BRADENTON, Fla. – Miami is planning to consider its first bond issue since paying a record $1 million to settle securities fraud charges with the Securities and Investment Commission.
On Thursday, the City Commission will be asked to authorize $45 million of reimbursement bonds as part of a plan to repair the iconic Miami Marine Stadium on city-owned Virginia Key.
If approved, it would be the city's first borrowing since putting a 6-year battle with the SEC - and a guilty jury verdict - behind it.
Miami City Manager Daniel Alfonso said the city is moving forward, and if commissioners approve the bond issue he has a plan to ensure that investors are properly informed about the city's history with the SEC.
"We'll probably do a limited offering for sophisticated investors so that we can avoid some of the issues when you do an open public offering, such as people saying they didn't know," he said.
Alfonso also said the city is in a much better financial position than it was when the SEC found that securities laws were violated under a former administration that sold three bond issues in 2009 while hiding the city's deteriorating fiscal condition.
The city has paid the $1 million civil penalty and expects to close out fiscal 2016 with a fund balance of about $133 million, he said – $18 million more than required by city ordinances.
In addition to the penalty, Miami has paid about $2.5 million for legal fees and related defense strategies from when the SEC opened the securities fraud investigation in 2010 through the recently concluded federal civil trial.
Included in the millions spent on the case, Alfonso said Miami paid a firm $50,000 to hire three separate mock juries to gauge the potential outcome of the lawsuit.
He declined to say what the mock juries determined, because the verdicts are part of the city's legal strategy that remains shielded under Florida law.
The results, he said, will become public when the city clears all legal matters in the case.
In the SEC case, the real jury deliberated about four hours on Sept. 14 to find that the city and its former budget director improperly moved money – some with restricted uses - into the general fund to conceal its fiscal distress from investors who bought three bond issues in 2009.
After the guilty verdict, Miami entered a settlement agreeing to the $1 million civil penalty and an injunction barring it from violating securities laws in the future.
Alfonso said that although the city chose not to settle the SEC case before trial, for him the defining moment to end the case after the jury verdict – rather than appeal - was that the settlement did not require any oversight or additional expenditures to strengthen the city's financial practices.
"I was surprised that other than paying $1 million there was no oversight requirement," he said. "Why keep fighting in court spending money, and then some."
Whether the bonds cited in the SEC's lawsuit were impacted by the city's fraudulent activities is unclear.
The debt was sold at a turbulent time when the market was in flux from the onset of the great recession.
One bond issue cited by the SEC was a $37.4 million taxable non-ad valorem pension refunding, for which Miami disclosed the securities fraud suit and other pending legal matters, according to the Municipal Securities Rulemaking Board's EMMA filing system.
The three outstanding maturities were originally issued in 2009 with yields ranging from 7.29% in 2018; to 7.38% in 2023; and 7.55% in 2025.
Trading on Monday and Tuesday showed the yields on the outstanding maturities were 4.34% in 2018; 3.57% in 2023, and 3% in 2025 maturity.
Nearly every trade was above par with steadily declining yields since issuance, EMMA data showed.
When asked if the SEC's securities fraud lawsuit had an impact on the city's bonds, Matt Fabian, a partner with Municipal Market Analytics, said the SEC's complaint was not about whether the city's bonds should default or that they carried a material default risk.
The lawsuit argued that "the risks related to the city's pension were misstated," Fabian said. "The bonds are in no more danger of defaulting than any other city bond."
Alfonso, a former budget coordinator for Miami-Dade County, became Miami's budget director in 2011 amid the SEC's investigation. He later became chief financial officer before taking over as city manager in 2014.
"The biggest thing that we have done is put in place requirements for disclosure that were simply not in place before" the investigation, and at a time when the city was "suffering" financially and the finance department was not well staffed, he said Tuesday.
When budget amendments were approved under the former administration, Alfonso said very little information was provided to commissioners before transfers of funds were authorized at meetings.
Although he believed the transfers question in the SEC's investigation "met the letter of the law," he said there was no "clear and transparent record."
Since coming to work for the city, Alfonso said he has required detailed memorandums with commission meeting agendas explaining why budget amendments are being done, and where money is coming from and going to.
The city has hired more employees in the finance department, he said, and the budget has shown a surplus in each of the last five years.
While it was boosting its finances post-recession, Alfonso said Miami has also invested $20 million plus grant funds to make infrastructure improvements at the 6,566-seat waterfront Miami Marine Stadium built in 1963 so spectators could watch power boat racing.
A floating stage in front of the stadium played host to performers such as Benny Goodman, Steppenwolf, and Jimmy Buffett, and served as a platform for Easter sunrise services with Billy Graham and fireworks displays.
Unused since Hurricane Andrew ripped through south Florida in 1992, the stadium on city-owned Virginia Key has mainly served as a palate for aspiring graffiti artists.
"It's an amazing place," said retired Miami resident Don Worth, co-founder of the Restore Marine Stadium organization. "It's really a magical place to go to."
Worth said he will be at the City Commission meeting Thursday to discuss the stadium's ongoing revitalization plan and support the $45 million bond issue the commission will consider.
Alfonso said repairing the facility is important to commissioners and particularly Mayor Tomás Regalado, who is serving his final term in office.
"People have fond memories of going there," said Alfonso, who attended mass with his family at the stadium. "It can be a jewel."