BALANCE SHEET BLOG – HOLLYWOOD, FL


Margaritaville
April 1, 2013, 2:12 PM
Filed under: Beach, Budget, City Commission, CRA Districts, Development

Margaritaville will request an extension at a Special Joint Meeting of the City Commission and the CRA on Wednesday, April 3, at 5 PM, at City Hall.  The announcement of this event, made today from the City Manager’s Office,  is posted below.  According to the City Clerk, “the agenda and backup are not completed at this time.  When completed, the information will be posted on the [City] website.”

City’s Announcement:

“As you know, the City of Hollywood and the Hollywood CRA have been working with Margaritaville Hollywood Beach Resort LLC for the redevelopment of the Johnson Street property on Hollywood Beach after a two-stage competitive Request for Proposal process.  A Development Agreement and Ground Lease was executed in February 2011 followed by a First Amendment in April 2012 which revised the timelines for development.  Later, in September 2012, additional amendments revised the funding sources for the project including the diminished role of EB-5 financing, the introduction of a $23 million Compensated Funding Agreement with the CRA, and the anticipated role of Starwood Capital as an equity partner in Margaritaville Hollywood Beach Resort LLC.  Third Party reimbursements (allowing the City and CRA to contract with advisors at the expense of the developer) and rental income to the City were increased as a result of the updated funding sources.  Because the project had encountered unanticipated delays, an April 10, 2013 “outside possession date” was also established.  Several important milestones would have to be satisfied by that date thereby allowing the property to be transferred to the developer for the commencement of construction.  Although City and CRA staff have been vigilant in reminding the developer of the upcoming deadline and the developer has made significant progress, Margaritaville Hollywood Beach Resort LLC has asked to appear before the City Commission/CRA Board to provide an update on the project and to request one last extension. Representatives from Margaritaville, Lojeta, and Starwood Capital will be in attendance. 

 



Balance Sheet In The Crosshairs
March 25, 2013, 10:35 AM
Filed under: Budget, City Staff, Taxes

A comment submitted last week by Hollywood resident Jeff Brodeur rails against the City’s treatment of our employees (salary cuts, pension cuts, outsourcing, lack of overtime pay, and more).  He deplores the departure of valued staff for better jobs elsewhere “because they are overworked, underpaid, and not appreciated” here in Hollywood.

His comment also nails the Balance Sheet as a “mouthpiece” for the City, an about-face from what he saw as our former role of challenging the City. His entire statement can be found here.

We agree the current state of our City is distressing.  City employees have been subjected to abrupt salary reductions and pension cuts.  In addition Hollywood has way too many dilapidated buildings and litter strewn, pot-holed streets. The City’s infrastructure is badly in need of repair or replacement.  But it’s one thing to rail against these conditions and another to come up with solutions.  The fact is the City has very little money.  Why?

City Finances

The compromised financial situation the City finds itself in today was foreseeable years before the economic downturn.  A long state of official denial and refusal to take hard steps on pensions in past years brought us to the huge and ongoing painful consequences of Financial Urgency in 2011.  The Balance Sheet’s efforts to sound the alarm about this looming problem started back in 2004 and continued right up to the point of Financial Urgency in 2011. Our record on these issues is summarized in the attached document:  Balance Sheet History With Cartoons

To say that the Balance Sheet has changed from critic to mouthpiece is to ignore both our record and the fact that the City has changed from years of denial, possibly ignorance, about the consequences of its actions.

By 2011, the City had overspent its budget in mid-year.  Then, there was no choice but to take hard steps to address the problems that the Balance Sheet had been urging the City to fix for at least eight years.  Had the City done so earlier, the results today would be far less painful.  However, there’s no way to go back and do things differently.  Hollywood is now in the process of digging the City out of a huge self-made financial hole.  The necessity of digging out is obvious to anyone who has paid close attention

The hard truth is that without significant increases in property taxes and fees, the General Fund is inadequate  to substantially improve employee salaries and pensions at this time. Additional ways to increase the General Fund in future years include  proposed development such as the Walmart Shopping Center at 441, suing for the WiFi shortfall guarantee if that’s the only way to get it, and possibly either capping the Beach CRA or removing the Diplomat from its boundaries if future beach development would allow such a change.

Some have suggested borrowing from the City’s Water and Sewer Enterprise Fund to make up for salary and pension cuts.  As many of us know, Hollywood residents already pay disproportionately high water and sewer fees and we don’t hear anyone offering to pay more. Note:  The City recently did borrow $2 million from the Water and Sewer Fund to purchase and outfit police vehicles.  This money is supposed to be repaid with interest.  We view this transaction as a highly questionable practice. The City normally would have bought these vehicles with a lease-purchase agreement — a form of financing now unavailable to the City because of its low fund balance.

