HomeMy WebLinkAboutCC 1981-05-26 Minutesr
CITY OF MIAMI
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MINUTES
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OF MEETING HELD ON MAY 26, 1981
(SPECIAL)
PREPARED BY THE OFFICE OF THE CITY CLERK
CITY HALL
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LPH G ON
CITY CLERK
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Pursuant to Mayor Maurice A. Ferrets request, enclosed herein please find
transcript from the Special Workshop on Bonds which was held in the
Committee of the Whole Room on May 26, 1981.
Please be advised that at the time this Workshop was recorded, and unbeknown
to us, there existed a short in the recording system which is permanently
installed in the C.O.W. Room. The Department of Communications was immediately
advised and has, by now, taken care of this problem.
However, and because of the above -stated circumstances, it was quite difficult
for our transcribers to put together this Workshop. The lines which you will
sporadically find represent portions and/or statements which were unintelligible,
We sincerely aaoloQize for any inconvenience this may bring you.
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,Y ,ANY �5 11INUTE9 6F SPECIAL, MEET110 bV THE
CITY COMMISSION OF MIAMI, VtORIUA
1 XI
the6th day of May, 1981, the City Commission of Miami, Florida
stet at its regular meeting place in said City in Special Session to
,
,tlYtaider business of public import, namely a bond workshop.
The meeting was called to order at 9:50 A.M., by Mayor Maurice
I`etre with the following members of the Commission found to be present:
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Mayor Maurice A. Terre
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SO pit SENT: ns'� ,
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"oard Gary City Manager
r}rbbt 's. a( s I
aros Garcia, Finance Director�t
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M'Mr. Robert W. MacDonald: Mr. Mayor, we've recently pursued the sale of
,
general obligation bonds which we want to have the City Commissioners
_approve in 2 weeks. Not actually approve the sale, but approve distribution
of a red herring. I spent a lot of time with the rating agencies.......
we spent a lot of time, Carlos, Howard, and myself last week. We
went to see Moody's, Standard and Poor's and we've been doing a lot of
work with regards to the market for the City of Miami, how it's
perceived and the like. And what we wanted to do was get back to you and
give you some of our reports, some of the reports, some of the feelings
of the market, the rating agencies, that are coming out at our meetings.
And simply put,....let me just get back. With regards to the general
obligation issue, in 2 weeks we will be coming before the Commissioner
for the Commission to distribute a red herring for a sale 2 weeks hence.
As you know, well, interest rates are considerably higher. They are at
the highest peak, we've ever seen for municipalities as well as other
particular instruments. And the Commission would think in terms of interest
rates.... if the bonds were to sell today, the general obligation bonds, the
interest would be somewhere around 11 percent. I've spent a lot of time
with Howard and Carlos, and we've talked a lot back and forth as to whether
things are going to get better or worse. Quite honestly, I think at some
point in time things will bet better. And I say "may", and I way "at some
point in time". The advice we've been giving most of our client s except in
extenuating circumstances is: "if this is your cash flow needs and you
need these dollars, then sell now". The market will improve a little bit
this week, bur in terms of interest rates, we don't see any way, at
least for the next month or months and a half, where the interest rates are
going to improve tremendously.
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Must conceed, that the height of the bond Market is beginning
to reach the hot point. The fact that even though I know
that the direct relationship between the Treasury bills and
the long term municipal market are all interwoven indirectly, and
the fact that they went up to 15.7 or whatever it was, then it
went down and then it went up again last week. I think it's a very
clear indication that we're getting to a point where the primary
and treasury bills seen to be peaking and I think that all these
things are motivated to get into the tax-free
bond market at this point. There seems to be a gradual interest
coming back. That tells me that by the end of the year interests
are going to be lower.
Mr. MacDonald: Yes, the coming back of the investors -so to speak,
I said, is ever so slowly. I talked to those in the market today
and I asked them what is the market going to do in the next month.
Sort of a broad -based question. And without boring you with all the
details, it's going to trail sideways...
Mayor Ferre: But I am not talking about next month, I'm talking
about 5 months, 4 months, 6 months from today, from now, towards
the end of the year. I think we'll have a much better market and
my question to you is are you recommending that we go to market
about June or July?
Mr. MacDonald: Yes sir, that's true.
Mayor Ferre: Why are you recompending that?
Mr. MacDonald: Well basically, these general obligations bonds...
as I understand it, the proceeds -are needed. In other words...
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Mayor Ferro: I agree, we need a lot of things, but that's not
the question. The question is not what we need, the question
is, is there any way to wait until August or September? July, and
see if there's any change?
Mr. MacDonald; Well Mr. Mayor, r would recommend borrowing At this
time but this sale has been on the docket, as'I understand it, for some
time.
Mayor Ferre: You originally sold 70 million dollars for Netropolitan
Dade County. What were their ratings? What were they...?
Mr. MacDonald; They were short term notes, they were rated,
and the interest rate was a 8,23%, Mr. Mayor, slighly under 8 1/4%.
Mayor Ferre: 8 1/4% for short term, So that they can go out in A
better market and resell in a better market 70 million dollars,
Mr. MacDonald: Yes.
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Mr. MacDonald: On yes, they will have to fund those notes out is the
course of the next year and a half. It was an 18 month piece of
paper, short term. So that's why their rating is definately made
Moody's investors rate...
Mayor Ferre: Is that following the recommendation?
Mr. MacDonald: Yes, sir.
Mayor Ferre: You recommended that the sale be short term and that
they then return to the market when it's better to resell the
70 million dollars on a long term bases. And that this is not
the time to go for a long term sale.
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Mr. MacDonald: Yes, air, that's true.
Mayor Ferre: Why are you then recommending differently for the
City of Miami?
