13 Cases Show Why The City Is So Unlucky In Business Deals
Written by Michael Lewis on August 16, 2012
By Michael Lewis
To prove why we should keep government away from business deals, the City of Miami offers ample case studies — 13 in the past month alone.
If it seems unlikely to have such an unlucky total on so specific a topic in such a short time, you’ve been ignoring city hall.
Granted, the city’s key struggle is to get by without slashing services, raising taxes or tromping on workers — impossible given a gap due to years of free spending predicated on an ever-soaring tax base that stopped soaring.
But schemes to narrow that gap using revenue from business deals fail over and over.
Look at 13 business issues that flowed through the city in a month:
1. To build garages Marlins stadium, the city put in 53,000 feet of retail to rent out to help pay off bonds. That was a 2009 plan.
But not one store is yet occupied. The city has leased less than 1% of its space and now says it plans to get most stores open for 2013 games. Meanwhile, it’s not collecting rent.
The problem: commissioners unrealistically sought only top-level retail in Little Havana. Further, they wanted to OK every lease themselves, a recipe for disaster.
2. Commissioners tried to evict Burn Notice from Coconut Grove, setting off a film industry firestorm, then trumpeted a deal for the show to stay a year and explode the city’s Coconut Grove Exhibition Center in the final episode.
But producers said there was no deal and there’d be no explosion. The city backtracked, taking more rent in a face-saving gesture as Commissioner Marc Sarnoff — self-proclaimed architect of the deal that never was — said he hoped they’d still blow up the building.
The city got a black eye from the lucrative film industry and eroded its credibility, only to give Burn Notice what it had sought.
3, 4, 5, 6 and 7. In stomach-churning restaurant deals, officials got bids for two 30-year bayfront leases and cut deals. But public outcry at a change from Scotty’s Landing’s popular operator and regret at a sole bid for Chart House had commissioners calling the deals rushed, so City Manager Johnny Martinez left operators in place until next year.
Keeping Scotty’s in popular hands means less city income from a tenant that hasn’t paid the city about $2.9 million it owes — including property taxes for more than three decades.
At other eateries, the city is preparing to sue Bijan’s on the River, which it says has been illegally squatting on city land since its lease expired in February and owes $19,379 in rent. Meanwhile, Bayside Hut on Virginia Key has stopped paying city rent and is $45,000 behind.
Now the city plans to lease a site in a recently converted fire station that houses the Community Redevelopment Agency to a California restaurateur that wants the city to pump in several hundred thousand dollars more for improvements.
8 and 9. Jungle Island paid $2 million of its multi-million debt to the city, giving it the rest of the year to talk the city into handing over more Watson Island acres free for 99 years. Island Gardens, which has tied up nearby city land for 11 years in plans to build hotels and a mega-marina, is in default to the state, but the city says its lease is fine with Miami.
10. Mr. Sarnoff, an attorney, called a tax break for realtors that parallels a new state law unconstitutional — then joined others in passing it unanimously.
11. Miami Bayside Foundation, created in a deal cut in the 1980s to build Bayside Marketplace on city land, won commission praise for finally doing what it’s supposed to do after years of not aiding minority business. Year after year, the commission had turned a blind eye to the failure.
12. The city is trying to get the US Securities and Exchange Commission not to fine or penalize anyone for misleading investors. Another case from the same agency over city stadium garage bonds lurks.
13. The commission told DeLucca Enterprises to keep running Melreese golf course until 2021 without seeking bids to test market prices because, as Mayor Tomás Regalado explained, "they are good people."
There you have it: city assets go to "good people" at Scotty’s, Melreese or wherever.
It’s not that officials are ignorant of business. Most commissioners deal with it in their day jobs.
But government isn’t conducive to dealmaking. Businesses with which government deals put profit first. But elected officials put votes first, campaign cash second and city profit a distant third. It’s the nature of the job.
It doesn’t work for one commissioner to do all the dealing, either. Look at Mr. Sarnoff, who chastised Burn Notice officials that they had to deal with him and only him, and only in private. Look how that flopped.
The bottom line: city officials aren’t good stewards at the bargaining table. Deals cost taxpayers money or, at best, yield far less than market rate because deals are being made with "good people" and good friends.