Other Matters

Mr. Brodeur also criticized the Balance Sheet for ignoring “inconvenient facts” by not disclosing the returns of the Police and Fire pension funds.  Both of these funds post investment returns on their websites for all to see.  We did review them before writing our article.  It is important to understand that one year’s returns do not stand in isolation.  For example, the Police Pension Fund earned about 17% this year, and about 2% last year. A great many more really good years would be required to significantly reduce the City’s pension obligations that the City Commission was still voting to increase as late as 2010.

While  Mr. Brodeur’s comment raises important issues for Hollywood, we object strenuously to his charge that the Balance Sheet heaps “more garbage on the men and women that protect us every day.”  Everyone agrees that our City employees are hard working professionals and we all deplore the current situation that has caused them so much hardship. They are victims of more than a decade of overly generous promises that the City is unable to keep.

Finally, Mr. Brodeur correctly notes that the Balance Sheet does not cover many important City issues that residents should be informed about.  We are such a small volunteer operation that there is no way our coverage could be comprehensive, nor have we ever claimed it to be.  We would welcome Mr. Brodeur and any other residents so inclined to try their hand at their own blog, researching and writing about City issues of concern to them.  A clear analysis of difficult issues can be a force for progress.




City Budget Squeeze
March 15, 2013, 3:28 PM
Filed under: Budget, City Staff, Residents, Taxes

A recent budget workshop for City Commissioners demonstrated that the City is recovering from its 2011 financial meltdown. Nonetheless, property tax revenues are cautiously projected to remain more or less flat for several years to come. (We’ll be watching for City staff’s mid-year revenue projections expected later this month for any significant changes in the forecast.) The City has stated its commitment to improving City employee salaries and benefits insofar as the budget can support it – a little at a time.

Working against our strapped City’s potential salary and service improvements, however, is litigation spawned by the City’s two Pension Boards.  The Police Pension Board and the Firefighter Pension Board are City Boards whose purpose and members are listed on the City’s website along with those of the 17 other City Boards (African-American Advisory Board, Historic Preservation Board, Education Advisory Board, Green Team, etc.).  But unlike the other City Boards, the two Pension Boards have the power conferred by State statute to sue and be sued.

After Hollywood voters approved the Pension Referendum in September 2011, the trustees of each Pension Board voted unanimously to sue the City in an effort to overturn the pension changes that resulted from the Referendum.

Each Pension Board pays its administrative expenses including legal fees from the pension fund it administers. Every year the pension plan’s actuary examines the plan’s financial obligations and tells the City how much it must pay into the plan.  The plan will be short whatever amount was spent on legal fees and the City will have to make that up. So when these Boards sue the City, the City pays not only its own legal fees but those of the Boards as well.

Last December, the City won a Motion to Dismiss the two Pension Board suits (now consolidated), but the judge’s ruling allows the Boards to correct their pleadings and start over. This litigation between the Pension Boards and the City is at an early stage. But already the combined legal fees of the two Pension Boards come to nearly $400,000 with the City having spent about $60,000 on its own defense.

With the City on the hook for both sides’ legal fees — an amount that seemingly will reach the millions at the rate this litigation is moving -– the City’s ability to improve employee salaries and city services is lessened.  Such a result is harmful to both Hollywood employees and Hollywood residents.

Separate from the Pension Board litigation, the Unions are seeking to have the pension changes invalidated as a violation of their collective bargaining agreements. These actions, which began in the courts, are now being adjudicated in the State’s Public Employees Relations Commission (PERC).

So far the only winners in the Pension Board litigation are the private law firms engaged in the Pension Boards’ lawsuits. We urge the Pension Boards to drop these costly unproductive suits.

As for the Unions, we can only hope that all three City Unions will enter into negotiations with the City in a mutual effort both to rebuild trust and to work out creative and sustainable salary/benefit structures that will help all their members. Only then can we move forward together to create a sound footing for a more prosperous, successful Hollywood.



Margaritaville Financing
September 1, 2012, 4:08 PM
Filed under: Beach, Budget, CRA Districts

Margaritaville – New Plan

Hollywood residents in need of tax and fee reductions and City employees in need of salary increases …Time to Pay Attention!