Mr. MacDonald: Basically, Mr. Mayor, what we are recommending is
that tl
General Obligation bond ... we could sell notes, Don't get me
wrong. We could very well sell notes but I think that there
were a different set of circumstances in Dade County,.. in Dade
County what we were doing was...though the principles are not too
different, don't get me wrong
Dade County had been on short term obligations for a year before.
When we sold the notes recently, we had a . So they
renewed some short term obligations and added some new money on
to it. But the basic principle, as interest rates will conclude,
somewhere down the line that's true.
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Mayor Ferre: What is the highest that the City of Miami has
ever sold General Obligations Bonds at?
Mr. MacDonald: 7h.
Mayor Ferre: 7'h. You're not recommending that we sell
bonds at 3h+ points higher we`ve ever sold and at 2k points¢
higher than Dade County has recently sold 70 million dollars._
And if we wait until the market goes down it could be a
difference of a point and a half, a point...
Mr. MacDonald: It may and it may not. It may be ......
Mayor Ferre: It's true, we don't know that but if it were toj
go down 1� or 2 points, the difference in 19 million dollars
will core down to how much? Over what period of time?;{ .
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Mr. MacDonald: These bonds don't go out until 2,001. The average life is�r
is in the area of 20 years. '
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Mayor Ferre: So what would be the difference for each point ;}
if we were to wait?
Mr. Mac Donald: On $20,000,000% it is probably around $200,000.
Mayor Ferre: Per year?
Mr. MacDonald: It declines down because you are constantly paying it off.'
Mayor Ferre: Over the life of the issue, what will it be?
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Mr. MacDonald: I couldn't figure that in by head.
Mr. Garcia: $100,000 a year over 20 years, so you Mould probably have
aver $2,000,000.
Mayor Ferre: There is a $2,000,000 difference for a percent point if
we wait for the market to come down.
Mr. MacDonald: That's true, that's true. In other words, your interest
rate right now —these bonds have no interest rate restrictions, they
are voted. We would go out and sell them. —they are clean.
Mayor Ferre: They are General Obligation Bonds, with Moody's A-1
rating, and Standard and Poors?
Mr. MacDonald: We don't know. We just applied last weekend. It's pending. -
Mayor Ferre: Will we have a Standard and Poors' rating by the time we "vote
on this?
Mr. MacDonald: Yes, sir. For bonds, not'for notes.
Mayor Ferre: The last time we sold, we had a Standard and Poors' rating .~
of what?
Mr. Garcia: A+, which is the same as A-1.
Mayor Ferre: A+ at Standard and Poors' and A-1 at Moody's$ is that
what we've had for the last 6 or 7 years?
Mr. MacDonald: That's true, since 1969.
Mayor Ferre: No, no. Let me pursue this a little bit further because I
want to try and understand this. Is your recommendation on the premise
that the administration has asked you because of the need for this
$19,150,000, or is it based on your recommendation, period?
Mr. MacDonald: Mr. Mayor, it is based on our recommendation that the
City needs $19,500,000.
Mayor Ferre: You make this assumption on your own?
Mr. Garcia: We have disccssed our cash needs, and he known that we
need the money right away. Some of the monies of the housing bonds, we
have already advanced $1,400,000 for the Capital Improvement Fund.
Mayor Ferre: Yes. I am not questioning any of that at the present time.
I am questioning our financial advisor, James Lowry, did you come to
your conclusion based on your own analysis of our needs, or based on
the instructions of the administration?
Mr. MacDonald: Based on the instructions of the administration and on the
fact that the City needs $20,000,000 of bond proceeds...what do you recommend?
Sowe...
Mayor Ferre: I understand. So then the question is to the administration,
and the question is why couldn't you wait 2 months?
Mr. Garcia: We could wait 2 months but the only problem has been that
these bonds have been postponed for over a year now and for one reason
or another, they keep being postponed.
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Mayor Ferre: But we could have gone to the market in February or
March, at an earlier date. If would have been better, no?
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-Mrs MA06nald.. i would would say that at that point in
— ` ftasMr. Mayor,it was critical that the market, the rating
ggnaeies and the like, would see the outcome of your financials
and that we were waiting for the financials.
Mayor Ferre: You had to wait, we had no choice?
Mr. MacDonald: Yeah, you were right in the middle. in other words,
if it had been a little bit earlier we could have said were still
in the process of preparing a financial statement. 1 you wait a
is
little bit later we'll have that. So the market expects certain
information at certain periods of time. And I think we are right
in the middle of that.
Mayor Ferre: Well, let me Laic another question. The last time
when we sold the 60 million dollars Revenue bonds for the Convention :.
Center, which I don't think you were involved in that...
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Mr. MacDonald: No, sir.
Mayor Ferre: We had to get insurance and after we got the insurantp_,
we got a rating of Triple A.
Mr. MacDonald: Yes, Triple A from Standard and Poor. ...
Mayor Ferre: Now, my question to you is, is there a way for us tb
repeat that in G.O. Bonds?
Mr. MacDonald: Yes, you can get insurance on this. Whether you will
benefit is questionable. And let me explain a little bit about
insurance. Number one, ...with regard to insurance, you pay a very
hefty premium. I would say it's probably somewhere in the area of
20 million dollar General Obligation Issue you probably might pay,
and this is just a guestimate, $700,000, up front, they want, premium.
Mayor Ferre: So if you calculated the cost of that money...
Mr. MacDonald: It's got to be equal to the difference in interest
rate. Now, with regards to insurance, bond insurance is most effec-
tive with lower -rated securities. In other words, if you have a "B",
A A, it gets you a Triple A. If you have A-1, it gives you a Triple A.
Mayor Ferre: I understand. What you're saying then is if we go from
and A+ to a Triple A, the difference in the cost of the insurance is
not justified and we will not get that much lower an interest rate
by going from A-1 to Triple A.
Mr. MacDonald: That's true.
Mayor Ferre: It will not cover the difference in the insurance.
