Miami May Delay $120 Million Bond on Audit, Possible SEC Probe

Nov. 27 (Bloomberg) -- Miami may delay a $120 million bond sale after an audit showed lax budget practices and the city learned of a possible U.S. Securities and Exchange Commission inquiry, Mayor Tomas Regalado said.

Officials had planned to travel to New York on Dec. 7 to meet with underwriters about the bonds, which were to finance parking garages for the new Florida Marlins baseball stadium, the mayor said in an interview. The $515 million sports complex for the Major League Baseball team is being built with $360 million of public funds.

The internal audit showing the city didn’t comply with its budget standards, and a possible SEC probe, which would have to be disclosed in bond-sale documents, might alter timing of the issue, Regalado said.

“What concerns me about the audit is the appearance of impropriety and whether the SEC will follow up,” Regalado said. “This could affect the sale of the bonds.”

Regalado, 62, took office on Nov. 11 facing declining revenue with property taxes projected to shrink 6.6 percent during the fiscal year ending Sept. 30. He’s seeking to renegotiate a union pension agreement that will cost the city $90.5 million, 18 percent of its 2010 budget. Expense control is necessary for the city to maintain its A+ general-obligation bond rating, the fifth-highest investment grade, and “stable” outlook, Standard & Poor’s said in a July report.

City Manager Pete Hernandez was asked about a possible SEC inquiry two weeks ago, Regalado said in the interview on Nov. 25. Neither he nor Hernandez was aware of a full-fledged investigation, the mayor said.

Attorney Call

Hernandez said he received a telephone call from an attorney representing Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch & Co., senior manager of a $65 million issue of Miami street and sidewalk revenue bonds sold earlier this month. The lawyer asked if the city faced any SEC complaints.

“It was a compliance inquiry checking on our practices,” Hernandez said in an interview today. “We called the SEC and they wouldn’t confirm anything.”

Glenn Gordon, assistant regional director of the SEC’s Miami office, wouldn’t elaborate. “I can’t confirm or deny whether there is an investigation,” he said in a telephone interview.

The road and sidewalk bonds maturing in 2039 were priced to yield 5.72 percent on Nov. 19 and sold to a customer for 5.71 percent on Nov. 25, according to Municipal Securities Rulemaking Board data.

The city failed to comply with four of 13 standards governing its budgeting during the fiscal year ended Sept. 30, 2008, Auditor General Victor Igwe said in a Nov. 17 report.

Reserve Requirements

Among shortcomings were reserves $289,510 less than required; some agencies exceeding their budgeted spending and the city using non-recurring revenue such as cost-savings from previous years for pension contributions and other expenses.

Regalado said he would ask officials to explain lapses cited in the audit.

“I don’t think the administration is prepared to make a full disclosure of the finances of the city because we haven’t closed out the fiscal year,” he said.

Miami’s fiscal operations were temporarily taken over by the state in 1996 and its bond rating was cut to high-risk, high-yield e “junk” by S&P when unsound budget practices, including using interagency transfers for recurring expenses, created a $68 million budget deficit. The SEC cited Miami for failing to disclose its true financial condition in documents for three bond sales in 1995, before the city asked for state help.

Miami regained its investment-grade rating in 2001, when S&P raised its grade four levels to BBB+ from BB. It was boosted three more steps to A+ in 2004.