As we all know by now, the Margaritaville project has been unable to secure funding from foreign investors as the original plan required.  So now we have a new proposal in which the CRA is to give the developer $23 million for construction financing.  When I learned of this plan, I initially opposed it as one more boondoggle — a massive developer subsidy like Radius, Hollywood Station, WSG, Great Southern, and Block 55, to name a few.

But when I actually read the legal documents now available on the City website, I discovered a huge difference between this “handout” and all the other ones. The new Margaritaville proposal provides millions of developer dollars for the City’s cash-strapped General Fund.  This new revenue stream will significantly bolster the City’s ability to improve employee compensation and reduce taxes and fees without compromising services.

How Will This Work?

The CRA will receive the tax increment on this project (estimated to be more than $1 million a year) but the developer’s compensation for the $23 million CRA construction funding will take the form of doubling its rent payments from the original $500,000 to $1 million the first year, and substantially more in subsequent years.  These rent payments will go directly into the General Fund.

How Can This Be?

A financially strong equity partner, Starwood Capital, will join the developer partnership. Starwood is a solid, well qualified entity both in experience (owning 2100 quality hotels around the world) and in financial strength.  It not  only significantly increases developer equity in the project but can also attract conventional financing that has been unavailable to the original Margaritaville-Lojeta partnership.

Bottom Line

The proposed new Margaritaville financing plan, while appearing at first glance as just another handout, in fact serves as a vehicle to significantly strengthen the City’s General Fund.  For those of us who feel it is unhealthy for a city to have virtually all its disposable income in a single district while the rest of the city deteriorates from reduced services, this financing plan announces a new day.  The CRA will get the entire tax increment on the Johnson  Street property (over $1 million per year), but the Hollywood General Fund will receive substantial rent payments for the 99-year life of the ground lease (over $1 million the first year and growing exponentially in future years).

How To Learn More

To learn more about the plan and many other details not covered here, attend the  public meeting  on Tues., Sept. 4, 6 PM at  City Hall, where city staff will present the new financing proposal for Margaritaville.  This will be an important opportunity for all of us to learn the details and ask questions of  City and CRA staff.  The City Commission and CRA Board will both vote on the new plan the following day. You can find the legal documents on the City’s website.

Editor’s Note:  This article is the opinion of only one of the Balance Sheet editors (Sara Case).  The other editor, Laurie Schecter, is out-of-town and not available to weigh in at this time.



Pension Reform
July 2, 2012, 12:52 PM
Filed under: Budget, City Commission, City Staff, Taxes

Editors’ Note:  Long-time Hollywood resident Larry Legg has sent us the following letter.  We believe that it warrants serious attention by the City Commission and City staff.  Residents, too, need to understand these issues. We are grateful to Larry for sharing his expertise on a difficult subject that affects us all.

Dear Balance Sheet,

I have been a CPA and business advisor for about 27 years now, 20 years of which were spent auditing government and not-for-profit entities.  I am also a life-long student of economics and politics, although you will never catch me running for office.  I’m not Republican or Democrat, nor a Tea Partier, but attempt to look at the world around us in an independent and objective manner, in light of the underlying economics.  Your blog has helped me better understand the difficulties that our city faces today.  There is one issue, however, that should not be swept under the carpet, and that is pension reform.  I know this is cliché, but the giant Gorilla is still in the room and, although only 800 pounds now, he’s still going to mess some things up!

After having observed a lengthy blogger debate on pension reform, and having studied much of the relevant evidential materials – including but not limited to comments on both sides of the issue, citywide financial audits, pension audits, actuarial reports, 2012 budget analysis, national municipal bankruptcies cases, etc. – I am convinced that, no matter who has to pay the tab, our city is still at a moderate to high level of risk of bankruptcy and/or austerity measures.  Pensioners have a legitimate argument, particularly with respect to “Legacy Costs and Liabilities.”  It is difficult to believe that any employer could breach such a promise, and I’m sure the courts are beginning to decide this very issue all over the country.  The debate appears to be in the hands of the judiciary at this point, so let’s all keep our eyes on the cases that are being filed in this alarming nationwide trend.  Many of your bloggers appear to be bogged down in the details due to their own special interests (which I fully understand), so they fail or refuse to see the big picture “from 30 thousand feet” so to speak.

