Miami Herald: SEC probe won’t derail key Miami public works projects

The Miami Herald published this article on December 17, 2009.

BY CHARLES RABIN AND SCOTT HIAASEN
crabin@MiamiHerald.com

Even amid a Securities and Exchange Commission investigation, Miami leaders and financial experts say the city appears to be in position to issue bonds to bankroll key public works projects.

The city’s most immediate concern is construction of $100 million worth of parking sites in Little Havana for the Florida Marlins’ new ballpark, the city’s end of the $639 million stadium plan. To make that happen, Miami must hit the bond market.

Mayor Tomás Regalado and city leaders recently delayed that bond issue from November until early next year, either January or March. Still, experts say that financing should be able to move forward.

One reason: Buyers may not be as skittish about purchasing the municipal bonds because they are backed by guaranteed revenue streams — including money from the ballclub, tourist tax dollars and, potentially, the city’s general fund.

Under the ballpark agreement, Regalado said, Miami is obligated to pay for the parking — through bonds or otherwise.

“There’s no way to get out of that contract,” the mayor said Wednesday. “I’ve been advised extensively.”

Said Marlins President David Samson: “I am very confident the city will live up to its contractual obligations.”

The Marlins hope to take the field Opening Day 2012, with construction of the stadium itself already well under way.

The parking facilities take less time to build, between 16 and 18 months by most estimates, giving the city about a nine-month window to secure the financing.

Regalado said the city has not yet inquired about its position in the bond market.

EXTENDED MISERY?

In recent months, Wall Street rating agencies have taken note of the city’s overall financial picture and have warned potential investors that it may not improve for years.

In October, Fitch Ratings issued a report with a “negative” future outlook for the city, warning that lower tax rolls, higher pension costs and a depressed construction industry will likely hobble the city’s finances “for the next several years.”

By contrast, the Moody’s investment rating service had given the city had a favorable long-term outlook, despite the budget problems and the regional economic slide.

The fresh disclosure of the new SEC investigation adds another wrinkle to Miami’s financing plans.

The general rule: The lower the rating, the higher the interest rate.

Still, the city’s current investment-grade bond rating remains far better than it was a decade ago, when the city’s last financial crisis dragged the rating to near junk-bond status for five years — years in which the city failed to issue bonds for infrastructure improvements.

After 1996, when mismanagement put the city on the edge of bankruptcy, Miami’s bond rating was the lowest for any major U.S. city, tied only with Washington D.C. A state oversight board took control of the city’s finances and built up reserves, and the city’s bond ratings increased steadily after 2001.

After the first SEC investigation, which resulted in a 2001 finding that city officials had committed fraud six years earlier, the city in 2002 was able to issue the first batch of a $255 million bond approved by voters.

Last week the SEC directed Miami to turn over all communications between several high-ranking city workers going back to a pair of large bond deals in 2007.

The SEC also wants communications concerning two transfers totaling $26.4 million that The Miami Herald detailed this summer. In November came a scathing report from city auditor Victor Igwe that questioned a specific $8.2 million transfer of restricted impact fees into the city’s operating budget.

ON THE HORIZON

Still to be determined: How investors react to the newest SEC investigation.

“The investigation may not be material. It doesn’t mean Miami’s done anything wrong,” said David Chase, who led a similar SEC investigation into city finances a decade ago.

Besides the ballpark, the city is looking at visiting the bond market for two other big-ticket items. One would be for more than $100 million to build a park at the planned museums at Bicentennial Park. The other would be for about $50 million, Miami’s end of a $1 billion plan to partner with Miami-Dade and the state and build a tunnel to the Port of Miami.

Miami Commissioner Francis Suarez said he wasn’t that concerned about selling government bonds, noting the city has never defaulted.

Asked if he would purchase city bonds as Miami remains under a federal microscope, Suarez didn’t hesitate: “I would,” he said.