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CRESPOGRAM REPORT

NOVEMBER 26, 2012

THE CITY COMMISSION APPROVES PORT TUNNEL BOND ISSUE
KICKING THE CAN DOWN THE ROAD

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Sometimes trying to tell the story of what is going on inside of Miami City Hall is like the old story about trying to describe an elephant if you’re blindfolded and can only do so by touching what is in front of you.


The strategy in those cases is to touch as many parts of the elephant as you can, and hope that someone(s) will come along and whisper in your ear, telling you what part to touch next.


And so it’s been with the story of the Port Tunnel Bond issue.


Sometimes the most important thing with a complicated story is to start at the beginning.  Bear with me, because while I admit that I might not the best guide, at this point, for those of you who are interested, I’m the only guide you’ve got willing to try and make sense of all of this. 


THE GLOBAL AGREEMENT


The first rule of politics in a bureaucratic world is that he/she who controls the paperwork controls the game.


No matter what you think of him, no one on the City Commission understands this rule better than Marc Sarnoff.


As he was all too happy to admit at the Commission meeting two weeks ago, he claimed to have been one of the authors of the Global Agreement, that he said, was written in his kitchen.


That agreement bound together all of the projects that at the time the City Commission, along with the County Commission wanted to see developed, and devised the strategy on how to move monies around - especially CRA monies - to allow those projects to be financed.


As one of the authors of a document like that, you have tremendous power to influence and direct how the various pieces fit together, and more importantly, how the City covered the costs for the various pieces that assumed the responsibility to pay for. 


Here is the list of those projects that were included in the Global Agreement.


The Port Tunnel

Museum Park

Streetcar Project

New Baseball Stadium

New Soccer Stadium

Stadium Parking

Performing Arts Center (PAC)


The strategy in it’s broadest terms allowed the OMNI CRA to expand it’s boundaries to include Watson Island and some land on the Eastside of Biscayne Boulevard so as to increase it’s tax base, and in return committed the OMNI CRA to use 35% of it’s TIF funding to cover the partial payment of the PAC bonds and other administrative costs. The City would assume the obligation to pay $50 million towards the construction of the Port Tunnel, while OMNI CRA money would actually pay the $50 million.


The City also agreed to cover the costs of the stadium parking lots, and monies from both the County and the City would cover some costs associated with the museums now being built.


The City assumed the costs for the Museum Park Baywalk and Promenade, now budgeted at $8,553,620.68, that was scheduled to come up for a vote at the last Commission meeting. This item was postponed and will come up either in December or January.


You have to appreciate that when this Global Agreement was crafted Marc Sarnoff was NOT the head of the OMNI CRA. The CRAS’ were traditionally run by the Commissioner from District 5, which started with Art Teele, when he was the District 5 Commissioner. Sarnoff only managed to wrest control over the OMNI CRA in 2010, after Michelle-Spence Jones was removed from office and Richard Dunn took her place.


It’s interesting to speculate whether Sarnoff had visions then of one day taking over the control of the OMNI CRA.


THE DEAL AND WHO ISSUED THE BONDS


As I wrote above, the City assumed the obligation for the payment of the $50 million for the Port Tunnel project.  From the beginning it was assumed that the $50 million would be covered by bonds issued by the OMNI CRA. 


As we now know, that never happened, and in a Memorandum written by then City Manager Carlos Migoya on December 13, 2010, he claimed that the reason why the City had had to take out a loan with Wells Fargo to cover this debt instead of the OMNI CRA floating a bond issue was that:


        “...the City Attorney’s office, has determined that the

        proposed OMNI CRA bonds should be validated by

        the courts given the multiple legislative changes to

        the District over the years.  The validation process

        can take six months to two years to complete depending

        on challenges, in any are made.”


Then at last week’s Commission meeting, Sarnoff claimed the reason why the OMNI CRA couldn’t issue the bonds was because they couldn’t find a couple receipts from 1981.


It’s hard to accept either of those arguments, given that as I write this, the SEOPW CRA is going through the process of doing the necessary paperwork to get their $50 million bond issue validated by a court.


The OMNI CRA could have done so, had they really wanted to.  The argument that it would have taken as much as two years, and consequently they would possibly still be in court doesn’t hold water, because they could have started the process as early as 2010, which, at the latest - based on their time projections - would have had them issuing the bonds now instead of the City.


It’s always hard to separate motives when Sarnoff is involved, but I believed originally, and still believe that Sarnoff rejected the possibility of the OMNI CRA issuing bonds because it would have handcuffed him to this debt, and would have precluded his using CRA money for other projects, like the $10-$12 million he wants to spend for the “movie studio” on 14th Street.