The Facts:

The following are some highlights of my research on Hollywood’s citywide finances:

Assets as of last fiscal audit, September 30, 2011 $ 727 million
Liabilities Recorded on Books  (553) million
Liabilities Not Recorded on Books (Unfunded Pension costs)  (350) million
Liabilities Not Recorded on Books (Unfunded Healthcare costs)  (433) million
Citywide Net Deficit in Fund Balance – Adjusted Net Assets  (609) million
  • Unfunded pension liability is net of $66 million in downward adjustments related to the referendum, and as per the most recent actuarial reports and city staff.  This is a real debt that does not get recorded on the City’s books.  In addition to this debt, the City has an actuarial “unfunded” liability to legacy employees for their lifetime healthcare benefits of $433 million as per the most recent certified audit.

 

Your bloggers have properly enumerated the many wasteful projects Commissioners have spent our hard-earned tax dollars on for the past three decades.  This spending, I concur, must stop.  No more developer handouts, no more capital expenditures on non-essential infrastructure, etc…the list goes on and on.  For obvious reasons, city employees’ heads are in the sand regarding an expense item that currently makes up about 21 percent of Hollywood’s operating budget – i.e., pension expense.  There will be no winners in this process, unfortunately, so it’s easy to see why people naturally shy away from the subject.  The pain will be even worse if the City is forced to seek protection under the U.S. Bankruptcy Code.  The hard, cold economic facts and circumstances will drive the outcome:

  •  $609 million deficit in Net Assets;
  • Pension Expense that constitutes 21 percent of total revenues;
  • Unfunded pension liability of $350 million (approximately 50% funded) – severely underfunded according to most experts;
  • Unfunded Post Employment Healthcare Benefits of $433 million;
  • Pension expense as a percent of gross salaries is between 36% and 81%, depending upon which department, which is far above national averages;
  • Overly optimistic actuarial assumptions about returns – currently 7 percent.  That should be reduced to the “new normal”, which many economist and analysts (and astute private sector investors) agree is about 5 – 6 percent;
  • Weak stock market performances;
  • Weak investment returns on pension assets, compared to the broad market, unmanaged averages;
  • Declining Property Values; and
  • Aging Infrastructure

Our City’s current finances are not too different from several recent Chapter 9 municipal bankruptcy filings.

Opinion:

My advice to Commissioners and Future Commissioners:

  1. Honor Legacy costs.  I think that even in bankruptcy court the judges will lean toward such a requirement.  Keep an eye on these cases.
  1. Do not make promises you cannot keep.  The stock and bond markets are unpredictable. And you, your accountants, your actuaries, economists, and investment advisors can never accurately calculate how much money to set aside for some variable defined benefit, ad-infinitum into the future.  And, no organization in the world – whether for-profit, not-for-profit, or governmental – can afford 21 percent of its revenues in pension expense – period.
  1. Employ a contributory, 401(k) type plan like most organizations in this day and age – i.e., a defined contribution plan.
  1. Urge retired employees to push for further pension reform.  They need to understand that it is in their best interest to help devise a solution to this problem before their livelihoods are in jeopardy.
  1. Quit spending money on almost everything except for critical infrastructure and routine operations for a few years.  We need to get back on our financial feet.  That would include a complete moratorium on new hires for an indefinite period of time.
  1. Review the entire way of doing business, perhaps by way of an “Operational Audit”, and make changes.  Change is good, so long as it’s economical.
  1. Forget about your own pocket books and about getting re-elected when making decisions that affect 143,000 citizens and taxpayers – it’s your duty to do so.
  1. Stop caving to special interests.  They don’t run the city, “We The People” do, supposedly through YOU, our elected officials.
  1. Don’t raise the millage rate; it’s already one of the highest in the county.  Property owners have already paid an inordinate amount of money for taxes, and I don’t think they can bear further increases.

As always, I invite comments and questions.

Sincerely,

Larry Legg, CPA



State Senator’s Audit
October 4, 2011, 2:33 PM
Filed under: Budget, City Commission

State Senator Sobel —  who in 2009  sought and was granted a $30,000 interest-free, non-recourse loan from the City of Hollywood to renovate 5,000 square feet of office space for her use —  has suddenly expressed great concern with the City’s finances.  She’s requested that the State of Florida audit Hollywood’s finances and her request has been granted.

“Sobel appeared at a meeting of the Joint Legislative Auditing Committee in the Capitol to ask for the audit, citing the city’s declaration of a state of “financial urgency,” a recent 11 percent property tax increase, lucrative pension and health benefits for city employees and overly optimistic revenue projections.

Sobel questioned the work of Munilytics, an Illinois-based financial consulting firm hired by the city. She also questioned the city’s administrative set up, which she said separates the city’s budget and finance departments, resulting in accountability problems.” excerpt from Miami Herald, Oct. 3, 2011

Senator Sobel appears not to have understood the Munilytics report she questions. She states as one of her concerns a problem the City corrected months ago after Munilytics raised it — the need to separate budget from finance functions. Since the Munilytics report was issued in mid-June, the City has gone to great lengths to put its financial house in order.