Mr. MacDonald: That's true in an A-1 General Obligation. There is
another consideration, Mr. Mayor. Most General Obligation issues
don't insure their bonds. I'm not c—osed to insurance on bonds,
don't get ma wrong, but there is a certain connotation which...
Mayor Ferre: I understand. Let me ask you one last question,
and then I'll let you finish. There are other cities i.n the State
of Florida that. ha-e Standard and Poors as Ai-, Moody's as A-1.
Amongst them are Fort Lauderdale, or another one. Now, one of the
things that concerns me about what you are recommending is that we
will end up paying the highest insurance of any municipality in the
history of the State of Florida. We will be paying the highest
interest rate for any General Obligation bond ever in the
history of Florida. That will be a
MAY 2 61981
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Mgyat Perre. (continued): fVNI page story it, the Hetald, and because
of the ioportance given to it in the local press, 1 am Bute it will
make the Wall Street Journal, and the New York tithes' financial page,
l am not too sure we want that distinction. This is a very serious
t6attery it is a very serious step.
Mr. Garyt (Whole statement was placed away from the microphone and
did not get into the public record).
Mr. MacDonald: That's true. In other words, the short term market
is resting. If you need some money right now, and that is the
assumption, Mr. Mayor, that you need the money, then I'll make
it. If you go short, and you were to sell notes for it 18.months,
or 2 years, or 3 years, there is a point at which it gets too long,
if the market turns against you and at some point in time when you're
refinancing you get into a 15% market, then you've got that. The
rating agencies do not necessary approve of, they tend to put in
their report a negative aspect for selling short.
Mayor Ferre: Of course, if you've got a short term pending over
you, the analyst obviously must understand that that has to be
repaid and that you have problems borrowing the money long term
and that's why you're getting short term, then your credit rating
would be impaired. I understand that. Nevertheless, James Lowrey is
the same company that went along with that for the County and
eventually I would like to know why we now are advised to do the
same thing? What I need to turn to now is to the administration,
and indeed to know why we need to sell $19,150,000 at this parti-
cular juction, and end up having the dubious honor of paying the
highest interest in the State, in this type of issue, in the
State of Florida.
Mr. Gary: Well, I'll give you this response. This first is that
we have considerable commitments in the housing bonds. That is
something that I think we have to go with if we plan to continue
the housing project.
Mayor Ferre: Is there ... these are..*�xs{`
Mr. Gary: Probably 25 million dollars... Rfl
Mayor Ferre: Probably 25 million dollars of which we're going
to use 5 million for the of...
purpose
Mr. Gary: Housing Development in Dade County.r'
Mayor Ferre: I see. Have we earmarked those houses?
Mr. Gary: We have earmarked about... How many are there of those,
Jim?
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Mr. Reid: A million and a half.IM
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Mr. Gary: We have already expended a million and a half, but ,qf
what do we have, right now, in terms of immediate commitments
to Dade County? t
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Mr. Reid: I would have to...
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icy r Farm., tali, t would lira to make a ,statement point blank
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into the public record$ right now. l at& one hundred percent
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apposed to paying 11% interest for building a few houses. Nows
if you were to tell me that we're going to be leveraging and
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that we have a 4 or 5-time leverage, and that for each 1 billion
that we put up we're going to get 4 or 5 million dollars worth�lP.t'
of housing, then, I think it would be well worth spending 11%
in interest rates to do that. But since what you have come up
with, in my opinion, at best, is a totally unacceptable package
which we're forced into because of the fact that we sat on that
money, or the potential of that money, for 5 years now and have
done nothing, now we're coming up almost in a desperate need to use
the money in what I think is a very poorly conceived, and I think
a very tenuous situation. I want to make sure that you understand
that
I am not talking, Howard, about this administration which has
been in power for a couple of months. I am talking about the whole
_
City of Miami and its previous administrations that sat around
without a hell of a lot of imagination for 6 years and did nothing
with that 25 million dollars in housing. Now it's bad enough that
we're going to use it without any leverage but to use it without
an leveraging and to a 11% is to me not acceptable. So what
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else do you need from me?r-y:.
Mr. Gary: Well, we have the additional one million four for Fite,
— We can borrow the money.
Mayor Ferre: Now my question is...the only one that I would probably
go along with is the 9 million dollar Sanitary Sewer Bonds and
the 3 million dollar storm sewers because those two particular cases,
if we put off the construction of the storm sewers and the sanitary
f h i fl ti ar ressures the additional costs
sewers because o t e n a on y p ,
of construction of those sewers will skyrocket and will be sub-
stantially more than the interest expense involved. But in all
those things especially in the housing bonds, as much as I am
for housing , I think it is a very ineffective way of using that
5.4 million dollars. Now the firefighting...
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Mr. Reid: May I make a comment? r
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Mayor Ferre: Please, and make it into the mike.
Mr. Reid: I believe that already a 1.5 million has already been
allocated to produce .... is a short fall of Section VIII commitment
that we already have. In other words, the Section VIII money had
been available to the County and the Section VIII dollars cannot
deliver the units in today's market. So we have come into the
short fall. So, we have to leverage about...
Mayor Ferre: What is the leverage? Can you tell me specifically?
Mr. Reid: I can look up the numbers.
Mayor Ferre: Yes, I need ... if you're talking about a 4 or 5-time
leverage, then, I think that we'd go along with that. But if
you're talking about what I think you're talking about, just
supplemental income because of short fall, we will end up
getting a few little houses on that; we're not impacting. It's
the same standing that I have on selling bonds, you know, which
the editorials didn't understand. I am all for gun control,
nationally, but as long as you don't have gun control, please
tell me what 350 guns -out of 5,000,000 guns sold a year -are
going to mean in the market. They will mean absolutely nothing.
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Mayon Petro:(continued) And the City of Hiami is going to deprive itself ofIN
$40,000 because of some philosophical teasons, that we cannot sell guns4.16?
