The Stierheim Report
On August 30, a career bureaucrat named Manohar Surana abruptly retired as finance director of the City of Miami. Two weeks later some of his co-workers joined him in retirement -- involuntarily. The federal government filed charges against City Manager Cesar Odio for allegedly seeking a kickback on a city insurance contract. Similar charges were filed against City Commissioner Miller Dawkins for profiting from a city computer contract. Two county officials have been linked to the ongoing probe, along with a prominent lobbyist and a former city manager.
Although the investigation continues, the impact of what the FBI calls Operation Greenpalm has already been devastating. Surana reportedly agreed to plead guilty to corruption charges. Dawkins pleaded guilty and was removed from office. Odio retired to concentrate on his legal defense.
The scandal was the best thing to happen to the City of Miami in a long time.
Foremost among the benefits was Odio's quickly being replaced by a man with superb managerial experience, unquestioned ethics, and a master's degree in governmental administration from the Wharton School. In Merrett Stierheim's brief tenure as interim manager, he has peeled back layers of deception to reveal a city government that has been grossly mismanaged. If he hadn't stepped into the breach, he so much as says, Miami might have gone bankrupt within the year.
Stierheim, who is 63 years old, first worked for Miami in 1959 as an assistant city manager. Since then the city has transformed itself from a sleepy retirement town to an international business and trade capital. Stierheim's career has paralleled the city's upward trajectory. He rose to county manager in 1976, and served there for ten years. Today he is president and CEO of the Greater Miami Convention and Visitors Bureau. He agreed to return to city government on a strictly temporary basis, with the objective of keeping a steady hand on the tiller until commissioners could hire a permanent manager. After accepting a two-week contract extension, his final day at city hall will be Friday, November 15.
A mere steady hand was not what Miami needed, as Stierheim soon discovered. The city's 1996-1997 budget -- already passed on one reading and scheduled for final approval -- was not neatly balanced as Surana and Odio had reported. In fact it was at least $68 million in the red. Among many troubling revelations, Stierheim found that taxpayer money had been routinely spirited from one account to another to pay off current bills or to retire old debts.
His efforts to solve the crisis have generated controversy. He persuaded the commission to declare a fiscal emergency, which gave him the power to reopen the city's contracts with its four labor unions. In doing so, he aggravated union leaders, who had made significant concessions to Odio just a year earlier. When he blamed the crisis in part on bad management, some talk-show hosts on Spanish-language radio shot back that Stierheim was attacking not just Odio's management but the entire Cuban community. (Odio is a Cuban immigrant.)
Stierheim recently discussed that criticism and more in a wide-ranging interview. "I don't have time to do this, I really don't," he muttered while sitting down in one of two armchairs located in front of Cesar Odio's old desk. "But I promised, so let's get this done." Within minutes his impatience gave way to thoughtful engagement. Except for a brief interruption by Mayor Joe Carollo, who stopped in to confirm a later appointment, Stierheim spoke for a full hour.
Did you discover any other indications of the city squeezing vendors for bribes?
No. There were a couple of areas that didn't come to fruition that, if they had, would have been open to questions. I would have immediately turned them over to the appropriate authorities. I think there were very legitimate questions the mayor was raising when he asked for more of those expenditures from the $4500 discretionary fund. It was the first time I got into it, and I think there are some pretty serious questions. Those questions are still lingering.
In several instances, most notably the abuse of his discretionary fund, former city manager Cesar Odio claimed he was only following the orders of the commission. Indeed he had a reputation for indulging the commissioners, who were, after all, his bosses. The result of this -- the fiscal crisis -- raises the question of whether a manager form of government is practical in such a political city.
The city certainly can be managed by a mayor-commission-manager form of government. It is more challenging in Miami, obviously, because of the diversity and different constituency demands and so forth and so on. But the right professional manager, dealing with the elected officials that we have now, I think could function very well.
As chairman of the county's charter committee in the late Eighties, you supported the concept of a strong mayor. How does the county differ from the city?
I am not here telling you what form of government Miami should have. That's not my function. You asked me whether the manager plan could work here. My answer is without question: Yes. I don't want to be put in the position of recommending the form of government for Miami. I think the manager plan could work very well. Does that mean the strong-mayor form could not work? I didn't say that.