I’ll refrain from doing an extended tap dance of the detailed critique of why this is not only a bad idea, but an even worse misuse of money that’s supposed to be dedicated to the elimination of “slum and blight” for another day, but, none the less, this, along with other projects would not be possible if the OMNI CRA had decided to issue bonds to cover the $50 million Port Tunnel debt.


IT’S HARD TO ASCRIBE MALICE WHEN INCOMPETENCY REIGNS SUPREME


In a November 3rd story by Kathleen Mcgrory of the Miami Herald, she detailed changes during the Regalado administration time in office that underscored a loss of institutional memory, stable management and contributed to poor morale.  Among her findings 4 City Managers, 3 Police Chiefs, and 31 Department Directors along with countless other Assistant Directors and high-level employees were fired and/or resigned.


As a result of those changes - my conclusion, not hers - the overwhelming majority of  replacements were less competent and more subject to political interference than the persons they replaced.


Nothing has been more harmful than the repeated changes in City Manager. I call Johnny Martinez “The Doormat,” because his behavior warrants my calling him that and his inability to be a strong leader has allowed Alice Bravo, Luis Cabrera and all the other schemers, scammers and nut cases to run rampant treating the City and its resources like a Giant Pinata.


The Port Tunnel bond issue is but the latest glaring example of what incompetent leadership can produce.


The City Commission meeting on November 15th, which started off with the “discovery” of the $36 - $45 million dollar “windfall,” by the Budget Director, and ended up with grandstanding performances by Sarnoff, Spence-Jones, and an encore by Suarez that he was surprised by the announcement of the newly found money, was just the latest in a series of recent Commission meetings that left some wondering whether they were watching competent elected officials trying to deal with a serious problem, or graduates of a Clown College trying out for a reality show.


As an aside, Commissioner Suarez continues to demonstrate a lack of comprehension about what happens when it involves the City of Miami’s finances.


This year he was surprised by a budget windfall, last year he was surprised by a $40 million deficit.


“It shocks me, both that I haven’t heard about it, and that it’s that large,” Suarez was quoted in the Miami Herald story last year when they revealed the City was continuing to bleeding money. 


The only time Suarez doesn’t seem surprised is when he’s dealing with an item where lobbyist Steve Marin is involved in some capacity. Then, as Carlos Gimenez Jr. revealed in the email I published last week, it’s he who delivers the surprises.


At the end of the day however, after all the Sturm and Drang, the Commissioners acted with typical predictability, expressing no interest in exploring any proposal that would have benefited the City’s finances to the tune of $31 million, versus putting that money in the pockets of private investors, Wells Fargo Bank and the bond underwriters.


I have been told by several individuals close enough to hear portions of the conversations, that between Thursday’s Commission meeting and the Special Meeting on Monday evening when the bond issue was passed, Martinez did the only thing he knows how to do well: he divvied out portions of the $36 million budget “windfall,” among the Commissioners as a way to get them to go along with the deal.


You won’t be able to trace how the money gets spent until the end of the fiscal year and even then it will be difficult, but the money will be portioned out in ways that these people have perfected to move money around like a Three Card Monti dealer.


There was never any real possibility that the proposal that I wrote about last week - generated by people close to Regalado with both brains and a sense of responsibility to the taxpayers - that the City could pay off the remaining $45 million owed on Port Tunnel debt, collect the principal and $31 MILLION IN INTEREST from the OMNI CRA, and walk away ahead of the game.


That proposal, from what I have been told, turned out to be scarier to everyone in City Hall then a visit by a squad of FBI agents waving subpoenas.


The notion that the proposal was rejected out of hand first by Martinez, and then by Regalado, who could have stepped up to the podium at any time during the November 15th Commission meeting and presented the idea directly to the Commission, underscores just how weak and vacillating he can be when confronted by choices that require courage and conviction.


IT’S NOW TIME TO FOLLOW THE MONEY


THE FIRST MONEY issue that is important to know is that the total cost of the Port Tunnel Bond issue is not $71 million, but $83,156,893.


On December 15, 2011, the OMNI CRA Board approved an initial payment of $7,156,893 towards the loan agreement that the City had entered into with Wells Fargo. Of that $7 million, $2,156,893 was interest. That left the $45 million, plus interest that the current bond issue covers.


THE SECOND MONEY issue that’s important to comprehend is the approximately $5 million in fees and commissions that Wells Fargo and the underwriters will split up on the sale of the bonds.