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So I have the same kind of logic on this.
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Mr. Reid: I think there is a distinction between the leverage
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on keeping the Section VIII units that, have already been allocated{
and completing the housing, program. And I think the numbers will work
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out so that it makes sense to at least cover the obligations covering
the Section VIII units.
Mayor Ferre: Well, Mr. Reid, I don't know how the rest of the members of the
Commission would feel, but you're going to have to explain to me, and
you're going to have to do an awful lot of convincing on that particular
5 4 illi With re ands to the firefighting $1 750.000, as I understands.-
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it, we have already advanced those monies out of the capital budget.
Is that correct?'��
,
Mr. Gary: Yes.
Mayor Ferre: And if we sell those bonds, that money comes back to the capital
budget, and then we're able to use them for other capital expenditures? But
it does not mean that it comes back to the General Revenue.
Gary: No. It comes back to the Capital Improvement'Fund (rest of statement
unintelligible)......
Mayor Ferre: Well, FPL funds can be used for the General Budget. So in fact,
they could be used for the General Budget.
Mr. Gary: For right now, we're expecting it to help finance capital projects.
....:e: See, because that's the way we're using the FPL fund, part of{f
not all of it.
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Mr. Gary: Exactly. We take 3.5 million of the approximately 7 million
for the General Fund. The other 3� are used in capital projects
Now, it is important for you to note that we have some commitments.....
the issue of the 3.5 million
Downtown People Mover. Now, we committed ourselves
to 9 million dollars under the original plan. Actually, we have some financial
commitments. So I would say that in terms of cash flow, we don't have one now.
Mayor Ferre: We don't have one right now, period. Let me answer it this way.
Number one, it looks like the Reagan Administration is not going to
fund the Downtown People Mover. That means that Metropolitan Dade County
and the State are going to have to come up with 54 million dollars.
Absent that, there is no People Mover in the immediate future. I think
the People Mover is gong to be built anyway and I think that Metro in
going to have to bite the bullet between now and November, and if they
do, they're going to have to bite the whole bullet, and not part of the
bullet. And when it happens, I'll be oft the hook. In the meantime, I
mean to say that I don't feel that these funds are in any,wah impaired.
And I'm just going to tell you, since we're just talking on the record,
Howard, I think that to overcome the 10 million dollar shortfall, or
whatever it may be, in the crisis that we presently have, in my opinion,
we can do three things: Number one, we're going to have to cut in
adminstration, and that means everything -other than the fire and police -
down to the bone. The second thing that we have to do, in my opinion,
is that we're going to have to be satisfied with 814 policemen for another
year or two and put off the 1,000 policemen for at least a year. We'll
ccnsF th!?r bridge next year. The third thing that we have to do is
that we have to stop all capital improvement
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that are not p
resently committed or �
Mayor Terre:(continued) projects the FP b n
til we have a clear idea of where the monies
y it un a to dedicate
And we hie to wad we going to ° �ricluding the
will be coming faoa*QtheT monies we have available. Conference
funds and what�cvex n „p in for Con'Dention C To er-
9nonieB tt" t are not f__ sect in the puxchase of FEC p P
Interama ,kill -ion dollars or
Center site, ,and that �+re not 1'Qe�nut that G we're
opiniQn -13-1� w1 p � I thi.nk-
ty• rich in �'' of it• But whatever is l,_ft, that for other
whatever is left wa R of subFt.i tut9.ng
have to figure out y and release those mthatsl or
going to the State 1nw� thing
projects within the JAW, the fourth and last
o to the clectorAl in llovembeT and
the General Fund liow the lasts that we have 2 years
want to recommend, is thr►t we g �, 1. funds- the future"
we specifically earmark the be used in
that those monies to ublic safety
left on --and that we earmark artments for pilbl be avail -
for the Police and T ire
that those monies
specifically that will mean
purposes; therefore, for the. purposes of continu ng
able through the General. Fund only reli£f and I would
operations. `fhat does not solve our i- „ediate
police and Fire °p ive us some of Miami
hat �.hy. until the City Of
problems but Fho eumoniestbenused In cxc ss of $100,
earmark tltint VAlorrsa t�:cs in `'
reaches revenues from ilu�t we're setting one hundred million
ilhen ve get to the point taxes, �:hich I think will be in the 5 or
Ad valorem wA the City
dollars from with a formula
s then we could release thosefund'y
6 years. And I think we pulled out from the air.
would see fit. just be a figure
because 100 million �yith some type of a formula for release o
We may haVe tf come up police and fire.
those monies for uses other than
f or the
otential shortfall.
rain that we stiff position on the issue
st have and the
take a very
t our p sonde and other than
i think that we now have
on the issue of any other General Obligation
the Sanitary
Sewer and Storm Sewers ince and ve ran we have no
choice, because we ran out of money o
Honey in there for the next 3 months• toward
Mayor Terre: What y_
Garcia: We have enoughill have no more funds
u're saying is that we
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months .
the end of 3 out exactly.
Garcia: Well. I'll have to find
I ask you this? I would like to know
Terre: A1we
1 right. Then may how much money you need so that e
. Garcia, exactly
the sews
from you, the normal course of constru i�i sn12°months. 18 month$
don't have to stop I don"t know whether vet
program? In other words" to squpmxe this GO down too out and
So I would like or two or three, end g larger
or whatever. perhaps a
• minimum. If that is onou iforonnother G0 Bond for p
then be prepared tog � trli�, i is the. Proper tine r 90
sum once the Lowrey Hark an,., a swigether it a 6 months asap and a
d I don" t in the next y
to the market• kn if • SometisT.e , oo 2 weeks later
might be a year and a h y g
It migreaso that when }ou as o tt,rough the whole
half ad have to be and 60 out to r-'arL-et and
et a rating and g o to Market other
we can g r oing to
thing. I don't think this is the tine
thin]: v�e re on�,,unity. I
than for the vet`Y e very essentiela,
tt,e l nnkin�, end the f inHxicial g do us
very big Y or atnTy, and it is goin to
hl critiLed by urs-ue this any more
think this is going to be a major
irreparable harm• So I don t think we should pelves to
o. that we rhould liits toseoutinue the very
tun we have t essential for
s�ium. It is absolutely
MAY 26196
MEN
(
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-
Mayor Verre (continued); our operation in our capital expenditurea4
That might be a trillion$ that might be 3$4 or 5 million dollars.
