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Statement of Stephen Herbits Miami City Commission Meeting

May 8, 2014

Overview. The rationale for building the private mega-development on Watson Island in the center of the Biscayne Basin, which has now been amended to include "phased" development (among other changes), is outdated, contains serious flaws and carries potential hazards for the city's taxpayers and citizens.

My comments here are not intended as a criticism of the City's original agreements. However, in the year 2014, the combination ofthe vast public subsidies for a private developer that this Commission is about to allow, plus the major changes in the City of Miami that have occurred in recent years, call for serious scrutiny of this proposal and, I submit, reevaluation of the community's vision for Watson Island.

Last great parcel of undeveloped land; why subsidize for private development? Watson Island is the last great parcel of undeveloped waterfront property serving the urban core. It was deeded by the State to the City for public or municipal purposes. With massive development in downtown Miami since the project was initiated in 2001, the rationale for using this great public space for private development of hotels and retail activity has completely changed.

To make matters worse, the project as now proposed involves a multitude of public subsidies that will be imposed on the City's taxpayers for the benefit of the developer.

Subsidy Because Rent is based on 2002 Appraisals. The current proposal allows Flagstone to pay rent based now and into the future on appraisals conducted in the year 2002. It is now 2014 and the land has increased in value by a multiple of almost 400%. This is not speculation, this analysis is based on appraisals the City itself conducted in 2013 for the Related Group proposal. At the time, these figures were generated for the increment of the "expanded portions" ofthe project proposed by Related, but you cannot ignore the bottom line - based on the price per square foot of comparable space, this parcel increased in value from $30 million in 2002 to $110 million in 2013. Based on the 2013 appraisals, in contrast to the current minimum rent from 2002 now set at $2 million per year, it should be over $7 million per year. Further, public records show that even officials at the Florida Department of Environmental Protection suggested that new appraisals be obtained by the City

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and a third by the State, and rents updated to current fair market value for the entire project, as the state receives rent for this project.

The public opposes subsidies to billionaires. The public has already made it clear that it opposes govenunent subsidies for billionaires, even to help the Marlins and the Dolphins. The Flagstone project is more of the same. It is undeniably a give-away ofa prized public asset to generate huge profits for a private development while the City reaps very small rewards. Without the below-market rent structure for the land, would there be a Flagstone project?

Recently, County Mayor Carlos Gimenez insisted in his very first statements on the subject, that there be no taxpayer subsidies and that market rents apply to the possible soccer stadium on public property. Moreover, I understand that the City Charter forbids this Commission from leasing public land unless it is for "fair market value." Has the Commission asked its attorneys if the current rent structure meets the requirement of Charter Section 29-B?

We were also informed yesterday that the City commissioned two new appraisals and, I might add, paid an exorbitant sum for work to be conducted in seven days, despite knowing about this issue for a year. Why are new appraisals suddenly requested by the City? Is it the Commission's intention to change the current rental structure to account for the new appraisals? And, why hasn't the public had an opportunity to review these before the Commission meeting?

The Environmental Risks Are a Form ofSubsidy to the Developer. Standards for dealing with environmental risks, which have increased, must be considered by the taxpayers.

Much of the development in the latest MUSP modification request would be located fronting the deep waters of the cruise line navigation channel, the ship turning basin, and the Intracoastal Waterway. According to scientific data and models, this creates an increased likelihood ofdamage from hurricanes, storm surge and wave impacts (due to the faster flow and higher waves that will be generated by the deep waters upon which the project will front), and the gradually much deeper waters resulting from sea level rise during the projected 75 year service life of this project. (The agencies are: the U.S. Army Corps ofEngineers, the National Oceanic and Atmospheric Administration (NOAA), and/or the Four-County Climate Change Compact ofwhich Miami-Dade County is a member.).

Moreover, recent issues with the Virginia Key wastewater plant and the Biscayne Bay under water sewer pipes are potential hazards.

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If you approve this Resolution and the project commences by June 2, it locks in the current proposal for 75 years. Do you have any confidence that the proposal has taken account of the potential to suffer massive damage in year 20 or 30 or 40 or 50 due to the unanticipated impact of these factors? Let's put all the facts on the table - this risk creates an even greater financial exposure for the City than is currently disclosed. Is there a sufficient insurance mechanism to protect the taxpayers from this risk in the current agreement? Ifnot, this is another taxpayer subsidy hidden from the public to the developer.

This concern is not some futuristic or media-conjured fantasy; it is here and now. Last month, Illinois Farmers Insurance Company filed a class action lawsuit against the city of Chicago and nearby towns accusing the city and surrounding towns of not adequately increasing their storm water storage capacity that caused heavy rainfall to flood hundreds ofhomes in 2013. The insurance company's lawsuit alleges that the Water Reclamation District of Greater Chicago, and Cook County and its municipalities should have known to increase the capacity of local storm water sewer systems because of data linking climate change to increased rainfall. Farmers claims that the defendants ignored this data and allowed a "reasonably foreseeable" rainfall in Cook County in April of 2013 to flood more than 600 homes and overflow sewage systems.

