North Miami - NMB

Ex-employee says he was offered ‘hush money’ to cover up city’s financial problems

North Miami City Hall.
North Miami City Hall. - Miami Herald file

North Miami’s former assistant budget director is accusing other city officials of concealing a multimillion-dollar deficit in city finances by siphoning money from city reserves and utilities, and misrepresenting other revenue streams and debts in the recently passed budget.

After he was fired Thursday, Terry Henley publicly accused the city manager and the deputy city manager of obscuring a deficit of between $7 million and $20 million in the $70 million budget for the coming fiscal year, according to a letter filed by his attorney Friday. The letter also claimed that Deputy City Manager Arthur Sorey said Henley was going to be the “fall guy on this one.”

Now, Henley’s attorney says the former employee is a whistle-blower, which would give Henley certain protections. He threatened to sue the city if his client wasn’t immediately reinstated.

City Manager Larry Spring denies the allegations and says the city passed a “balanced budget” a week ago.

In a written statement, City Attorney Jeff Cazeau said that while the allegations presented in the letter will be thoroughly investigated, this appeared to be a case of a “disgruntled ex-employee attempting to save his job.” Either way, it’s likely the city will face yet another audit of its budget, having just closed out an audit of previous budgets earlier this year.

Henley retained the services of attorney Bill Amlong, who filed a letter with North Miami on his client’s behalf on Friday, Sept. 21, detailing his client’s allegations that “the City Council had unanimously adopted a $70 million general-fund budget that overestimates income and underestimates both 2017 and 2018 expenses for a total of $20 million.”

Henley attributes the deficit to growing operational expenses, “unbridled hiring of unbudgeted employees” over the past three years, and the inclusion of one-time revenues that had already been accounted for in the previous year’s budgets, according to the letter. In one case, the city received a $2 million advance payment for a 99-year lease for Costco to use city property. According to Henley, that revenue was listed on two budgets — 2017-18 and 2018-19 — despite being a one-time payment.

“I don’t know that to necessarily be correct,” Spring told the Miami Herald. “We are having our internal auditor to review the internal budget assumptions.”

The city also used over $7 million in revenue from water and sewer utilities to bolster the general fund, according to Henley’s analysis filed with North Miami chief of staff Natasha Colebrook-Williams in June. The move was approved by the City Council, according to Spring. While not prohibited, diverting revenue from city utilities to the general fund is often frowned upon by bond holders.

Throughout summer 2018, Sorey continually asked Henley to find ways to balance the budget, according to the letter. When he failed to do that and other tasks Sorey assigned, Henley was issued two letters of reprimand, one in June and a second in early September. The letters suggest Henley made little effort when it came to tasks assigned to him, and committed egregious errors in his work. Amlong says the letters were an effort to discredit his client.

“They kept papering the file by saying he was underestimating revenue and overestimating expenditures, when what he was really doing was realistically estimating revenue, and realistically estimating expenditures,” Amlong said. In his letter he wrote: “While this kind of spending is reckless, it is also invisible.”

It’s also a bit of deja vu for those familiar with Spring’s tenure in the city of Miami.

In 2013, the Securities and Exchange Commission charged the city of Miami and the city’s former budget director, Michael Boudreaux, with securities fraud for misrepresenting the city’s finances to bond investors after they were found to have used internal funds transfers to “mask” growing deficits and falsely inflate revenues.

“Miami cannot continue to play shell games with its finances,” Eric I. Bustillo, director of the SEC’s Miami regional office, said in a statement at the time. “Investors and the markets deserve complete transparency in assessing the city’s municipal bond offerings.” A federal jury found the city had defrauded bond holders, and the city agreed to pay $1 million to settle the case.

Larry Spring.JPG
Larry Spring Miami Herald file, 2011

Spring served as Miami’s chief financial officer at the time, though he resigned and returned to work in the private sector during the SEC investigation. Spring was investigated as part of the probe but was never charged. Now, Henley is accusing Spring and Sorey of playing similar games with the North Miami budget.

“Look for the name Boudreaux and replace it with Spring. Look for Miami and substitute North Miami. Because it’s pretty much the same thing,” Amlong said.

Spring denies the claims. He says he helped the SEC with its investigation, though he maintains what happened in the city of Miami is irrelevant to Henley’s firing.

“I think that was thrown in there to create sensationalism,” Spring said. About the current budget Spring said, “We are going to open our books to our auditors.”

Henley was offered “hush money” by the city the morning after the budget passed as part of a separation agreement presented to him, according to the letter drafted by his attorney. The agreement, which would have included four weeks paid time, contained the following clause: “EMPLOYEE agrees that he will not criticize, denigrate, or disparage CITY. ... To that end, EMPLOYEE will not make any comments or statements to the press.”

City Commissioner Scott Galvin said he learned of the accusation after Amlong distributed the letter to residents, who began to call their representatives Saturday morning. He said he was surprised to learn about Henley’s concerns, as the former assistant budget director had addressed the commission on multiple occasions with regards to the budget without ever once bringing up any of his stated grievances. However, Galvin said he takes allegations of this sort seriously, and will support a thorough investigation into the matter.

“Bring in the third party audit,” Galvin said. “Let’s do it.”

This story has been updated to accurately reflect Henley’s analysis of city hiring practices.