Do you have a preference?
Personally? I think the manager form of government is the best form of government in America. Now, that is a generic statement. Is it the best form of government for a large, complex, diverse metropolitan area? I'm thinking: No. Metropolitan government will be better served by a strong mayor, in New York, Chicago, Los Angeles, San Francisco, Atlanta -- all large, diverse cities. But other cities all over the United States are very effectively managed by a mayor-council-manager form of government. Miami is no exception, in my judgment. And so I guess my preference would be to maintain the form of government Miami has -- only get a professional, well-trained, competent manager to serve the commission. Someone with strength. Someone who doesn't draw a line in the sand on every single issue, but knows when to say no.
When you arrived at city hall on September 13, a gathering of Cubans in the parking lot protested that the Justice Department charges against Odio were an orchestrated attack on Cuban leadership. Since you have so thoroughly criticized the management of the city, your name has been thrown in as part of the conspiracy. How do you respond to those charges?
[Laughs] Well, that's ridiculous. I'm not part of any conspiracy. I mean, I didn't ask for this; I was recruited. And it didn't take but 24, 48 hours to find out that this city was in serious trouble. I am not aligned with anyone, any organization, or any faction. I am not aligned with Anglos any more than I am Hispanics or blacks. I have served this community in a variety of ways. In fact, I love the diversity of this community! Anyone who knows me either by reputation or personally knows how ridiculous such a charge is.
Why did you come back?
It wasn't an easy decision. I spoke with my chairman, Richard Fain, CEO of Royal Caribbean, and other members of the executive committee. It wasn't an easy decision for them because clearly I have a job and a new profession that I am really enjoying: promoting the city for the visitor industry. On the other hand, this is the core city. When you say Dade County, it means Miami. And when the core city is in trouble, and the mayor of that city reaches out and says, "I need help," it is very difficult -- or I think it would be almost irresponsible -- to say no. That's the way chairman Fain felt, and that's the way I felt.
I am not interested in the job on a permanent basis, okay? There has been speculation on that. I want to make that very clear. So we said, Let's put a time certain [on the job]. Chairman Fain and I also felt that I should not go over if it isn't a unanimous vote. The third condition was that the mayor and the Miami commission immediately start a search for a professional, permanent manager. All of those conditions were acceptable to Mayor Carollo and the commission, and here I am -- for better or worse, and I hope it is better.
You noticed problems within 24 or 48 hours. You have stated before that the budget-review process normally takes between four and five months. How could you identify the problem so quickly?
I was sworn in on Friday afternoon. From Saturday morning there started a procession of people to my house that didn't end until 11:30 Sunday night. The people that I knew or that I had confidence in were willing to come and sit down and talk about the city. In between, for bedtime reading beginning Friday night, I read the budget from cover to cover. And I read the city's '94-'95 annual financial statement, which was the last one.
What triggered it for me was the $72 million pension bond issue. It is very simple. Anyone could do it -- it's not rocket science. The city sold a $72 million bond in December of 1995 after the books closed for the '94-'95 fiscal year. Those books close on September 30th. From the proceeds of that pension bond issue they took approximately $25 million and moved it back into the '94-'95 fiscal year to replace money that had come out of the general fund to meet the normal pension contributions to the two pension plans.
So they were taking the proceeds and moving them back into a prior year to help balance the books in '94-'95! Then they took $45 million in '95-'96 -- the year that just ended on September 30th -- to meet the operating pension payments required by the actuaries and so forth for that year. Okay? Now the proceeds from the sale of the bonds are largely gone. There was only like three million dollars left, and they took another ten million to cover the early retirements and the incentives when the city had its downsizing. Question: Where's the $35 million to pay for the current fiscal year? The answer: It ain't there. Well, if you couldn't pay for it in the two previous years, how are you going to pay for it this year unless there were some huge reductions in the budget or they found some money some place? I went through all the budget and I couldn't find it.