The $5 million is not a number that’s been discussed during any of the Commission meetings because the million of dollars in fees and commissions that are paid as part of all of these bond deals is not a subject that politicians like to talk about in polite company and especially not in public meetings. 


It puts thoughts in people’s minds that if these kinds of monies are generated as a result of the decisions made by these politicians, then what kind of kick-back in terms of campaign contributions and the like are they expected to receive.


Remember that next year the Mayor, Commissioner Carollo and Commissioner Spence-Jones will all be up for reelection, and they along with Francis Suarez, who’s planning on running against Regalado, are already out beating the bushes for money. 


How much do you think that they will collect in campaign contributions from the folks at Wells Fargo and the bond underwriters for this deal in the coming months?


THE THIRD MONEY number that needs to be looked at is the payback schedule for this loan.


The loan is for 18 years, and the principle and interest comes to $71 million. That comes out to a little more than $3,94 million a year.


But, loans like this, just like your mortgage or car loan are amortized so that in the beginning the interest starts getting paid before the principle, and the payments increase in size towards the end of the payment period. Often with a sizable balloon payment at the end.


Although I’ve not been able to get my hands on the actual schedule, the OMNI CRA has already sent aside $6 million to cover the first 3 years of these interest payments. (YELLOW HIGHLIGHT.)


Here is the OMNI CRA’S projected FY 2013 Fund Budget.

You see that the projected income from both the County and City taxes is $9,600,900.  (RED HIGHLIGHT.)


Of that amount, the OMNI CRA is obligated to pay $1.43 million towards the retirement of the PAC construction bonds, plus an additional 35% of the TIF funds it receives to the PAC above the $1.43 in the amount of TIF revenue it receives. In the latest audited financial report available (2011) the OMNI CRA remitted a total of $4,145,869 to the County per this agreement.

While the 2013 Projected Budget is a little hard to figure out  because the OMNI CRA is not very transparent about what the $16,359,440 in “Construction In Progress,” represents, - there is no single document that I’ve been able to discover that provides an itemized listing of projects/costs and time lines of the construction projects - the single most important piece of information that the proposed budget above provides is that the $6 million set aside to cover the interest payments on the first three years of the Port Tunnel payments coincides with the last 3 years of Commission Sarnoff’s tenure as a City Commissioner.


Like all self-serving politicians, Sarnoff managed to maneuver the City to structure this deal in a way that made THEM, and not the OMNI CRA, the entity responsible for issuing the bonds - even though Sarnoff pretended to pursue a path where the OMNI would issue the bonds - thereby allowing him to evade locking in any more of the OMNI CRA money not already committed as part of the PAC deal in a supplemental First Position to cover these bonds.


In fact, there is actually no assurance that the $6 million listed above is actually committed to paying off the first 3 years of interest, because it’s just a line item in a proposed budget that could be changed at will.


To actually insure that money not being spent elsewhere the OMNI CRA would have to put it in a trust account., and that wont happen.


By doing things this way, the OMNI CRA evades having to pledge any CRA revenue or assets as collateral, while leaving ample opportunities to continue spending and/or committing OMNI CRA funds to other projects, allowing Sarnoff to move on down the road long before the payments come do, or the chickens come home to roost.


In the end however, the real question is was this bond issue a good deal for the City and the taxpayers?


The bonding agencies already seem to have their doubts, which is why the City has received a “negative rating,” on these bonds, and why the end result will mean increasing the amount of interest that the City will have to pay the  18 “investors” who buy these bonds.


By floating a bond issue to paying off this debt, the taxpayers will end up being $31 million poorer, because those millions will go to “investors” as interest payments and not into the City’s General Fund.


On the other hand the deal is definitely a plus for everyone at City Hall running for office in 2013, because they can expect healthy campaign contributions from all the people who share in the $5 million in fees and commissions showing their thanks by trying to help keep them in office so they can be around to vote for the next deal.


For the City, it’s commitment to pledge all of it’s non-ad valorem assets once again to cover these bonds, having repeatedly pledged these same assets to previous bond issues, continues to weaken their borrowing power because you can only go to the well so many times, and the City’s history of not only of making bad financial decisions, but of also being a City where bad things happen, starting with hurricanes and ending with corrupt and devious employees who cook the City’s books on a semi-regular basis doesn’t inspire confidence that this bond issue will survive the next 18 years without problems.


But then, Commissioner Sarnoff is betting that none of that will happen in the next 3 years, and if it does, he’s working hard to try and have a Mayor in place who will be his sock puppet.


It’s Miami, Bitches!