South Miami has agreed to settle the charges. The city will retain an independent third-party consultant to oversee its policies, procedures, and internal controls for municipal bond disclosures.
South Miami had originally sought financing to develop a public parking garage. Where thing went awry was that the project ultimately became a mixed-use retail and public parking structure to be developed by a for-profit developer. Annual certifications made by South Miami to the FMLC from 2003 to 2009 incorrectly stated that South Miami was in compliance with the terms of the loan agreements.
The city ended up settling with the IRS by paying $260,345 and defeasing a portion of the two prior bond offerings at a cost of $1.16 million. Due to the payment and settlement, bondholders were not financially harmed and they’re not required to include any interest from the bonds in their gross incomes.
The SEC said,
An SEC investigation found that the city of 11,000 residents located in Miami-Dade County borrowed approximately $12 million in two pooled, conduit bond offerings through the Florida Municipal Loan Council (FMLC). South Miami’s participation in those offerings enabled it to borrow funds at advantageous tax-exempt rates. The city represented that the project was eligible for tax-exempt financing in various documents for the second offering that were relied upon by bond counsel in rendering its tax opinion. However, South Miami failed to disclose that it had actually jeopardized the tax-exempt status of both bond offerings by impermissibly loaning proceeds from the first offering to a private developer and restructuring a lease agreement prior to the second offering.
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