So then, well, let's get into this budget. We spent the next weekend working for twenty hours in budget hearings with the departments at Riverside Center [the city's main office building]. All the unions were there, all the departments came in and out. Some of the department heads stayed for the whole two days. I started making calls the first weekend to corporate presidents because I knew I needed help. And I began to get the commitments from American Bankers and Florida Power & Light and all the companies that are providing people. In the meantime, I called County Manager Armando Vidal, I called [Miami Beach] City Manager Garcia-Pedrosa, I called some people that had been with me, and I gathered a small team that became the nucleus of my personal task force.
You've said the city staff is uniformly talented and hard-working. Why did you need to bring in these outside specialists?
I didn't have the time to handle all of the details and projects that are the normal activity of the city administration. There are only so many hours in a day! There were some days where I was going eighteen hours a day. I'm not exaggerating, because I'd go to sleep and I'd wake up because I'd start thinking about the problems.
These young people are all bright. And they have a lot of experience with crunching numbers. I brought in [veteran consultant and former city employee] Mike Lavin and put him in as acting finance director. He's not permanent, but he's got a good background and I have known him off and on for years. And I felt I can trust him. I had to get somebody into finance that -- if you will -- was my man.
Now, that takes nothing away from Dipak [Parekh, Odio's deputy finance director, whom Stierheim retained]. I mean let's face it, there are a lot of people who were very concerned because Mr. Surana had his organization there while the problems developed. But I have to tell you that Dipak, [assistant finance director] Mr. Phil Luney, [debt service coordinator] Mr. Pete Chircut -- they've been superb. Other people have been terrific. Everybody has really tried to be cooperative. Three or four people [who work] with Mike Lavin in the finance department, they went till 5:30 a.m. I was there with them until 3:30 a.m. on my birthday. So it wasn't just me; there was a group of us crunching these numbers, and we compressed into about ten days a budget process that would normally take, say, three or four months. That's how we came up with the multimillion-dollar budget deficit.
How bad is the problem?
The problem is just exactly as I've reported it. You know, the unions are going crazy. I spent a good part of yesterday with them, going through and crunching numbers. We've given them our computer disks and given them all the information we have. There's no secret to it. And if they come up and find five million dollars, God bless 'em! God bless 'em! We'll all thank them and I'll say, "Hey, you know, I am not Superman." We are all capable of making mistakes, but I think the numbers are pretty hard and pretty real. The one number I'm really concerned about more than anything is the capital budget deficit. [Stierheim estimates the deficit at $20 million, $2 million more than previously reported.] I mean that capital is: Whoo! That is a mess! We haven't heard the end of that one. [The capital budget covers bricks-and-mortar projects such as storm sewers, sidewalks, roads, buildings -- physical facilities that have an extended life span.]
Why are you so concerned about the capital budget?
I think I have said it really is only the tip of the iceberg. The city has to pay its bills. I wanted to know what projects were out there that would require cash flow over the next year or two years. What have we committed to do or can't back away from, that we can't put on the shelf? For example, the Melreese golf course will cost $3.9 million. The city has already spent $3.1 million. There is another $800,000 that needs to be spent. Where is the money?
The capital budget is very important. You can't take your eye off it. It is money the city has to spend.
The truth of the matter is the general fund owes the capital fund considerably more than $20 million. It could be 30, 40, 50 million. I don't know yet. When is that money going to be paid back?
There has been a lot of talk about possible culpability of the external auditors, but that talk seems to have died down. Looking back, what is your assessment of the service provided by the auditors?
In my judgment, the external auditor is the watchdog for the elected officials. Really the only protection an elected commission has is the external auditor because they are looking at what the manager, the finance department, and all the departmental agencies are doing with the money -- taxpayers' money, very sacred money. And quite obviously the commission was not satisfied [with the auditor] and disengaged. [The auditor, Deloitte & Touche, was fired by the commission on October 7.] They also instructed me, with the city attorney's help, to talk to different law firms to explore whether or not there were legitimate questions of liability here. That process is going on. I have talked to at least two law firms and we will talk to more.
What is your preliminary assessment? Do they seem liable to you?
I am not here to try anyone in the press. I mean, I know some of the principals. I consider them good friends. I have worked with them in many civic causes and they have been civically very active -- I hope you put that in there. But how the city could get to the point that it is without having the red flags raised is hard for me to understand. Maybe there are explanations.