And if we have to cover ourselves in housing, and the commitments
that we have, we may have to do that. All I'll tell you is that
it is the worst possible investment at this time for the City of
Miami. This is no time for us to be going out. And I'm sorry
it's not t,y fault if a man by the name of Meagan in Washington$
and he's the guy that sets the pace for us and for the City of Miami
to be in any way different... and let me tell you the reason why
and the FEDS, and the administration for doing what
they're doing is precisely to discourage the private sector and
public sector like the City of Miami from borrowing money.
They are trying to tell us don't do this. This is exactly what
this country does not need at this time. And since that is the
line of the currnet President, it seems to me that the City of
Miami should not try to break away from that at this particular
time. And for us to do it I think it would subject us to very
serious criticism at this time which is my opinion would be very
damaging for a long period of time. This could hurt our credit
rating, we're going to get bad press from it, and would not
accomplish a hell of a lot. That's just one mans opinion. But you
know, I ve had some experience, as you know, in financing and
financing of projects and I have some kind of a sense, and having
been burned personally by all the financing, I am very precautious.
Mr. MacDonald: Mr. Mayor, we're not advocating borrowing more than
you need, obviously. I think that's very good advice of cutting
down to the bare bones minimum a number of other issues that
are in the same posture having to incur these interest rates
and I don't think it makes anybody particularly happy. We
are not opposed to notes, quite honestly, in the Dade County
situation, you were asking the question.... a year and a half ago
we told them to vorrow a and they wanted _
notes
but I understand what you are saying, it would have been nice
if you had been with us at the rating agencies last week,
I think they would have liked to have heard that. By the way,
the rating agencies extended an invitation for you to come up.?
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Mayor Ferre: I would be very happy to do it.
Mr. MacDonald: And if We could send that tape to them or a transcript.
Mayor Ferre: Then l think perhaps aybeofoi.heaCommission listen
d better be
all of this and have all of the members
to it and then maybe bringitup to a vote so that we have the
concurence of the Commission.
ry, I'm stepping a little bir ahead.
11r. MacDonald: I'm so'
Mr. MacDonald: Mr. Mayor,
we had a session with the rating agencies last
week and before we report back to you briefly,
i.t isn't just the
the rating
sentiments of the ratingiagencies, justand wthe ratinhen we g agencies.
agencies the market is D gg stander
There are the rating agencies
and
ill their Tthey
edit are
sratinr°no hehciby but
and they pass and ins
the market is a lot of instWcusaontheaelaxeo�hecommercial
backks
throughout the country and }�
from the rating agencies, it is bxoader thanthat
a encies are obviously very concerned not j
of Miami but all cities and municipalities
in dollars tenyears The market has moved from a volume of ten
ago to a fifty billion ddition, wevaree talking about interestolume and that is what we rates dealing with. In addition,
of
ates
11%. Cities and states are incurring interest ratio of ahig er
than 10%, 10.5%. 10.75% - Pennsylvania, Oregon,
basically, what it does ithighlights se situationscertain tandisay
and the rating agencies single out
these situations are
"You are incurring costs s�indicatedthereforeto us concern about
aggrevated. The rating aggenciearticular, they finished their
the City of Miami, Moody s in p
annual review, i€ you will, a few weeks back and published a
report which you have e co y of. In that report they indicated
certain conditions which they were watching very carefully,
we spent a lot of time with
a efewksi�uationsabout twhichttheydare going
their concerns centered aro
und
to watch1 is the 10 mill cap, 172 as ridiculous as it sounds, they
are concerned that while there is economic growth beyond their
wildest dream and our wildest dream they are concernenciesed ut
how long it will
last
thatlhaveenoeeconomicen at egrowthgand they say,
representing gg
"Well, we aie concerned beoFa��iemiheYdhs�idno"Lookoatctheoeconomic
We came in with the City going to be on the taxrolls in
growth, there is going this is g g
a few years and then they came babe andtnoves "Weyaren't sure one
how long it is going to last, may -
of their concerns, they are particularly conc6rneu about the cut,c-ek
in federal funds which yoow
alleofithese short falls one. They want tifkthey now hcome
u
you are going to make p
about. Our answers to them last week were with rcgarttisthe
economic ggrowth this is going to be on the taxrolls,
going to lie moving along quite well, we have a billion dollars
of constructi.ort , but they really didn't care about it. They sat
_ bsek and said, "Well, we want to see what happens,"
how we have
Mayor Terre- : 1 think lesswthanve to do is $30,000, 000 in��1970 to over
• one from an income of
60,000,000 in 1981 from ad valorum taxes and i think what we
should reall do is can�ni hatniboactue�lvmebod ounder construction
end a little me
to project that based o
or what is announced to beos�tu�ouddn�thttthinnrri}�rtoptnion normal
recurring brawgth. Arid 1 think
are oin j to show that by the }.ear of 1985 the City of Miami
g g
000 end 1 thins: we can
w1.11 be i e,c_eiving about ti.100, UUO, the question is
prove that and document that fnil�ya � he Cityaf 29iand require
r�
then what seviceb :ill the p l
by 1985 artd I thinl: we Vill be ably: to shov., that with xlew cK MH,Y 2 6 1981
.� truc:tion
IF
and since,I would say,most of it is commercial in nature
rather than residential that the impact is going to be
mostly in the Police Department and not so much in the
Fire Department_ because the new construction that you have,
has all of the latent innovations such ns sprinkler systems and
fire -preventing type of f+eati res and I, therefore, think that
we can definitel-v r—bo" that other than Of? ntoa_mal inflationary
impact and tj)at OUT FiJ~.e nnr3 Polirr -�epart.ment , once
it stabilizes at i.,000 police nen tha,t that 'r, basical.l-v• on a
per capita hasi.r,-tbe exec-nse these two basic departments is
