BRADENTON, Fla. — Faced with a looming deficit and difficult union negotiations, officials in Miami are looking at ways to shore up a nearly $100 million hole in next year’s budget.
Miami’s “financial predicament” is underscored by projections of multi-year deficits and millions in unfunded pension liabilities, City Commission chairman Marc Sarnoff said in a special budget hearing last Thursday.
This year, Miami is spending $89.6 million for pension obligations, which increases to $115.5 million in fiscal 2011, according to city manager Carlos Migoya.
However, 50% of the revenues that support the city’s budget come from property taxes and assessed values are projected to drop by 15.5%.
For the coming fiscal year, that’s a loss of $37.3 million for the budget, Migoya said. He also noted that reserves have been depleted to $39 million and are expected to be much lower at fiscal year end, which is Sept. 30.
Despite reducing expenses by about 8% a month, Migoya said the city is facing an operating deficit of $96.5 million at year end and that figure does not include $14 million needed for deferred capital needs.
To begin reducing the 91% of the budget that now goes toward expenses for compensation and benefits, he proposed a 5% average reduction in salaries for workers making above $40,000 and cuts up to 12% for those earning over $120,000.
If the unions agree to salary cuts there won’t be any layoffs, but Migoya said his plan also calls for not filling positions to achieve a 2% attrition rate a year over the next five years.
In addition, Migoya said unions must agree to major changes in health care and pension plans to ease the budget crunch.
The city’s no-deductible health plan should become a more traditional deductible and co-payment plan, and for pensions Miami should turn to a defined contribution plan instead of a defined benefit plan, he advised, calling the latter “unsustainable.”
Migoya said officials are looking at other ways to increase revenue and bring up reserves, including monetizing parking and recycling services, fee increases for solid-waste services and red-light camera tickets, privatizing fingerprinting services, opening some county services to other agencies for a fee, and allowing advertising murals to be placed on several county buildings to bring in more than $1 million.
With his budget recommendations, Migoya said the city could eliminate the deficit for the current year but it still would be faced with deficits of $25 million in 2012, $30 million in 2013; and $20 million in 2014.
Miami last week also hired Public Financial Management Inc. to assist with union negotiations. If they aren’t forthcoming, the city could be forced to lay off as many as 1,000 employees to balance the budget.
“This is not about doing expense reductions for one year,” Migoya told commissioners. “This is not a one-year fix.”
Last month, Miami’s deteriorating financial condition prompted the three major rating agencies to downgrade the city’s general obligation bond ratings. Fitch Ratings dropped its GO rating to A from AA-minus, Moody’s Investors Service went to A1 from Aa3, and Standard & Poor’s went to A-minus from A-plus.
The downgrades came ahead of last week’s pricing of $84.5 million of Series A tax-exempt revenue bonds and $16.8 million of Series B taxable revenue bonds backed by the city’s covenant to budget and appropriate available non-ad-valorem revenue.
Proceeds of the bonds are being used to build several parking garages and to refurbish surface parking lots for the new retractable-roof stadium under construction for the Florida Marlins Major League Baseball team.
The bonds were rated A-minus by Fitch, A2 by Moody’s, and BBB-plus by Standard & Poor’s.
The city’s chief financial officer, Larry Spring, said the sale was successful.
The Series A bonds priced to yield 5.08% with a 5% coupon in 2030, 5.29% with a 5.25% coupon in 2035, and 5.31% with a 5.25% coupon in 2039. They were insured by Assured Guaranty Municipal Corp., which is rated Aa3 by Moody’s and AAA by Standard & Poor’s.