounding from a real estate crash. Poor collection of water bills was a major part of the problem.

Just last month, city officials had no choice but to take out hundreds of thousands of dollars from the water and sewer fund to cover the city’s payroll, internal emails show. Troubled by that practice, Miami-Dade government is considering taking over Opa-locka’s water and sewer department.

Hundreds of checks have piled up on a fourth-floor city office to pay local businesses, including bills for city car leases. Officials couldn’t mail them because they would have bounced.

By the time Opa-locka officials were negotiating the Town Center deal earlier this year, the city’s debts had climbed to half of its entire $13 million budget. Most cities want to keep at least 10 percent of their budget in reserves — the opposite of Opa-locka’s financial profile.

In April, the city forged ahead anyway with the nearly $8 million Town Center deal. To make it happen, the city relied on two sources: about $3.5 million in a tax-exempt bonds and the rest from a loan from City National Bank for Florida. To pay off the debts, the city pledged a critical revenue stream: phone and cable fees.

The rest of the money would come from a host of businesses and other entities that rent space at Town Center, which was built a decade ago at Opa-locka Boulevard and Fisherman Street. But even that arrangement would present problems: two of the major tenants in the 82,000-square-foot building had failed to pay their rents to the previous owner, nearly $900,000 over the past two years.

By the time the city bought the building in the spring, it was generating about $550,000 a year — roughly half the income flow of prior years, records show.

The businessman who sold Opa-locka the contemporary building — which contrasts with the decrepit, Moorish-style former city hall a few blocks away — had his own history of problems. Dennis Stackhouse, 73, was still facing trial on fraud and grand theft charges dating to 2009 from his failed bio-tech park development in another poor community, Liberty City.

An employee who works for Stackhouse’s property company said he was out of town and unavailable to comment. He also did not return messages left on his cell phone.

What’s unclear is whether Opa-locka will incur the same kind of scrutiny that befell the city of Miami two years ago, when federal regulators at the SEC found the city failed to disclose millions in debts to bondholders.

The SEC accused Miami and a former budget director of playing “shell games” with the city’s tattered finances, charging them with civil securities fraud for misleading investors — the second time in a decade the city had been accused of the same misconduct.

The charges, still unresolved, allege the city and former Budget Director Michael Boudreaux misrepresented the true nature of the city’s shortfalls during three bond offerings totaling $153.5 million.

The SEC in Miami declined to comment about Opa-locka’s problems.

Opa-locka could be in trouble for the same type of offense.

“If city officials misrepresented the city’s financial condition — or omitted material facts of financial mismanagement to prospective bondholders or lenders — there is likely a basis for both civil fraud lawsuits and criminal charges,” said longtime Miami attorney Jeff Sonn, who specializes in securities fraud.

“There are very clear securities and banking laws that prohibit that kind of conduct being alleged against the city.”

Miami Herald writer Katie Lepri contributed to this story.

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