BRADENTON, Fla. — Miami will close out fiscal 2009 with a $53.6 million deficit and faces a projected deficit of $28 million by the end of the current fiscal year if actions are not taken to cut the budget, commissioners learned late last week.
While it is not clear if the revelation will force the Securities and Exchange Commission to take formal action, it had already begun an investigation into the city’s finances late last year, apparently to determine if Miami properly disclosed its financial condition to investors in bond documents.
In 2003, the SEC found that Miami violated federal securities laws when it hid financial problems from investors in the early 1990s. By 1996, Miami had a $68 million deficit and was declared by Florida to be in a financial emergency. The governor appointed an oversight board and eventually the city’s budget and reserves were rebuilt.
In a discussion about closing the books on Miami’s $780 million fiscal 2009 budget on Thursday, chief financial officer Larry Spring said the loss in 2009 would be covered with reserves, which would drop that balance to $39.9 million from $94 million.
By ordinance, the city’s reserve is required to be equal to 10% of the average amount of general revenues over the prior three years, or $90 million in fiscal 2010. A two-year plan to bring the reserve balance into compliance will be developed, according to Spring.
Spring also told commissioners that the city’s auditing firm is in contact with the SEC concerning the recent budget developments and that a number of measures have been instituted to better control costs and reduce expenses, including a freeze on spending.
Miami Mayor Tomas Regalado and Spring explained that the 2009 budget problems were the result of revenues affected by the economic downturn, overspending, and transfers between accounts to maintain reserve requirements. As part of a budget amendment approved Thursday to close fiscal 2009, the city transferred $28.4 million to capital funds to cover not-allocated expenses and to reimburse impact-fee accounts.
Regalado said expense and revenue projections for the remaining seven months of fiscal 2010 show that the budget is headed for another deficit of $28 million.
“If we were to use the fund balance it would mean we would have $11 million [remaining in reserve] and that would be a bigger challenge,” said Regalado, pledging to end transfers and open the budget process for the public to better understand the problems.
Noting that Miami is in the process of litigating lawsuits that could result in huge settlements, further depleting reserves, one commissioner questioned if the city should declare a financial emergency once again and seek assistance from the state.
But city attorney Julie Bru said there are established standards that require Miami to notify Florida of an emergency such as the inability to make payroll, or make pension payments, or pay debt service.
Regalado said there was not now a need to declare an emergency, while adding that it is something that needs to be considered and the city needs to understand the consequence if that occurs.
“We’re here paying for the sins of the past,” Regalado said. “We have to deal with that.”
Rating agencies have noted Miami’s growing budgetary structural imbalance but in the most recent reports affirmed the city’s general obligation bond ratings, which are A, A2, and A-plus by Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s, respectively. Last October, Fitch changed the outlook on the GOs to negative from stable due to budget pressures, including rising pension costs.