I went through the financial report. I raised the question on the $21 million [bond issue] for the Riverside Center building as to why that was in the general fund. That was a serious question to me. Certainly the issue of the pension bonds -- I think that should have jumped out at everyone: What was the city doing? This is hand-to-mouth existence. This is hawking the future by putting third and fourth mortgages on the city to pay for operating expenses. What is going on? So I think there were enough indications that the flags should be raised. Now, in their defense, they haven't had their day in court. I am not here to condemn them, but I think there are very serious questions. I think the commission was totally within its right to raise those questions and to ask me to do what I am doing now.
Criticism of the internal auditor has been more muted, or at least more private. How effective was the city's internal audit system?
Based on a very cursory review, essentially they were focused on cash transactions involving concessionaires, lessees, anyone who was doing business on city property or for whom the commission had granted a license right or franchise to do business. I was very dissatisfied that they were not auditing the finance department, that they were not evaluating internal controls. I was told that they had the capability of doing an operations audit. If they did one, I don't know when or where it is.
If I was going to be the city manager, I would significantly include within the scope of the internal auditor's responsibility a watchdog role on internal movement of taxpayer money, bond money, guarantee entitlement trust money, grant money, and so forth. They cannot in my judgment just ignore that. Just look at what we are dealing with today.
The internal auditor resigned. Did you ask for his resignation?
Let's say it was a mutual understanding. He offered to resign and I accepted.
You have publicly criticized the contracts the city signed with the labor unions. The ability of labor and management to work well together has been cited as among the great achievements of Odio's administration. What is your criticism?
My specific criticism was that management had in my judgment abdicated its responsibility in the collective-bargaining process. I have complimented union leaders on the contracts they received, because from a union standpoint, they are great contracts.
What was so great about the contracts?
Well, for anyone who takes a look at them there are tremendous concessions that management gave. I am not telling you what to do, but you should just read the page that deals with the city's ability to reopen the collective-bargaining process. I mean, just read that page. The city knowingly, intelligently, and rationally waives its rights to renegotiate this agreement. Knowingly, intelligently, and rationally is not the word. It's another very strange word -- unequivocally or something. We will never even think about doing this. Then it goes on to say the only way you can avoid that is by declaring a true fiscal emergency. And even then, before you do that, you have to exhaust all the commission's options on raising money. And so the commission has to go through 40 hoops before it can get [the union contracts] to the table. And then it goes by the arbitration proceedings and the arbitration is final. And that's just one [problem]. I'm not even talking about all the perks and the five percent here and the five percent there and the take-home cars in the contract with the police.
Do you have an understanding of why these contracts were so generous?
I want to go off the record.
Then I'll leave that to the public to decide.
You've deliberately withheld criticism of individuals, including Manohar Surana and Cesar Odio -- Odio having run the government for the past eleven years. Why have you been so careful not to criticize them?
I don't see my responsibility as being in any way, shape, or form having anything to do with persons, personalities, or what have you. It is in my judgment unethical for a professional manager to publicly criticize the previous manager. I find that repugnant. Besides, I have, er, I had a professional relationship with Cesar for twelve or fifteen years as county manager since he was hired here as an assistant [in 1980]. I've known him a long time. This is a tragedy. I feel sorry for him.
I feel sorry for the city, but I have a professional responsibility to describe what I find. So people can talk conspiracy and blah blah until they're blue in the face. Except that just doesn't hold up.
Isn't it transparent to any reasonable person that when you criticize management you are criticizing the top manager and therefore --
[Interrupting] Ipso facto?
Yeah. Aren't you criticizing Cesar Odio?
I suppose one could interpret that. I don't know how the doctor describes to the patient that the patient has got cancer. That's a bad example. Let's take something where you have got cirrhosis of the liver. And the cause of it has been excessive alcohol and abuse, and so you say to the patient this is what contributed to the problem. If you are going to fix it, you not only have to fix the cirrhosis but you have to fix the systemic reasons why you got there. Don't ever make this mistake again. Don't have another drink, don't smoke another cigarette, don't hire the next manager who isn't going to give you the kind of expertise that is called for. This city right now needs a strong, very professional, very honest, very open manager. There are a lot of things that need to be corrected.
