Miami Gardens - Opa-locka

Opa-locka targeted in new federal probe

Opa-locka officials cut the ribbon on their new city hall.
Opa-locka officials cut the ribbon on their new city hall.

With Opa-locka teetering toward insolvency, federal authorities have opened an investigation into the city’s controversial purchase last year of its gleaming City Hall in a major bond deal that was approved while the city was quietly bleeding millions in tax revenues.

In a demand letter to the city, the U.S. Securities and Exchange Commission requested everything from minutes of meetings to emails exchanged among city officials over the $8 million purchase of the building in the heart of Opa-locka, according to sources close to the inquiry.

Investigators are examining whether the city failed to disclose to investors its rapidly deteriorating finances — including millions in unpaid bills — to mislead them about its ability to pay the loans.

One year after the city moved into the four-story building during a celebrated ribbon-cutting, the governor declared a financial emergency and appointed an oversight board that will meet for the first time in Opa-locka on Wednesday.

The probe represents the SEC’s first investigation of Opa-locka’s finances in what could finally shed light on the questionable practices carried out by city officials to mask a deficit that has been mushrooming for at least five years.

The investigation follows Miami Herald reports that show city officials routinely raided restricted funds — money that can only legally be used for expenses like street repairs or police training — to cover up mounting debts now expected to top $8 million by the end of the year.

Just last week, acting City Manager Yvette Harrell turned to one of the city’s most restricted funds —without approval by the city commission — to make sure the employee payroll checks didn’t bounce.

The money — about $600,000 — was drawn from a bond reserve set aside to pay investors in case Opa-locka failed to make its payments on the City Hall purchase, the Herald found. No other monies were pledged to replace those funds, as required under the city’s agreement.

In tapping into the fund, Opa-locka dipped well below the level of money it must keep in reserve to cover its payment — a decision that stirred protests by the city’s finance and budgets directors three weeks ago, records and interviews show.

When approached by a Herald reporter at the end of a meeting Monday, Harrell, a lawyer who was appointed acting manager last month, walked away and said she would not answer any questions.

City Attorney Vincent Brown confirmed the SEC probe, but said the city did not do anything improper. “We have nothing to hide,” he said. Brown would not release the agency’s demand letter to Opa-locka.

However, several experts said the use of the money will more than likely draw the attention of SEC investigators, who are already probing the city for possible misrepresentations of its tattered finances.

We have nothing to hide.

Vincent Brown, Opa-locka city attorney

Such reserve funds are required to protect investors in case the city defaults. “It’s the proof that investors will get paid. That’s their money,” said Jeffrey Tew, a longtime Miami securities attorney, who called the withdrawal “a civil breach.”

The decision to withdraw the money exposed escalating tensions among city officials, some of whom argued the city would need special permission before withdrawing the funds from City National Bank.

If the SEC turns up securities violations, the consequences for Opa-locka could be dire, say experts. In addition to the expense of defending the case, penalties can include fines and even suspension from issuing bonds.

Finance Director Charmaine Parchment and Budget Director Keith Carswell both demanded the city manager take the plan to the city’s bond lawyers and the city commission.

After confronting Harrell on June 6 about her proposal to move the money, Carswell said he was terminated two days later.

Ultimately, that protest, as well as concerns he raised about the manager’s handling of the budget deficit, led to his firing, he said in a lawsuit filed against the city on Tuesday.

Carswell said the dispute became so heated that the manager told him, “If you have a problem with that, then you can leave.”

Budget chief since late last year, Carswell took aim at Harrell and others in his whistle-blower case in Miami-Dade circuit court, saying they were misrepresenting the deficit. The deficit is not $2 million, but more than double that amount.

The SEC investigation is the latest in a series of probes that have targeted the city for everything from alleged bribery schemes by city commissioners to extortion rackets by rank-and-file city employees.

$8 million What the city is expected to owe by the end of year

But the inner workings of the city’s operations have not been investigated — until now.

The two bond issues under scrutiny — one for $3.5 million and another for $5.1 million — will allow federal investigators to gain a true picture of the city’s financial conditions.

Some of the money to repay the bonds was to come from phone and cable fees collected by the city. But most of the money was to come from a host of businesses and other entities that rent space at City Hall — including some that were not even paying their rent.

In fact, 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 May 2015, it was generating about $550,000 a year — roughly half the income of prior years, records show.

If the SEC turns up securities violations, the consequences for Opa-locka could be dire, say experts. In addition to the expense of defending the case, penalties can include fines and even suspension from issuing bonds.

In an ongoing securities case against Miami, the city has spent about $2 million to defend itself — and the case has yet to go to trial. It is set for August.

It is the second time the city has been targeted by the government. In 2003, Miami was sanctioned for illegally moving funds from its capital budget to its general fund to show a balanced budget before issuing bonds.

Michael Pizzi, an attorney who represents Carswell, said the SEC’s latest case will likely be expanded because of the city manager’s decision to tap into the fund that was created to back the City Hall bonds.

“It was one of the most irresponsible things that I have ever heard in my 30 years of government,” said Pizzi, mayor of Miami Lakes and former assistant city attorney for Opa-locka. “You do not tap into bond reserve funds that have been pledged to secure a bond offering.”