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CRESPOGRAM REPORT

SEPTEMBER 1, 2012

HOW COME ON DECEMBER 15, 2010, I WAS THE ONLY ONE THAT SAW THIS CRISIS COMING DOWN THE ROAD
THE $45M TUNNEL DEBT
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On Friday, the Miami Herald published a story about the looming $45 million payment that the City of Miami owes as it’s obligation towards the funding of the Port of Miami tunnel project.


Among the comments included in the story was this one from Commission Chairman, Francis Suarez: “It could drive the city into bankruptcy,” Miami Commission Chairman Francis Suarez said.”


Yes it could Commissioner, but once again, the real question is, why all of a sudden is this such a surprise?


On DECEMBER 15, 2010, I wrote a story that detailed this possibility, along with the fact that along with the potential problems associated with the City assuming this OMNI CRA  debt obligation, there was also the potential question of whether or not Carlos Migoya, as his last major decision as the $1 a year City Manager, had engaged in a little conflict of interest.


More importantly today, the question that the Miami Herald, Moody’s and everyone holding city bonds should start focusing on is why wasn’t this debt obligation structured correctly at the very beginning, and what was the real motive that lay behind Commissioner Marc “Ethics” Sarnoff’s decision at the time to lay this debt off by having the City become responsible for its payment?


If you paid attention to the Herald article’s reference to then Chief Financial Officer Larry Spring and his decision not to include the $45 million debt as part of the $70 million bond issue that the City floated last year, you’ll understand that when the City did that, there should have been clear warning bells going off about the future payment of this debt.


Any rational person should have understood that there was no way that the City of Miami could reverse it’s continuing financial indebtedness from 2011 to 2012 to such a degree that they would have been able to float another bond issue this year to cover this $45 million debt - and especially a debt that the OMNI CRA is legally obligated to cover.


So the fact that the City today is still on the hook for this $45 million should only be a surprise to the people who consciously chose not to pay attention.


THE BEST LAID PLANS OF COMMISSIONER “ETHICS” SARNOFF


The problem created by the inability of the OMNI CRA to cover this $45 million tunnel payment is first and foremost the fault of Commissioner Marc Sarnoff. The obligation for this payment lay with the OMNI CRA, and as the Chairman of the OMNI CRA, it was his responsibility starting in October of 2009, when the decision was made that the OMNI CRA would be the agency responsible for covering this cost to doing what was needed to make sure that the OMNI CRA would honor that commitment.


The claim made by Pieter Bockweg, the OMNI CRA Executive Director in the Herald article that, “We thought it was best that we hold off until the conclusion of the investigation, or until we had an understanding of the outcome,” in referring to the recently completed - but yet unannounced decision - of the SEC investigation into the illegal use of restricted funds to balance the City’s books in 2007 and 2009, is nonsensical given the claim that appeared two paragraphs before Bockweg’s comment, where the Herald referenced Larry Spring’s actions in leaving the tunnel debt out of the bond issue:


        “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 issue unfunded.”


Critical to any understanding of this, and lacking from the Herald’s coverage, is an answer to what were the difficulties that the City Commission determined might create problems for the OMNI CRA issuing its own bond back in 2011? 


If the difficulties existed then, do they still exist, and if they do, has the OMNI CRA’s financial conditions changed in any way since last year that would have allowed Sarnoff to claim in the Herald article that there was still time for the CRA to float a bond?


If they haven’t changed, then how can Commissioner “Ethics” and the Mayor claim in the Herald that the OMNI CRA issuing it’s own bond in the next 4 months seems like a viable possibility?


Inquiring minds should be asking these kinds of questions. 


I’ve not had an opportunity to write about the goings on at the CRA for a while because of all the other stories that keep getting in the way, but folks should know and understand that several months ago Commissioner Michelle Spence-Jones, as a way to flex her power, took a meat cleaver to the relationship between the OMNI and SEOPW CRA’s, and along with the decision to separate their offices physically, the severing of the ties between the two CRA’s put an end to the cozy little back room deals that were standard practice when the moron Richard Dunn was the City Commissioner and Chairman of the SEOPW CRA.


Back then, Dunn was little more than a socket puppet for Sarnoff and Pieter Bockweg, the CRA’s Executive Director, to manipulate as they wanted.


So instead of working to structure a deal to cover this $45 million tunnel debt in 2010, or even 2011, the OMNI CRA under Sarnoff’s direction - which at the time had as much as $35.5 million in the bank - embarked on a handful of deals committing millions of CRA dollars in giveaways and sweetheart deals like the $9 million tax credit commitment to his pal Tibor Hollo for the hotel that he was going to build on the Eastside of Biscayne Boulevard, where everyone knows that “slum and blight” has become such a critical problem that CRA money was needed as an incentive to induce Hollo to eliminate it by building a fancy boutique hotel/condo building.


