Two city council members tried.
They broke with the pack Wednesday and voted to lower the tax rate by a mere 5 cents.
They were told they were gambling with public money. In a pandemic. During hurricane season.
Stick with the plan, they were told. This is no time to give money back to the public.
By a 3-2 vote, Councilmembers Mark Marciano and Marcie Tinsley lost their modest tax rate rebellion.
Mayor Rachelle Litt and members Chelsea Reed and Carl Woods stood firm with the staff recommendation to hold the tax rate at $5.55 per $1,000 of taxable value, a rate that is expected to raise about $2.4 million more next year than that same rate raised this year.
Marciano and Tinsley asked for a $5.50 rate, which still would have increased taxes on most people, bringing in about $1.1 million more than this year. They pointed out that rapid growth and skyrocketing housing prices will increase property values in future years, leaving plenty of money for city priorities, even with a slightly lower tax rate.
They didn’t ask to go to the break-even point, $5.42, which would have brought in the same amount of money as this year. Maybe next year, Tinsley said.
Baby steps, Marciano said.
The city’s $109 million spending plan, with its rich $26 million reserve fund, is too conservative, he said.
City Finance Director Allan Owens spelled out how a $7 million budget stabilization reserve fund would drop over the next 10 years if the tax rate dipped even a little. He showed how a single hurricane could drain the $26 million reserve fund, forcing the city to borrow as it waited for federal checks that often take years to arrive.
He showed scenarios where a dip now would require a tax hike later, as reserves fall and the city pours $6 million into building a fire station at Avenir. He didn’t say it but he surely knows how much harder it is to get elected officials to raise the tax rate than to reduce it.
Move would save some homeowners $20
It wouldn’t be worth it to save the owner of a $450,000 home with a homestead exemption just $20 a year, the anticipated effect of a 5-cent drop, Owens said, a position supported by the council majority. With a $5.55 tax rate, that homeowner would pay an extra $35 a year.
Later tax increases to make up the lost ground would cost the typical homeowner $40 a year, Owens said.
“If we’re going to consider this 5-cent difference for 20 bucks, show me the difference,” Reed said. “I just hear it would be nice and people want it.”
Woods pointed to the expenses brought on by growth that must be met even before new homes start paying property taxes.
“Our job as council members is not to gamble with the community’s money. We’re supposed to be stable and accountable and have the vision from what we learned from staff and committees,” he said, adding, “We have to live in the ‘what if a hurricane hits us’ because it’s going to.”
Tinsley countered that those home prices are far exceeding expectations and the new communities make little demand on city services.
“I don’t gamble with anybody’s money,” she said. “I know from the past we were able to do it (lower the tax rate). We have an amazing city, we have an amazing staff and revenues have come in higher since 2015 and that’s the reason I’m supporting this because I know it’s doable.”
Marciano, who initiated the discussion, also disputed the gambling label.
“My concern isn’t that we are risking,” he said. “My concern is that we are being overly conservative in our budgets and the past has shown that we are able to do better than projections, year after year.”
‘Irresponsible’ to cut during pandemic
Litt had the last word, breaking a 2-2 tie.
“It’s important to maintain the budget stabilization and reserve balances as much as possible to augment the likely reduction in revenue until our new projects come on board and we get past the pandemic,” the mayor said. “It’s not over and its effects are not over. It’s irresponsible to reduce the millage rate during a global pandemic when financial futures are still uncertain.”
The majority cited the city’s five-member budget advisory board for signing off on the tax rate but Tinsley pointed to a recommendation in the board’s eight-page report that appeared to suggest council members should consider a lower tax rate, a point Woods disputed.
The sentence in question from the Budget Oversight Review Board’s Aug. 30 report encouraged the council “to monitor and compare the actual financial results to the 10-year financial forecast; if the actual financial results do not forecast the requirement to use 100% of the budget stabilization fund and eliminate the need to dip into the unassigned reserves, then the council should give consideration to reducing the millage rate.”
Watch the reserves, the board is saying, and if they aren’t drained, consider lowering the tax rate.