going to be ji)st about that and I think in effect what I am
saying is,that we have to do two things with xegard to
capital. projects. Either they have to be self -supporting -which
Is something that I bave been pz:eachi.np, here far 5 or 6 years,
1 want you to understand that most of the so --sidled
_:itures that we have put up are self-supporting. In other
words that we would not have sold $60,000,000 of xevenue bonds
in the Convention Conference Center nor would we have gotten
insurance on them if both the insuror and those who purchased
the bonds and those who were involved in it did not: think that
that project was self --supporting because it does not have the
full faith .and credit of the City of Miami behind it: And it
does not even have the moral. commitment. It is strictly a
revenue bond issue. Now, the Watson Is project has had
different-Phasus of it, one of the dangers'of it is that it
has begun to connnit And tie up too much of the future sources
of the City of Miami and let mesas one member of this Commis-
sion go on the record saying that I would never vote for
anything that would tie up future revenues of the City to
supplement Watson Island. Watson Island must be self-support-
ing just like the Convention Conference Center and that goes
for yacht marinas or anything else,and it has to be strictly
on a revenue bond basis. The same thing is true of all other
proposals such as a sports coliseum complex and/or the City
of Miami's City Hall in downtown Miami. That has to be a
self-supporting type of thing. So how can a City Hall be
self-supporting? Very simple, in the same way we have done
other things here and that is by government getting involved
in profit -making ventures. I know that that is kind of a
shocking thing, I know there is such a thing in some develop-
ing countries as State Capitalists and -all we are doing is
borrowing a page from a country lUe Mexico or others that
our involved in State Capitalism and we don't have oil but
what we do have is quasi -public interests such as coliseums
and convention conference center that/as we put together
with the private sector to allow the private sector to make
money we also can make money out of those projects and we can
then /utili.ze those revenues to support those things that are
not self-supporting. So I would For the fiscal
integrity whenever we get to Moody's, one of the things that
I would tell them is that some of these public facilities
such as the sports arena and Miami Marine Stadium, the Miami
Acquatic Stadium here`and some of these other facilities we
-have that are today money losers, I would hope that as va
develop some of these projects -,whether it is the Convention
Conference Center, the World Trade Center or the Sports Arena,
the Watson Island niril,, that not only would they be self-
supporting but that they would, therefore, be the basis of
supporting other money losing public facilities that are
currently a drain on the public coffer of the Cicy of Miami.
So I really don't see that the City has any serious problem
if we are able} to get the FPL franchise tooney tied up into
general revenue bonds; stop building capital improvements until
we get either federal or state funding or find other sources
to do so and wait until this improved tax structure can pay
for the tasic services -and I think we can make a d6olned good
case and I think wee hake the eople here between Toward Gary,
Carlos GarciL and Mano and otters that are here., with your
help and advice to put that kind of picture together in the
next 6 months and go up to the rating agencies and sell the
fiscal responsibility and viability of the City of Miami and
go out and borrow the minimum amount that we need to do them,
and then get ready to make a big issue in the next 6 months.
1 2, MAY 2 6 1981
i
i
tit, Gamy! Before you begin, 1 think that was a very good comment that
1 think the bond raters need to hear before we even develop a plait
particularly based on conversations we had with their. t would
recoffathd that regardless of the City Commission's vote on this item,
that we send a copy of the statement up there and I think we should
sit down personally and
Mayor Ferre: Absolutely.
r�
Mr. Gary: Because these are the kinds of policies they Were concerned
about in terms of the City Commission,
Mr, MacDonald: Mr. Mayor, the concerns are, number onto that the City
is going to be selling a lot of debt, they look at financials and their
thoughts and they read the articles, and it says they are selling a lot
of debt...
Mr. Gary: I think the concern is not this issue per se, but the policies,
the fiscal policy that you touched on today is their concern
and I think it is important that they hear that directly from you.
Mr. MacDonald: They look at it as being 2 sources of revenues, taxes and
the others are all other non -ad valorem revenues and any time that
they look at the non -ad valorem revenues and they see it could possibly
go down for one reason project type financing or the like and they
look at the other and the " Well 've
Y say, , y ougot a cap there, you've
got a 10 mill cap on that and that is topped out, therefore,..." and
they are very, very concerned about that.
Mayor Ferre: I don't blame them.
Mr. MacDonald: We talked to them about the future direction of the City,
the 5-year financial plan —They actually stipulated in their report
that they had heard about the 5-year capital plan but that they didn't
know that much more about it and that they heard about these marinas
being financed and all that and I think that this is the time to go to
them. We have started that processs and from the administration's
point of view here you go....because they were asking, Howard, that's
exactly what they were asking Howard: How do the elected officials
feel? Do they think that this policy that you're talking about, y'
conservatism is going to work, is it going to fly, are you going to
continue that?
lift ,`ate,.,
Mr. Gary: However, they need to hear it from you.
Mr. MacDonald: Yes, that's right.
Mr. Gary: Can I suggest that we have Lowrey arrange a meeting for
you and invite the other members of the Commission to go up?�
Mayor Ferre: Sure. ,y
lI i t d 4
Mr. Gary: We need to do it quickly before they do that final rating,
I think they need to hear that before they do that final rating.,;
Mayor Ferre: You mean Standard and Poors?
v�
Mr. Gary: Both of them.