That does not denigrate people who are within the organization itself. I am impressed with [Deputy Fire Chief] Frank Rollason and Chief Jimenez, but you have the fire department handling capital improvements, risk management, liabilities, and so forth. I mean, the police department is doing fleet management. What is the police department doing fleet management for? That's a general services administration function. Why is parks and recreation under the public works department? There are a whole lot of things that need to be corrected. I'll never have time and it's gonna take a long time. I've already talked about "friends of friends." They are all over the city! [In a memo to all assistant city managers, Stierheim wrote, "In personal discussions and at the budget hearings last weekend, several directors talked or hinted at nonproductive employees being placed within their department for reasons other than merit on the instructions of someone other than the director, i.e., a 'friend of a friend.'"]
Are these "friends of friends" all over the city? You asked for department heads to bring to you --
[Interrupting] The problem is many of them have gotten under civil service protection. And some of them, maybe a majority -- please say this -- can be very hard-working, dedicated people. Just because somebody is referred by an elected official or a lobbyist or the manager doesn't make them incompetent. Please understand that. Because I refer people. People come to me and they look terrific and I talk to them and I say, "Hey this is a good person. Interview this person."
Yet you've identified this as a problem. How large a problem is it?
I don't know. I just know that if a person is there by virtue of association or relationship and doesn't feel he or she has to work like everybody else, I have a problem with that.
Do you believe there was a quid pro quo between the unions and management? That in exchange for the generous labor contracts, the unions agreed to hire friends and relatives of management?
I don't know how to answer that one. That is a very good question. I just don't know the history.
The City of Miami is a corporation and the commissioners sit as the board of directors. To what extent did the board fail to carry out its mission?
I am always reminded of Pascal: "Man is but a reed, the weakest in nature, but he is a thinking reed." I have a philosophy that all of us start out with a certain level of rigidity in our backbone. When it comes to issues of competency and so forth and so on, some people seem to bend with the wind, and others -- I guess like the mighty oak or whatever -- are pretty strong and don't bend. Here again it may be the issue of drawing a line in the sand. Say a project would come in, the commission would say: "Do this, find the money." I'm told this was pretty often. The staff, the manager, Surana, whoever was there would go, "Okay." So a whole lot of projects -- on the capital side particularly -- would be approved without a funding source. In the meantime, they were manipulating the money and moving the money out of the capital funds to meet operating requirements. I know of one six-million-dollar transfer out of the storm-water trust funds that was a journal entry into the general fund. So that means six million dollars in storm-drainage projects aren't going to get built, unless somehow you think about how to get the money back again. Well, if the commission just feels that it can function that way, is it their fault?
It's a good question, though. It's kind of a rhetorical question: Where do you get to the point where the manager or the finance director or someone in public works says, "No, sorry, there is no money, can't do it, we have no funds." And when was that line drawn? And was it always a retreating line? And in defense of Cesar, a lot of times he was hanging on to a 3-2 vote [by the commission to retain his services]. It was survival for him. So do you say no and draw the line?
Might that have been exploited by the commission?
[Laughs] You said it! I am not here to criticize people. These are legitimate questions.
There have long been charges that the Odio administration championed loyalty at the expense of creative thinking and candor. Indeed, the State Attorney's Office criticized Odio's top deputy, Surana, for maintaining "an atmosphere of implied retaliation." What did you notice, or what were you told, about the city administration's working atmosphere?
There is no question as far as Mr. Surana is concerned that he kept everything close to the vest. I don't think anybody crossed him within the department. There is no question as to who the boss was. I did not find a single department director who felt like they were getting straight information or getting answers on their budgets or whatever money there was for this project or that project.
What about at the top?
It's a judgment call. I have stayed away from commenting about Cesar. He is claiming he was not aware of the [mismanagement of the] finance department being as serious as it was. I know the department heads cautioned him about the power Surana had. I haven't found anybody who supported that move. They would make it clear they were having difficulties dealing with Surana for the reasons I stated.
