Loading...
HomeMy WebLinkAboutLetter to Auditor GeneralEli M. Feinberg PRESIDENT March 7, 2014 Mr. Theodore P. Guba Gity of Miami Independent Auditor General 444 SW 2nd Ave - 7th Floor Miami, Florida 33130 Re: Request for Investigation Dear Mr. Guba: This letter contains a request that you and your office conduct an investigation into the matters. Pursuant to City Commission Resolution No. 98-63, as amended by Resolution Nos. 98-767 and 03-0269, the Finance Committee of the City of Miami exists to review and make recommendations regarding the issuance of debt obligations and the management of outstanding debt; City Risk Management and Insurance; City Compensation, Benefits, and Pensions; Gity Financial matters; City Debt Restructuring; City Investments; City Financial Consultants; and all matters related to, allied with, or incidental to any of the foregoing. Members of the Committee are appointed by the Mayor, each of the City Commissioners, and the City Manager. I am the Chair of the Committee, appointed by Mayor Regalado. The City currently owns approximately $271,000,000 in 5-year callable bonds issued by various Federal Government -sponsored entities, such as FNMA and FHLMC, which, at December 31, 2013, carried approximately $5,000,000 in unrealized losses. One of the members of the Committee, Richard E. Brodsky, Esq., of Miami, has conducted an inquiry into this situation and has reported to the Committee on his preliminary findings. On January 15, 2014, the Committee, in an open meeting pursuant to notice, resolved to request that your office conductan investigation of the facts and circumstances that led to the current situation with the City's bond investments, including the role of the City's independent public accountants, bond brokers servicing the City, and the City's financial advisers. 1�1v1I' & Associates, Inc. Government Affairs Consultants 6761 S.W. 89tla Terrace, Miami, Florida 33156 Cell 305/904-2828 Fax 305/670-4842 E-mail; elimfeinbeig©icloud.corn In brief, Mr. Brodsky's preliminary findings are that, in the past, and through June 30, 2013, the Finance Department was seeking to invest in callable GSE bonds of ever- increasing maturities in order to obtain interest rates in excess of those available in shorter -maturity, non -callable federal debt securities. By mid-2012 and 2013, the City was buying five-year GSE callable bonds. As a result of this investment strategy, the City was taking on more and more risk if market interest rates were to rise. This occurred starting May 2, 2013. As a result, at current market interest rates, unless there is a drop in rates for five-year bonds of approximately 100 basis points, an occurrence on which no one can count, the City will have to wait until these bonds mature — another 3-1/2 to four years — before it can use the funds invested in these bonds without suffering a loss. The City's Investment Policy specifically requires that "return on investment is of least importance compared to the safety and liquidity" of the City's investment portfolio. It appears that this policy was violated by following this strategy. Please inform me whether you will be able to look into this matter. You may call Mr. Brodsky, at 786-220-3328, to discuss his preliminary findings, if you wish. Sincerely yours, Eli Feinberg Chairman City of Miami Finance Committee