The Taxpayers and Citizens could yet again Pay for the Consequences of Failure. Flagstone's failure to launch this project for the past ten years is common knowledge throughout the community. Has the Commission investigated the reasons this developer, and this project with all of its changes and extensions, have not received any support from the financial markets all of these years?

Let's get one thing clear. Despite language in an earlier resolution extending the deadline for this project, the financial problems were not started by the global financial downturn. That did not occur until the late fall of2008, four full years after the MUSP was approved. The resolution misstates a matter of fact.

Moreover, Flagstone has failed on more than one occasion to meet its payment obligations to the City or the State in a timely manner. Public records show that even in Tallahassee, government officials had concerns about the developer's lack of progress and doubts about its ability to succeed with as-yet-to-be-defined, reviewed and approved financial backing. That is why the State amended its Modification documents to wash its hands ofany particular developer and placed the entire burden offailure on the City - the taxpayers.

If the City and State give this deal a green light and the developer fails, how do they anticipate and account for the impact, in addition to the lost opportunities they will shoulder, such a failure would have? There will be two large structures,

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535 feet and 375 feet high in the middle of an island in Biscayne Bay, as well as other complex management and financial challenges. In the case of failure, for whatever reason - financial, structural design, lack of business management, competition from the other $10 billion in downtown development, including three other major mixed used mega projects plus Merrick Park and the Design District upgrade, or just a bad idea - the taxpayer would be stuck with the need to re-sell the facilities or demolish them at an even greater subsidy or demolish them. That risk must be built either into adequate insurance provided by the developer or into the rents for the use of this public space for private profit. In either case, if not done, it is yet another taxpayer subsidy.

Increased Traffic is Harmful to Residents, the Economy, and is a Subsidy for the Developer. There has been no evaluation of the impact of the Flagstone project on traffic since 2004. With the increases in population and business development and cultural activity in downtown Miami and Miami Beach in the last decade, how can this Commission approve this project without complete, current and independent traffic studies? The adverse impact on the public of the increased traffic that has not been accounted for is another form of subsidy to the developer.

Anyone who drives on MacArthur or Venetian Causeways knows how backed up they are on weekends and many weekdays as well. Traffic will get much worse for residents, workers, shoppers, and tourists going to and from the Performing Arts Center and American Airlines Arena and other downtown destinations, Venetian, Star, Hibiscus, Palm, and Fisher Islands, all of Miami Beach from Lincoln Road south, and Miami Beach City Hall and Convention Center.

Before long, the all-important convention and event planners involving out­of-towners, vacationers, especially families, and travel agents will conclude that the gridlock on MacArthur and Venetian Causeways makes Miami Beach more trouble than it is worth, and they will take their business to competing destinations. The analogy to Los Angeles, where visitors seldom go to the beach due to the LA traffic, should be an object lesson. This would have a devastating impact on the economy of all of Miami Dade County - from businesses to professionals to investors to shopkeepers to workers -- and to local government finances as well. The damage would be exponential.

Other Subsidies and Costs. There are other forms of subsidies for which no records seem to provide an answer. What are the incremental costs to the City and

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the taxpayers for capital expenditures being provided for this particular public property over and above developments on the mainland - infrastructure, roads, water, etc., and other services - fire, rescue, police, security on the Bay, etc.? If there are unusual costs to the City being provided for this development, it is yet another subsidy unless the rent covers them?

I have also not heard anyone yet mention the costs inflicted on the City of Miami, and on the economy of the area, by Flagstone's failure to perform. Based on the 2004 fiscal and economic analyses commissioned by the City, the unrealized fiscal benefits to the City (i.e. projected impact fees, ad valorem taxes and lease payments) added up to approximately $68 million and the unrealized economic impacts (i.e. employment, payrolls, spending, etc.) anticipated in connection with the original ground lease and development approval amount to over $1.8 billion due to the ten year delay in development by Flagstone. Not only is this a cost that should be voiced and counted in the public ledger, it also raises serious questions about whether what remains of this plan is consistent with the original RFP and Referendum, which were premised on the realization of these fiscal and economic outcomes.

Using Watson Island for Private Development is a Public Subsidy by Itself. The entire rationale that drove the City's original RFP no longer apply, making raising serious questions about why the City would use this last great parcel of waterfront land in the urban core for a private project. Unlike the City's desperation in 2001, the real estate market has improved the City's fiscal situation. The City itself has cited downtown growth since the year 2000 with an 80% increase in population, 22,000 new condominiums which are 95% occupied by full time residents, 3 million new square feet ofoffice space, a total of 6,800 hotel rooms and 132,000 square feet of meeting space, and 200 new restaurants and retail shops. Market forces created the recent downtown growth, raising the question of why should the taxpayers subsidize a private developer to do more of the same on this public land on Watson Island?

The fiscal reasons prompting the City's Request for Proposals during the recession in 2001-2002 in order to generate rent to the City pale in comparison to the recent improvements in the tax base and City finances.

In sum, these subsidies, overt and hidden both, will certainly become public issues during budget and tax planning this fall.

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