Another Sarnoff deal was the $3.1 million that the OMNI CRA paid for the old Miami-Dade School warehouse where the supposed “movie studio,” that Sarnoff keeps trying to peddle as the solution to the film industry’s need for a modern sound  stage facility. If a private investor or major motion picture company has refused for decades to build such a facility in Miami-Dade County, that  should have served as a red flag to any notion that using tax payer money intended to eliminate “slum and blight” was the best way to accomplish this goal.


There is no way to justify the expenditure of that $3.1 million, along with the $10 to $13 million more in CRA dollars that they claim is needed to rebuild the space, given the current predicament that both the City and the CRA face over this tunnel debt, much less the problems inherent in the City using tax dollars to build a sound stage facility next to both an Interstate Highway and a train track that will be used to transport thousands of containers from the Port to a shipping facility in Hialeah daily.


Prudent management says that if you have a $45 million debt obligation coming due in 2 years, your first priority should be taking care of the requirements to cover that debt, before spending money, time or energy on anything else.


But that was not Sarnoff’s way.  Instead, he pushed the debt off to the City, where, as I recount in my December 15, 2010 story posted below, Carlos Migoya proceeded to do a deal with Wells Fargo bank - which had bought out Wachovia Bank where Migoya had served as a member of its senior management for years, hence my claim of conflict of interest - making the City liable for this loan, and worse, committing the city’s non ad-valorem assets as the collateral.


The deal with Wells Fargo went into effect on January 5, 2011.  We’re now in September of 2012, and the $45 million owed, is due in 4 months. What was not mentioned in the Herald article was that the $45 million payment comes with an additional interest payment, that in September  of 2011 was pegged at 4.16%.


All of this is occurring during a time of poisoned political wrangling as Tomas Regalado wages a behind the scenes struggle to do what is not is necessarily best for the city, but rather what is best for his reelection chances.


So instead of the City facing a $40 million dollar debt this coming year, they actually face a minimum $85 million dollar debt, and with little opportunity to go to the bond market to get the money to cover any portion of this debt.


And this is but the very tip of a gigantic iceberg that few people have bothered to look at for fear that it numbers might panic everyone.


Consider these figures.  The City currently has approximately $1.3 BILLION in unfunded liabilities, of which almost all are related to employee benefits from workers comp, pensions and to post employment health benefits. 


In 2010, the City had 183,994 households, of which 14% were vacant.  The median income of those households in 2010 was  $29,812.  If you do a little adding and subtracting you’ll realize that the current liability of these households - just for the unfunded liabilities of the City - excluding what they owe the county - is approximately $7,000.


The City, as I have been writing about for some time is in really serious financial trouble, and the inability to come up with solutions because of the political consequences that those decisions will have on Regalado’s reelection efforts, as well as Commissioner Carollo and Suarez’s future aspirations is at the core of the financial problems the City faces today.


As I have said on more than one occasion, the words that no one will ever hear Tomas Regalado utter are, “What is the best thing I can do for my city.” Instead, it will always be, “What is the best thing I can do for Tomas Regalado.”


Into this mix was an alternative solution offered by Commissioner Spence-Jones to revisit the millage rate for the coming year. Spence-Jones wanted the Commissioners to hold a Special Commission meeting to talk about reversing their decision of lowering the millage rate, and instead raising it.


The Herald story claimed that wasn’t possible because, “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.”


My understanding that that that is not factually correct.  The City Commission could have held a Special Meeting, voted to increase the millage, but then would have had to pay the approximate $150,000 to send out new tax notices to every house in the county.


The bigger problem is that if the Commission were to do this, Regalado would wait until the 9th day, 23rd hour and 59th minute before vetoing the measure, and then use his veto as the center piece of his reelection campaign, claiming that he saved the citizens from an unfair tax increase.


And if this were not troubles enough, if the 3rd District Court of Appeals upholds the injunction against the City for having the City Manager and not the City Commission invoke the Financial Urgency measure, then the City will be on the hook for the millions of dollars that they illegally took from the unions as part of the Financial Urgency’s that were declared in 2010 and 2011.


So, without the ability to either raise the millage, or to go to the bond market anytime soon to raise money, and with an $85 million deficit that could involve the City being screwed by Wells Fargo as the price of having to refinance the $45 million tunnel debt, what lies ahead for the City? What are the possible solutions?


That’s the $64,000 question.


Regalado’s only solution to all of this is to threaten to force layoffs and furloughs. 


The biggest problem that has faced the City since Regalado became Mayor was not so much the level of corruption that he  allowed to take hold, but rather that he, and many of the people he chose to put into positions of power and authority in his administration are too stupid to run the City in a competent manner.


Stupid is, as stupid does.


Unfortunately, this a problem that will continue to plague Miami as long as Regalado remains Mayor, and as long as the 5 Dwarfs on the City Commission, along with Regalado, refuse to act responsibly by spending the time, energy and political courage to do what it takes to come up with real solutions - no matter how painful - that are in the best interests of the citizens, the City and its employees, and not their future political aspirations.


Here’s my December 15, 2010 story. Because I’m on the road I had to do a copy/paste of the below story in order to post it, and therefore none of the links work.


As always, It’s Miami, Bitches!

It’s Miami, Bitches!