Nov. 6 (Bloomberg) -- Miami’s new mayor, Tomas Regalado, wants to tear up a 24-year-old legal settlement with municipal unions that swelled the city’s pension obligations and imperils its credit rating.

Regalado, who takes office Nov. 11, wants union talks about a pension lawsuit settled in 1985 that will cost the city $90.5 million in retirement payments this fiscal year, 18 percent of its budget. He gave up a $53,000 pay raise his predecessor got and asked for his pension payout to be cut to bring unions to the table. Miami, seat of Florida’s most populous county, closed a $118 million revenue gap partly using reserves, a practice bond raters said is a threat to its credit rating.

“I’m saying to the unions: ‘The mayor took a cut in salary and pension because he understands that we are in a serious situation,’” Regalado said in an interview today at Miami City Hall. “The city attorney drafted a binding document that reduces my annual pension payment by 25 percent.”

Standard & Poor’s said in a July report the city needs to cut costs and find new revenue as Miami real estate values shrink 6.6 percent next year, cutting the city’s tax income. The S&P/Case-Shiller Miami-Area Single Family Home Resale Value Index plunged 47 percent from the end of 2006 to Aug. 31. The 20-city index is down 28 percent in the period.

‘Wipe Out Reserves’

“The city will face structural budget gaps that would wipe out reserves within two years without revenue enhancements or spending reductions, likely contingent on management’s progress with union negotiations,” said S&P, which rates the city’s general-obligation debt A+, its fifth-highest grade.

Regalado, 62, beat fellow city commissioner Joe Sanchez, 44, with 72 percent of the votes cast in the Nov. 3 election to replace Manny Diaz, who’s served the two-term limit. The mayoral election is contested without party affiliation. Regalado plans a meeting with unions about the pension issue on Nov. 16.

“The first priority of the administration has to be pensions, an issue that could break the city down,” he said. “We can accommodate a $20 million decline in property taxes, but we can’t deal with a $100 million pension payment. We believe we can reopen the Gates case,” Regalado said.

1979 Lawsuit

City workers filed a lawsuit in 1979 know as Gates vs. City of Miami that alleged pension money was being used to pay for operations. A settlement in 1985 requires the city to make catch-up payments and base contributions on market performance.

“The lawsuit is still out there until 2017, so I don’t know what they expect us to negotiate,” said Charlie Cox, president of the local American Federation of State, County and Municipal Employees union in Miami, which represents 3,635 active and retired city workers.

Regalado said he will begin work in December on the 2011 budget that takes effect July 1. Much of the assumptions will be based on the outcome of talks with unions, he said.

“I can’t imagine a faster start,” he said. “That will send a message to the bond raters in New York that we really are working together on this issue.”

Opposed Stadium Plan

Cuban-born Regalado, elected a commissioner in 1996, is the longest-serving on the current board. He’s a former White House reporter for Florida-based Spanish-language radio stations.

Regalado was the only commissioner not to vote for a $515 million baseball stadium for the Florida Marlins, which is being built with $360 million of public funds. He said today the city could still save money on a parking garage for the ballpark.

“All the proposals for the structure were around $74 million, and you could add soft costs of $10 million and still come in lower than the $94 million originally estimated,” he said. “I don’t see the need to sell $120 million of bonds, which the prior administration requested, because we don’t want to mortgage more than we need.”

To contact the reporter on this story: Jerry Hart in Miami at jhart@bloomberg.net.

Last Updated: November 6, 2009 16:41 EST