Coral Gables | Coral Gables Watch

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

October 20, 2009 Leave a comment

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.

Filed under Community, Coral Gables, Government

The Mystery of Millage Rates

October 17, 2009 Leave a comment

City officials are repeatedly saying to us that the millage rate is “lower than two years ago”. (And why didn’t they mention that the millage rate is much higher than last year–more misinformation and misdirecting the commentary!). In fact, the millage rate is a simple residual after calculating the budget needs and other sources of revenue such as permit, fire and other fees. What counts for the city are property assessments and new construction and the budget requirements, and then comes the millage rate to calculate the revenues to fill the gap with the other income source.

The city fathers do us no favor by having a lower or higher millage rate. They do us a favor by better managing the city’s budget–that is the variable that counts. Why in the world does the city want to keep spending merrily on capital projects during a crisis–this gives the impression that the commissioners and city manager think that the recession will be over quite soon. Why can’t the city reduce the number of the senior managers now they have reduced the number of low level staff?

Now that the unemployment rates is 11 percent in Miami-Dade (this means really means 20 percent measuring discouraged workers and part-time employment at lower wages) and will certainly not be back to normal for several years, and is much higher than the national average of 9.8 percent.

Also, there is talk in financial circles of mortgage problems increasing among new groups of homeowners, not in the subprime category, but in conventional loan categories. The does not portend a good future for the city’s property taxes.

Another kind of silly statement is that the Coral Gables taxes are only (say) 27 percent of your total tax bill. Right, it is only a 27 percent, but two years ago it was a lower percentage of the tax bills. Now Coral Gables is the fastest growing share of our property tax bills.

Therefore, mayor and commissioners, plan for the worst and hope for the best. Let us see what happens in the coming months.

Filed under Coral Gables, Finance, Management

A Few Private Sector Lessons for the City of Coral Gables

October 17, 2009 Leave a comment

The City of Coral Gable is not following some of the most fundamental of preceps and experience of well managed private companies during a recession:

–Don’t be surprised by a recession by not having reserves and a backup plan;

–Most importantly, take advantage of the crisis to take the enterprise along a different path, reexamine it culture, evaluate its leaders, and refocus and strengthen services to consumers;

–During bad economic times, cut costs to retain the core staff;

–Cut way back on capital expenditures.

–Streamline the organization and its structure, including the redefinition of questionable units;

–Focus on the core values and services of the enterprise;

–Rethink the future path of expansion of the enterprise, there may well be a different path to prosperity in the future, very different from the past;

–It is a good time to refresh the staff with new ideas and training, and outstanding managers;

Filed under Coral Gables, Organization