Poor Economic Prospects for Coral Gables and South Florida: What Can We Do?

I.  In the national and world economic context:

A recent report, “the long climb”, published in the Economist on the economic prospects for the U.S. and the world economy, raises some significant challenges for the financial future and management of the City of Coral Gables.  That excellent report concludes that the economy will necessarily have to take a different path to return to growth because of the nature of the financial crisis that left behind accumulated debt in households, banks and other business that has to be cleaned up over time.  Furthermore, it concludes that consumers will not return to their past spending patterns as they need to reduce their debt overhang through increased savings. This means that neither asset inflation (residence, commercial buildings, the real estate and related businesses) will not be seen for many years.  With consumer spending stagnate only exports will be the basis for long-term growth. (This explains why the U.S. should be pushing China to increase consumer spending and why the U.S. is letting the US dollar weaken.)

Coral Gables needs to look to different kinds of economic sectors and businesses to return to growth in the future.  Failing to do so will mean that Coral Gables will follow a sluggish national and regional economy slow growth patterns for years to come.

II.  In a regional and South Florida context:

In a recent speech of Dennis P. Lockhart, President and Chief Executive Officer, Federal Reserve Bank of Atlanta gave an overview of the economy and what is seen ahead for growth and reduced unemployement:

A turnaround in the housing market is key to recovery. The housing market has begun to improve as measured by sales volumes, prices, and new home starts. Yet new and existing house inventories remain high, suggesting a weak residential construction outlook. And house sales are being supported by two government programs.

The consensus among forecasters is something approaching a jobless recovery.

Business spending for capital goods and inventory retrenched dramatically in the recession. Businesses remain very cautious about spending on equipment and software.Banks too have been deleveraging and repairing their balance sheets.

Banks too have been deleveraging and repairing their balance sheets. A return to robust bank lending is unlikely, at least in the near term.

And one of the few bright spots in the economy.

A surprisingly positive factor in the current domestic economy and outlook is the global economy. A worldwide recovery is materializing, led by the developing economies of East Asia and India.

And commercial real estate,

I want to draw attention to a developing risk that could set back the progress being made by banks. That is commercial real estate. The recession weakened the fundamentals of all segments of commercial real estate (retail, office, hotel, warehouse, and—sometimes included—multifamily residential). Vacancies have risen, rents have fallen because of vacancies and renegotiations, and capitalization rates (the discount rate used to calculate value) have risen.

If the growth of Coral Gables cannot depend on high employment, prosperous business, strong demand for real estate and growing property values, then city leaders need to examine what are the new opportunities for this city in the years ahead.  Now is the time to do the planning and preparation of community action plans.

My Letter to Coral Gables

September 2, 2009

Mayor Donald D. Slesnick
Vice Mayor William H. Kerdyk, Jr.
Commissioner Maria Anderson
Commissioner Rafael Cabrera, Jr.
Commissioner Wayne E. Withers
City Manager Patrick G. Salerno

Dear Mayor, Commissioners and City Manager:

I am writing to respectively express my deep concerns about an increase in property taxes in Coral Gables. To be sure I am equally concerned about what is happening with taxes and spending in the Miami-Dade County Government.

I urge you make the hard and, indeed, unpleasant decisions to save our families from rising taxes this year and in the coming years.

I observe, like many do in the community, that the City Government is overstaffed and the staff overpaid. I urge you to identify and announce to the community the essential and key services and reduce salaries and benefits, including pensions. I urge you to freeze and reduce capital expenditures, except for those few really essential projects. Cut back unnecessary staff in building and zoning and other units that are under worked, and eliminate the excess and overpaid middle and upper management throughout the city, including in the police and fire units.

It is time for the City to rethink its failed function as a property owner of a hotel, golf courses and a country club.

The challenge in yours.

I look forward to following your decisions in the coming days.

Sincerely,

Stephen E. McGaughey

Robert Burr’s Comments on the 2009-2010 Budget Options: Call to Action

I copy Robert Burr’s email to the community about Coral Gables’ budget challenges:

Once in a while, we need to pay attention to what’s happening in city government. This is a time to share your opinions with city leaders in Coral Gables. After years of spending increases, home values rising at astronomical rates, millage rate increases, salaries, benefits and pension increases that clearly are not sustainable — and a luxury lifestyle of fine wine and dining for city officials — it’s time for a reality check in Coral Gables.

Our new city manager has a daunting task. Rein in all the waste and excess while retaining the most important services to citizens. Now, our leaders need our help in making important decisions. They’re proposing new fees on us now to increase their budgets once again. Apparently, they’re not getting the message to cut budget expenses further. It’s time to communicate with them — now.

Recently, citizens felt the need to set limits on their leaders. You voted for term limits for the mayor and commissioners. You voted to elect the mayor every two years, as we’ve done since the city was founded. You voted against allowing the city manager to spend up to $100,000 without commission approval. You voted to keep the city trail board in place to oversee important management decisions.

Now, it’s time to give our city leaders some limits on how our money will be spent. Like any well-run business, we must aspire to keep our cost under control and set limits on how we spend the funds mandated to be assessed from citizens. We want the system to be fair, transparent, efficient and operated within sound parameters.

Your Coral Gables Citizen’s PAC has recently urged commissioners and the city manager to use common sense in reducing expenses in all city departments. While the city has proposed to cut some of the lowest paying jobs, the PAC is recommending reduction in salaries at higher levels.

“The cutting of part time employees is sometimes the least economical since they are paid the least and may not be getting benefits. We should be looking at the top. We have over 80 City employees making over $100,000. We know there is slack in the higher echelons and they can be reduced. The greatest savings would be at that level. We strongly urge the 5% cut across the board for all employees who are making more than $35,000; 10% across the board cut for all employees making more than $80,000 and less than $130,000; and 15% cut across the board for all employees making more than $130,000 (or some other graduated scale but topping out at least at 15%). In addition, we need to look where we can cut personnel at the higher levels so that each cut will make a large savings. When hiring replacements, if necessary, they should come in at the lowest possible level.”

Next, citizens must consider whether to put a cap on the overall percentage of the city budget that can be allocated to salaries, benefits and pensions. Most large companies limit these expenses to 50% of their budget.

Our city salaries, benefits and pensions are nearing 80% of the budget, which is far out of control. Citizens can initiate a ballot measure in the next election cycle limiting these expenses to 50, 55 or 60% of the total budget, allowing management and commissioners to decide how best to spend the funds within that limit.

It’s up to our management and leaders now to make significant progress on these out of control expenses. Let’s urge them to get their costs under control now.

If they can’t do it, the citizens will once again set these necessary limits which their leaders are unable or unwilling to do.

Whether you agree with me or not, please share your opinions with city leaders today.

Thank you.

Robert A. Burr
rob@robertburr.com
http://www.RobertBurr.com