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Monday, February 22, 2010 11:01 PM


Miami's City Manager Resigns; New manager Promises to Tackle Budget Woes; How Unions, Politicians Bankrupted Miami


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Amidst a widening federal probe into Miami city finances, and a budget deficit born of corruption and union promises, Miami's City Manager Resigned last Friday.

On Monday, Mayor Tomás Regalado appointed Carlos Migoya to fill the city manager vacancy. The new city manager quickly stated I'll tackle budget woes.

Carlos Migoya, a career banker who worked up and down the eastern seaboard, was introduced Monday as the man to take on Miami's widening financial woes. His priority as city manager: Helping Miami avert disaster.

Migoya, 59 and bearing a resemblance to actor Ben Kingsley, has spent the past two months at Mayor Tomás Regalado's side, studying the city's sliding revenues and skyrocketing pensions. With Manager Pete Hernandez resigning Friday, Migoya arrives at a near crisis time for Miami.

Though he wouldn't commit to a lengthy stay, Migoya said he won't leave until the city's finances are in order. He will forgo a salary and benefits of more than $300,000 a year.

"This is a very complex and challenging situation," Migoya said at City Hall, vowing to evaluate every department and employee. "This is not a one year problem."

Migoya said his first order of business is to determine exactly where the city sits financially. Despite attending city meetings since December, Migoya said Monday while visiting The Miami Herald's editorial board that department budgets and revenues are in such disarray he hasn't been able to get a handle on them.

"What I've not seen is a whole bunch of urgency around the situation," he said.

The mayor said he and Migoya will focus on the unions, whose worker-friendly contracts have helped strangle the city's purse strings. Those contracts had been approved by commissioners including Regalado.

"We are telling the unions that we will not be adversaries. We will clean our house first, but then we will go to them,'' said the mayor.

Migoya said he has no background dealing with unions, but that it's time to rein in contracts that have created a pension obligation expected to cost taxpayers more than $100 million at the end of this budget year.

He'll also confront a growing federal investigation into the city's finances launched by the U.S. Securities and Exchange Commission. Federal regulators have asked Miami to turn over all communications between several department heads regarding millions of dollars of questionable money transfers, and $250 million in bonds sold over the past four years.

Just three months after closing a $118 million budget hole, commissioners learned revenues remain in such a freefall the finance director projected a new deficit of between $20 million and $45 million.

Add that to an expected shortfall of close to $30 million when the 2009 budget is officially closed out next month, and Miami is treading close to tapping deeply into its $88 million in reserves. The outlook is so dismal, Regalado has asked staff to compile a list from the city's 714 assets that could be sold to make ends meet.
Twenty Percent of Budget Goes to Pensions!

From the first article ...

"Echoing major cities across the U.S., Miami's revenues -- which include property taxes and permits -- are way down. And, there is no end in sight for the city's skyrocketing pension obligation, expected to be more than $100 million in 2011. That would cost taxpayers one dollar for every five they send their local government's way."

Twenty percent of the budget goes to pensions. Wow! Is that insane or what? If the stock market takes another dive (which I strongly believe it will), that figure can easily double in a few short years.

Simple Solution

The simple solution (and my recommendation) is for Miami to declare bankruptcy asking the court to throw pension promises and union contracts out the window.

Given that mayor Tomás Regalado got the endorsement of all the major city unions in the last election, that course of action, no matter how beneficial is unlikely to be on the table.

Politicians Buy Votes

The problem always starts with politicians buying votes as Regalado did, then having the gall to balance the budget on the backs of taxpayers (or in Miami's case - cook the books to the point federal investigators are forced to step in).

If you are looking for half-truths, look no further than Regalado's statement "We are telling the unions that we will not be adversaries. We will clean our house first, but then we will go to them.''

Given that Regalado is in bed with the unions, the first sentence in the above statement is easily believable. The second sentence is more likely to be a bald-faced lie than anything else.

One can always hope that Carlos Migoya, the new city manager will be willing to take bold action and force major concessions out of the unions. Unfortunately, the most likely scenario for Miami is for the city council to approve higher taxes while Regalado, Migoya, and the city council ignore real reform. If so, set a date for a forced Miami bankruptcy a few years down the road.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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