Local government financial emergency: the case of Miami, Florida.

• Author: Thai, Khi V.

A series of unsound financial practices and failure to adopt a timely financial recovery plan contributed to the city's loss of control over its fiscal destiny.

On December 2, 1996, the city manager of Miami, Florida, informed the governor of the city's fiscal crisis and requested the governor to conclude, pursuant to [section]218.503 of the Florida statutes, that a state of financial emergency existed within the city. On December 3, 1996, pursuant to the city's request, the governor acknowledged that the City of Miami was in a state of financial emergency.

The Miami financial emergency drew widespread attention, as stories about the city appeared regularly on local television and in local and national newspapers. The attention raised concerns that negative economic ramifications, such as corporate relocation decisions and lower credit ratings, as well as possible spillover effects to other local governments and state government could result. Thus, there was tremendous political pressure for decisive action.

To provide Government Finance Review's national and international readership with a brief overview and a succinct chronology of the facts surrounding this crisis situation, this article will 1) identify and briefly describe the major events that have been instrumental in the recent financial emergency of the City of Miami and the failed efforts of in-house fiscal restoration; 2) summarize the intergovernmental actions affecting the city and its fiscal responses; and 3) explore a few issues surrounding the policy options, particularly the scheduled referendum calling for the abolition of the city government.

Often characterized as the capital of Latin America, the City of Miami has a population of 358,000 consisting largely of Hispanics (62.5 percent) and African Americans (27.4 percent); 73 percent of city residents speak a language other than English, as 60 percent of its population are foreign born and are not U.S. citizens. Its economy has wide income disparities, an oversupply of low-skilled workers with a mere 48 percent of the population having completed high school and 12.8 percent holding a college degree, and a great deal of informal business transactions. Miami has the lowest household income of all U.S. cities with a population of more than 100,000. It lost 40,000 jobs between 1980 and 1990 and continues to lose jobs. Middle- and upper-class residents flee the city while poorly educated immigrants continue to move in.(1)

Like many older cities, Miami collects no property taxes from a significant number of properties (34 percent) within the city because they are owned by nonprofit and governmental organizations and are tax exempt. The property tax base peaked in 1992 at $12 billion and has declined since. Consequently, Miami's millage rate is 9.5995, very close to the 10 mill state constitutional cap. In addition, the state constitution prohibits any governmental unit from levying an income tax. This economic and fiscal environment has led to the City of Miami's financial difficulties that started about 10 years ago.

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