With the reduction of services you and the staff have proposed, and with increases in taxes -- property taxes, user fees, and such -- what purpose will there be for the city? Wouldn't you just be eliminating the need for a city?
No. I think this is the core, this is the heart of the metropolis. It was the beginning. It is 100 years old. It has trouble. It has problems. So does that mean you come along and kill it or abolish it and what it represents?
Some say so.
I don't think so. I think that would be a tragedy. I started right here, sat right in that chair there 37 years ago. I have never been a consolidationist for consolidation's sake. In almost ten years as county manager I did not favor abolishing -- even though I knew some cities could be abolished without a ripple. I never promoted it, never spoke for it, or encouraged it.
I have a love for the city. I am a student of government and the city, going back to when cities were formed for protection of the vital necessities and so forth, so I am not supporting or advocating the abolition of the city. Let's clean this problem up, let's get the city back on the road to fiscal solvency and responsibility, and then, down the road, if that issue is to be addressed, look at it then.
Given the financial crisis the commission is now facing, will the city's public properties be wantonly commercialized in order to generate revenue?
That's a tough question. I am not aware of any particular proposal right now. Obviously any decision like that can only be made at a public hearing at which all kinds of citizens can be heard. "Wantonly" would suggest abuse, and there are restrictions. For example, the charter required a referendum for Parrot Jungle to move to Watson Island. So there are some built-in safeguards.
How long until the city is fiscally sound?
It isn't going to happen overnight. While we may be able to balance the budget this year, next year will be a major test. It involves city commission resolve, commitment, and the willingness and the ability to bite the bullet. It might even be sacrificial, which is very difficult for elected officials because clearly the demagogues will be out there trying to capitalize on the issue. It's tragic but that's the way of life.
Nobody wants to vote for increasing solid-waste fees or nobody wants to vote for this or that or the other thing because it may be unpopular and the Hispanic radio stations will have a field day demagoguing that issue. I hope I live long enough to see that element of life in Miami either become more responsible or disappear. It is very abusive of rational judgment and management.
Going back to your question, there is a lot that can be done in the short term. Also, concerning the unions, I am going to find out very quickly whether they're serious about putting concessions on the table. I am fearful that they may [give] as little as they can. I think we need to make some significant concessions. If I don't see them forthcoming, then I am going to recommend that the commissioners reopen the bargaining process. That, too, will involve a tremendous amount of resolve on the part of the commission. Clearly there will be great pressure and efforts to influence them, and whoever the manager is. Will he have enough backbone and chutzpah to stick with it? So it'll take two or three years to really get it set right.
I might add parenthetically that I think Mayor Carollo deserves a pat on the back or some recognition because it was his idea [that Stierheim step in as acting manager], it wasn't mine. I shudder to think what would have happened if the commission had gone ahead and passed this budget and if this review had not taken place and the city left it alone as it has in the past, and then next February or March they wouldn't have been able to write payroll checks because they would have hit the wall. And the wall is still out there unless we get a handle on this.
What are the qualifications you are looking for in the next manager?
The commission more or less sets the qualifications but I think certainly public-sector experience, either as a manager or in a chief-executive role a minimum of five or ten years. A proven track record of judgment and integrity. Educational background is very important. Interpersonal skills, a good communicator. Someone who loves diversity; they don't have to necessarily be Hispanic or African American or a woman or a man or whatever, but someone who loves diversity and respects diversity -- it is critical. Someone the commission can trust and have faith in, who, when he or she says something, they can take it to the bank. Someone who can draw the line in the sand occasionally. [He raps on his desk twice] Someone who can say, "This is the administration's responsibility, this is my recommendation." Someone who can stand up and be counted, not rudely, not by sticking it in the face or anything, but that's what it takes. A good manager occasionally has to draw the line.
Were you the right man for the job?
I'll let the public and the commission make that decision.
What do you think?
I'm sure there is someone who could have done better and there's probably a lot who could have done worse. I gave it everything I had, and I have a lifetime of experience. Hopefully I'll be judged fairly. I am personally confident that I have done what I think I should have done, and what the mayor and the commission asked me to do.
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