It will be interesting to see what State oversight can bring to Hollywood’s financial situation.  Let’s hope it will be helpful.  We suggest the State auditors begin by reviewing the 2009 loan made to Sen. Sobel herself for office renovations — an expenditure category that does not appear to be allowed State Senators for their district offices.  The solution reached was to categorize her loan payments as “rent.”

Despite this fiction, the bottom line here is that the City has allowed the Senator to repay the $30,000 renovation loan over time, while excusing her from paying any rent for the use of City office space.  The rent forgone could have provided a City employee salary.

We opposed this transaction back in 2009.  In part we wrote:

We think it is fiscally irresponsible for the City Commission to commit $30,000 taxpayer dollars for office renovation in these harsh economic times. Many Hollywood residents have lost their jobs, and even their homes. Which of them would not welcome a four-year no-interest $30,000 loan from the city?

Link to full Balance Sheet 2009 post.



Pension Referendum – Sept. 13
September 5, 2011, 9:24 PM
Filed under: Budget, City Staff, Elections, Taxes

HOLLYWOOD SPECIAL ELECTION – IMPORTANT – SAVE JOBS!

WHAT:  Pension Referendum
WHEN: Tuesday, Sept. 13, 2011

This is no time for voter apathy.  Our city has a budget crisis that could lead to bankruptcy. As a partial solution, the referendum proposes reducing future pension benefits for members of each of the three unions in city government:  General Employees, Police, and Firefighters. These reductions would save the City some $8.5 million and set the City on a more sustainable course for the future.

Note: the referendum would not touch any pension benefits employees have earned to date; only future benefits would be subject to new rules if the referendum passes.

We are voting YES on all three referendum questions.  We believe a YES vote will save jobs, maybe hundreds of them in the long run.  It will also prevent astronomical tax and fee increases in the years to come for both residents and businesses. 

Think about it.  The City is strapped for money. The unions have cited as cause of this budget failure a number of wasteful, unwise expenditures the City Commission has made — and we agree with most of these (WiFi, water tower decor, mega developer incentives, excessive severance package for former city manager, etc.).  We’ve spoken out against WiFi and excessive developer incentives for years, not just after the fact but before these spending decisions were even made.

More unwise expenditures the unions don’t mention are the excessive pension concessions to the unions themselves.  We’ve spoken out against these, too, for years.  They’ve been a major contributor to the City’s financial meltdown. Hollywood’s pension costs have skyrocketed about $30 million in just eight years  Look at the trend line:

This situation cannot continue without huge tax and fee increases in years to come.  And who are we asking to pay these taxes and fees?  New census data show that almost half of Hollywood households are designated “low-income,” and foreclosure rates here are three times more than nationally.

If the referendum is defeated and savings can’t be achieved from reducing pension costs, the City says it will have to cut salaries and lay off workers to achieve the necessary savings for the coming fiscal year.    Salaries were already cut significantly earlier this year so this would be a double whammy.  Reducing future retirement benefits seems the better course to us but if the unions don’t agree, voter approval is required and that’s why we have the upcoming referendum. This referendum gives voters a direct voice in how the City will handle the current budget disaster:  (1) pension reform, or (2) no pension reform and more salary cuts, employee layoffs, and service cutbacks instead, not only now but in future years also.

Infuriating and disheartening as reducing retirement benefits can be, we still think the unions would be wise to reach a negotiated settlement with the City rather than pinning their hopes on defeating the referendum.  The unions may well succeed at sinking the referendum. Then what? Wouldn’t the subsequent shift to salary cuts and pink slips be worse for the rank and file than a less costly retirement plan?

We believe defeating pension reform will cause much more hardship on the employees than approving it, especially those at the lower end of the pay scale who need every dollar of their salary to make ends meet today.  The City has provided each union leader the amount of savings that would have to come from pay cuts and/or lay-offs should the referendum fail. We have copies of this information.  If you’d like to see it, let us know and we’ll send it to you.

To see the exact ballot language and more information about what is being proposed, visit the city’s website at this link.

If you wish to vote by absentee ballot and have not yet requested the ballot for this election, you must contact the Supervisor of Elections Office immediately.  The absentee ballot request form may be filled out online from the SOE website at this link.  Or request it by phone 954-357-7055.

Be sure to vote.  This is no time for voter apathy in Hollywood.