BRADENTON, Fla. — Miami, which tangled with the Securities and Exchange Commission over financial disclosure issues earlier this decade, has hired the law firm of Morgan, Lewis & Bockius to represent it in the SEC’s latest probe.
On Dec. 10, the SEC sent a letter to the city stating that it is “conducting a non-public inquiry” concerning its bond offerings. The agency asked for documents and e-mails dated between Oct. 1, 2006, and Dec. 23, 2009, on a number of subjects, including Miami’s budget, internal audits, and bond issues.
The city is struggling with a deficit largely brought on by the depressed economy and generous pension benefits. But it is not clear if disclosure issues related to the budget problems are the focus of the SEC inquiry. In a statement released Thursday, officials said they hired the outside law firm to represent Miami.
“The city is committed to ensuring the public and the SEC that all business will be conducted with the highest degree of integrity and utmost transparency,” the statement said.
Christian Bartholomew, a partner at Morgan Lewis, said the hiring of his firm does not indicate that anything material or new has happened in the matter.
The firm will provide “additional horsepower to resolve this as quickly as possible and is consistent with the city’s overarching intention and goal to be as transparent as it can,” said Bartholomew, a former SEC lawyer who worked in its Southeast office. “The city is cooperating and will continue to cooperate with the SEC.”
In December 1996, Miami had a $68 million deficit and was declared by Florida to be in a fiscal emergency. The governor appointed an oversight board. Eventually, the budget reached structural balance and reserves were built.
As an outgrowth of those issues, the SEC filed securities charges against Miami for failing to disclose financial problems in bond documents and in financial reports.
The city fought the charges for years, but in 2003 the SEC entered an order against Miami “to cease and desist from committing or causing any violation or future violation of the antifraud provisions of the federal securities laws.” The order can be read at www.sec.gov/litigation/opinions/33-8213.htm.
Robert Doty, president of American Governmental Financial Services Co. in Sacramento, said it is too early to tell how serious the latest SEC case could be since it is in the early fact-finding stage.
“The market has not previously seen an issuer that is subject to a cease-and-desist order become involved in another enforcement proceeding, but we can assume reasonably that it is something to be avoided,” Doty said. “There is no way to know if that would occur here.”
Miami’s most recent problems came to light when its internal auditor general questioned the structural balance of the budget as well as interfund transfers and some expenditures. Though the city commission apparently approved all budget actions, budget director Michael Boudreaux was fired last week and city manager Pete Hernandez resigned Feb. 19.
Rating agencies have noted Miami’s growing budgetary structural imbalance. The city’s general obligation bonds are rated A by Fitch Ratings, A2 by Moody’s Investors Service, and A-plus by Standard & Poor’s.
Last October, Fitch changed the outlook on the GOs to negative from stable, reflecting “concern that the city will be unable to maintain satisfactory financial flexibility over the next several years given sizeable cost pressures in an exceptionally weak revenue environment with uncertain prospects for recovery.”
Despite operational reductions, Fitch said it expected the city would continue to struggle in fiscal 2010 to manage its fixed cost base, driven largely by generous union contracts and retirement benefits. The city’s unfunded post-employment benefits liability alone is $480 million.
The city is preparing to sell $120 million of revenue bonds to finance a 6,000-space parking structure associated with the Marlins baseball stadium. Ratings of A3 and A had been assigned by Moody’s and Standard & Poor’s.