A J
Mr. MacDonald: Yes, Moody's is pretty much done, Howard, but I would rj
like them...
Mr. Gary: No, I think it is important in fact that when they issue tix
their next report they will have a favorable comment.
t � r
Mayor Ferre: Fine, I'm available. Do we need anything further?
r
Mr, Gary'. hell, 1 think it is itftp6ttant to talk About it but t
know what your schedule is liketsa&
Mayor Pettei Go ahead,
Mr. MacDonald: In moving along on the sArne- track, Mr, May6t§ About
e
putting together capital financing vehicle4 that makes a 16t d §0-fig
We basically have put together and there is a memo in Your folder th
about updated proposed master financing plans, special revenue bond
projects and if I can just go to the back chart.
Mayor Ferret Was this written by you?
Mr, Mac Donald: Yes, sir.
Mayor Ferre: I think if you would in the future put your name down,
would you please, because you know, the fact that it is James Lowery
2 years from now doesn't mean a damn thing, and put the date on it,
because it doesn't have a date on it.
Mr. MacDonald: This is a Moving Financing Plan, Mr. Mayor, and when I say
moving, I mean it improves all the time. Basically what we are proposing
for a new project, a new revenue bond type project, if the Commissioners
want to proceed with that, this is a financing mechanism or a proposed
financing mechanism. It has certain elements and conditions built into
it and these are conditions which I think you can think of in terms of
conditions imposed by the market, the rating agencies and the like. And
basically, what it involves is, number one a project comes before the
Commissioners much as you have said it must be a feasible project.
How do we determine that that is a feasible project? An independent con-
sulting engineer firm would render a feasibility study much as we have
done in the parking garage saying -this is feasible, here are the proposed
revenues, here is the coverage of debt service, here is coverage of
and the like.
Mr. Gary: Before you go on, Mr. 11-tayor, this is very important.
They were concerned that we were going to go out with special
revenue projects without any rational basis of doing such and we
conveyed to them what our policy has been in the past and will
continue to be that we would do a feasibility study.
'
Mayor Ferre: We have never done that in the past, why would they assume r'ant}LL
we would do it in the future?
Mr. Gary: Without a feasibility study?
Mayor Ferre: No, that we would go out withoug a rational plan?
Al
Mr. Gary: Well, they are concerned about all cities doing that.
Okay? And we assured them that we have done it in the past and we
will be continuing to do it in the future so prior to this we would
do a feasibility study to insure whether the project would be a
success or not.
Mr. MacDonald: Mr. Mayor, it's not just the City of Miami, it's a lot of
cities in general. They look at the city, and this could be any city and
they say, "obviously you can't raise taxes forever, what else are you
going to do?" And the City would respond, "well, we have need for this
type of facility" and the rating agencies look and say, "I know you will
probably use some non -ad valorem type revenues to support that project"
and they are very concerned about that. Once your non -ad valorem starts drifting
away and being used for bad projects where fo you go? You have to raise
taxes and you have a 10 mill cap and rating agencies are very concerned.
So, I mean, this is not just the City of Miami, it is very very difficult
with the rating agencies. Now, getting back, if we were to come in to them
and say the City wants to proceed to finance, take a marina, for example,
what we have done here is we have gotten a nationally recognized consultant
or something like that, I don't like to get more consultants involved or the
like, I'm not just one for that, but an entity, a report, says that this project is
i A; k/ _ -,
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$aftle► the CaMitai haefA l ev3ewt p ooee$.
"iotayer Ferre s Well look, -think we have to be too wortktd
but it for a very simple !reason, We are now looking at a budget
bf 130 to $140,000:,000 out of which less than half comes from ad
Valorem taxes. Now that is not too different from Metropolitan
bade County and better than a lot of other cities across the country.
Our debt, as you have in this red herring or this folder here is,
everything included $l70tOUO,aOO principle and interest and the
principle is $125,000,0II:0, For a City of this size with an
advalorem base of our size the debt, I always look at it this way,
of our total income we are under 15% and that is fiscally
conservative and acceptable.
Mr. Gary: Way under 15%.
Mr. Mace is% is 9.00,OA.0,000.
Mayor Ferre; No, you're not following sae. The State of Florida
Allows us to sell 15% of our total ad valorem tax base, which is
What you're talking about now, and that would permit us to sell
$900,0000000 in bonds but we are at 125 so we could go up 5 or 6
times and still be under State law. The other criteria is the
debt retirement and how much of your total yearly amount of unencumbered
money goes to debt retirement and I am saying that it is under 15%.
In other words, 15% of $130,000,000 would be $17,000,000, or
$18,000,000 or $19,00.0,000, and that would be ..,as I•recall our's
is somewhat under fifteen percent, is that corect?
Mr. Gary: Right.
Mayor Ferre: So we are under 15% so our debt retirement out of
the total yearly expenditure is within what is considered a
reasonable amount for cities. Now, if you take those two things
into account, I think we are a riscally conservative city with
regards to our debt structure. As a matter of fact, if I were to critique
the City of Miami, I think we have been too damned conservative
because we could have borrowed money at 4% or 6%, we should have
borrowed $100,000,000 and we didn't do it and now it is too late
to do that, and I don't think we will ever see those interest rates
for another 10 or 15 or 20 years, I'm sure they will be back but
not for a long while. Therefore, these are not the kind of times
for us to go into these type of things. Now, secondly, of our
total $130,0001000.we have been dependent on the State Government
More than we have the Federal Government. Is that correct? And
now how much do we get from the State?
Mr. Garys $llf200,OOCL to $11,300,OL10.
Mayor Ferre; We get 11.3 million dollars,, is that aright? And frrom
the Federal Government?
Mr. Surano: $8,000,000
tk li���4z"x t
Mayor Ferre: Is that everything, all sources? `
a
Mr. Gary: For general operating purposes.