The $5.55 tax rate is expected to bring in $71.7 million, about $2.4 million more than the same tax rate brought in this year.
The $5.50 rate would raise about $70.4 million.
City budget documents show that just two years earlier, a $5.55 tax rate brought in $62.1 million. The increase since then is due to rising property values.
Will mall return to normal?
But this year’s $13.5 billion property valuation, an increase of 3.56 percent, is lower than expected, as valuations for hotels and shopping centers dropped amid the pandemic. The Gardens Mall, the second-biggest taxpayer in Palm Beach County, saw a $20 million drop in its valuation to $340 million.
The gamble council members discussed centers on whether those commercial valuations will return to past highs when property is next appraised on Jan. 1, 2022.
Additionally, while residential values are held down by homestead exemptions, the past year has seen a huge turnover in existing homes at escalated prices and the lower tax rate would be gambling that new construction at Alton and Avenir bumps up values in January.
In the 10-year projection, Owens says to maintain a $5.55 tax rate and spend $6 million on a new western fire station, the city will drain its budget stabilization reserves by 2024-25 but the buildout of the 4,000-home Avenir will help rebuild that reserve account to $2.5 million by 2030-31.
However, those projections are built on 3 percent employee raises, not 6 percent as called for in existing contracts.
The city’s unassigned reserves, at $26 million, remain little changed over the 10-year period and far above the 17 percent of expenses required by the city council.
What’s in the budget
As OnGardens.org reported Aug. 2, the budget blueprint approved on first reading Wednesday calls for adding 11 positions, including a police officer, firefighter and seven jobs at the yet-to-be-built Par 3 golf course at Avenir. A second reading is scheduled for Sept. 22.
The 11 new positions increase total employment at the city to 550. Overall personnel costs, which include 6 percent raises for most workers and pension payments, are rising by $2.5 million to $72.1 million.
One of the new positions will be a director of mobility, a response to a resident survey that listed traffic as a top concern. The city also will add a police officer in its traffic unit, a fire plans examiner to keep up with development and a mechanic.
Payments on the course’s $14 million debt will come from recreation impact, public facility impact and course fees, the budget document says.
Overall spending for city departments, excluding a $40 million reserve fund, would rise by 9.3 percent to $108.8 million. Revenues come in at $106.8 million, requiring a $2 million infusion from budget stabilization reserves.
Increases for police and firefighting
About $32 million of the $108 million goes to police, a $1.47 million increase over this year’s budget. Another $29.3 million goes to the fire department, a $1.59 million increase over this year.
Among the largest increases is a $2 million rise in spending for the catchall area of general services, which includes a 3 percent rise in garbage collection fees to $3 million, a 5 percent increase in electricity payments to $1.3 million and insurance costs of $1.1 million, up nearly 12 percent.
Spending on recreation is expected to drop by $417,000 to $1.27 million, with the biggest declines in the aquatics and general and teen programs. Parks would see a $205,000 rise to $4.7 million.
The budget for the city council would rise by nearly $49,000 to $594,053, with salaries accounting for $167,348, a 3.2 percent increase.
The largest increase in the five-person council’s budget is for “contributions and donations,” which rose to $40,000 from $20,000 last year and $7,000 two years ago.
To make the budget balance, finance officials tapped $2.8 million from the city’s $9.8 million budget stabilization reserve account. But the city also increased by $800,000 a $2.9 million reserve fund containing federal money to fight COVID, for a net decline in those reserve accounts of $2 million.
In May, the city received $2.9 million, its first of two federal 2021 COVID relief payments. Through a complicated federal formula, officials determined that $2.1 million could go toward city expenses and the remaining $815,000 could be placed in reserves.
As the difference between the decline in revenue caused by COVID-19 grows, the formula would allow the city to apply the entire remaining amount, $3.7 million, to city expenses next year.
One of the largest revenue increases comes in building permits, buttressed by construction of homes at Alton and Avenir and expected to rise 41 percent to $5.9 million.
The budget also anticipated $3.3 million in mobility fees collected from developers, a 262 percent increase. The city is defending those collections in court against a county lawsuit.
© 2021 Joel Engelhardt. All rights reserved.