BRADENTON, Fla. — Against the backdrop of an annual internal audit critical of some of Miami’s budget practices, two agencies have assigned ratings to the city’s upcoming sale of $120 million of revenue bonds with the proceeds financing a parking garage for a Major League Baseball stadium.
The audit by Miami’s internal auditor general, Victor Igwe, was released Nov. 17 and outlines the city’s compliance with 13 “financial integrity principles” that Miami officials adopted in 2000 following a fiscal emergency in the 1990’s that required state oversight for several years.
The principles require the city to maintain a structurally balanced budget, to adopt short- and long-term financial and capital improvement plans, to establish and maintain adequate internal control systems, and follow best business practices.
Igwe said that for fiscal 2008 the city did not comply with four of the 13 principles. His audit questioned the structural balance of the budget as well as interfund transfers — including the transfer of $26.3 million in two fiscal years from capital projects funds to the city’s general fund — and over expenditures by some city departments.
The audit also found that the unreserved general fund balance reserves were $289,510 less than the amount required. Igwe did not return a call seeking further comment.
Miami budget director Michael Boudreaux said the auditor general has cited some of the same concerns for several years. The city’s use of fund balance to pay for unbudgeted expenditures — many related to budget overruns by its departments are approved by the city commission before they are made, Boudreaux stressed, but over the last two to three years these expenses have been paid with reserves.
Boudreaux said a lot of over spending has been related to some of the economic changes that have occurred the past few years, as well as personnel costs and expenses related to union contracts negotiated in fiscal 2007.
“I sympathize with the independent general auditor,” Boudreaux said. “The use of the fund balance should be for unforeseen, unanticipated events.”
While the fiscal 2009 year-end is still being closed out, Boudreaux said he expected reserves to decline between $20 million and $25 million, leaving reserves between $68 million and $72 million, which is below the $94 million to $95 million it should be. City ordinance requires reserves to be maintained at 20% of the average amount of general revenues received in the prior three fiscal years.
Boudreaux said his office is preparing a two-year plan to increase reserves to the required level. He also said he is not aware of any inquiry by the Securities and Exchange Commission as had been suggested in other news reports.
“I welcome any investigation into the city’s finances,” he said. “We’ve always been honest and open about the finances of the city.”
Glenn Gordon, assistant regional director of the SEC’s Miami office said he couldn’t confirm or deny any investigation.
The audit is getting attention as the city plans to sell bonds for a project related to the new Marlins stadium. Standard & Poor’s yesterday assigned an A rating to Miami’s special obligation parking revenue bonds, which are secured by convention development taxes. Standard & Poor’s also affirmed the city’s A-plus general obligation rating. Moody’s Investors Service on Nov. 19 assigned a A3 rating to the parking revenue bond deal and affirmed its A2 rating on the city’s GO bonds in June.
It is not clear if Fitch Ratings will rate the upcoming deal, but in late October the agency affirmed its A rating on the city’s GO bonds and revised the outlook to negative from stable because of its concern that the city would be “unable to maintain satisfactory financial flexibility over the next several years” due to cost pressures and the weakened revenue environment.
Analysts for Standard & Poor’s and Moody’s also cited concerns about south Florida’s severely stressed economy as well as Miami’s budget pressures related to rising pension costs.