Mayor Ferre: So between State and Federal Government we are $20_,0.Q010.00
in our dependence. That $20,00.0,000, I'think we will be able to prove
to you, we will be able to make up in two years from now with Ad valorem
taxes so if I were to make a case and I were to argue a case before
you as to the fiscal responsibility of the City of Miami I would tell
you that our problem is this year and that beyond that this City is in
a very fiscally conservative and very stron posture. We have two
difficult years to go and after that l think unless we go wild we are
going to be in a very good situation.
Mr. Gary: We demonstrated that to them, up there in New Yor—, in terms
of our soundness. I think their concern is -what does the future look
like for us? And you have conveyed very well,, and I think you need
to go to New York to explain that to them just what your policies are.
MAY 2 61981
/_
7 t .x 6'1} F py�l �A-. ll`i 1.F-r�'�',t i•�1�
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:� i:-•�,�yp y,, l i �. 3�fyy�,�'�^d 1'-'f '�•. �1����G } yY � p� �
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'mr, Maemnald: Mr. Mayor# the rating agencies always a� oaoh this f ro
the point of view of whet do
we have to gain and whet do we have to 160#
and you are right, the next
2 years are a trying period, a testing period,
I Should say, for the City.
In other words we've got these plans and
the numbers show, I mean...
Mayor Ferre: And what that means is we've got to have the courage of
our convictions and say "no housing", no more frills, we cannot afford
it, we do not have the money and if we insist on it we'll go broke.
It's that simple and we are not going to go broke, this City is not
going to be fiscally irresponsible and so housing is not a responsibility
of the City of Miami, social projects are not a responsibility of the
City of Miami, and we may have to -for a year or two -go back to the
strict City of Miami Charter requirements and State requirements
functions- Police, Fire, Parks and Recreation, Public Works and zoning
and Planning- that's it. No more, we don't have any other obligations.
And we may have to get to a point, for the next 2 years, that we are
going to have to cut off everything but those five functions and then
in a year or two we can start thinking about ... and in the meantime,
capital expenditures will be limited to those things that are already
funded through CD and other sources and those things that are totally
revenue producing, and self-perpetuating in nature. So you know, your
analysis is very accurate and before we have an issue come before the
Commission on this Marina here, that has to be part and parcel of it,
it has to be self -paying and r think we need to get a third party to
give us that kind of a statement that it is self.....
Mr. MacDonald: Mr. Mayor, when we sell bonds, for example, not G.O.'s
but revenue bonds, we attach in the back this feasibility report and
what that tells the ultimate buyers beyond the rating agencies is,
hey look, City officials have gone out and hired a consultant to tell
them, and they have analyzed it, maybe they don't even like that
report but at least they feel that it is adequate and this is the basis
on which we are financing that project. If we need some additional
kicker just to convince the market, we can do that but, nevertheless, it
is a procedure which quite honestly, and unfortunately, a lot of
cities don't follow, Mr. Mayor,
Mayor Ferre: Well, I just want to again on the record tell you that
I. ams only for those revenue bond issues that are self, sufficient and
self-supporting and I will only vote for G.O. Bonds at this stage on
a minimum requirement, absolutely critical basis and nothing beyond that.
Mr. Gary: Mr. Mayor, can we get a commitment from you, one of the
requirements usually of revenue bonds is that we do commit some
non-advalorem taxes. Now, Lowrey has been working with us to develop
a fiscal scheme which will be acceptable to Moody's and Standard
and Poors and the financial community and before we implement any of
those revenue projects other than the ones that are cz-going that
we get this plan finalized and accepted and.....
Mayor Ferre: Well, you know that was my idea going back to Joe
Grassie, and I kept telling Joe Grassie that'he could not continue
tp platy around with the Watson Island project, which is where all
of this comes to a head, and tie ui, non-advalorem sources in nebulous
non -ending commitments unless we have a very clear plan and a formula
to the return of those moneys. Onces those criteria are met and
unelss we do that, I think we are dealing with a dangerous subject.
Mr. MacDonald: Very true, Mr. Mayor. One other point just on that.
You will notice in your financials, in the official statement, in the
rating agencies' reports and everytiYne we talk to the rating agencies
they bring up Watson Island. Now, I kept saying to then, "Why do
you keep bring up Watson Island on a review?" I have clients that
probably have 50 of those types of proposed financing where we will
be working on a plan and if will be brought before the Couni`Ssipners
And at a point in time it Sill be decided, but the aeco"ntAnts don't
Mention it and the rating agencies don't mention it and what has
happened I think here is that Watson Island is a project now that, A4
You sAi)d, will not proceed unless it is financially viable and for P0144
reason the rating agencies have singled that out, I think that when yoq
/ � MAY 2 6 198)
't17 3 i, n i
3O':Q V y4;�
ilea than and when you talk td th+e� tditeratit1 a cti whet you
said would be very, very helpful.
Mayor Ferre: Well, there is no 'way we could do anything elsei
but that would be to really pbrinheititb/the Commissionck on the proverbial Mote
chopping block. I don't mind g need to satisfay them -that
if we have to, if that is what they
is the policy of the Commission.
this would go a long way particularly if
Mr. Gary: Mr. I�Yor+ gets in the Wall Street
you talk to Moody, Standard and Poors, it
we get some publicity from it, I think it would go a long
Journal, to set up Monday
way for the City. So why donut we try a meeting
for him to go to see Moody, Standard and Poors?
Mayor Ferre: I tell you, this is not the time for the City to be
adverturesome. Like the Bible says, there is a time for everythin@.
We had our fling at a time when it was ccepAdministration
aable to be a
littlthee
bit adenturesome, not 1981- With the
g
to be adverturesome.r�
City of Miami is not going
SP-iit
Mr. MacDonald: Thank, Mr. Mayor
63 Y txi� �i '4s�rS
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��.�� AY 2 61981