The 2012 TAB Proposal – September Update

---

The county has published their First Public Hearing package for the September 13 budget meeting. It presents a budget at the “rollback rate”, a 2.6% increase for the county-wide portion, generating $607M in ad-valorem revenue, and retains the current 2011 tax rate for Fire/Rescue and the Library System.

“Rollback rate” is a misleading term. While it is supposed to mean a rate that generates the same amount of tax revenue as the previous year, this one actually adds $4M to the county-wide tax burden. The 2.6% increase will likely understate the change to a homestead property held for some time, since the valuation may still not have caught up to the market value under the “Save our Homes” statute. Check the “TRIM Notice” that you should have received by now and look at the county tax line to see what it means to you.

Since Fire/Rescue and the Library system are not changing rates (and therefore collecting less revenue), the increase in county-wide taxes is offset by enough to hold the combined taxes to within $1M of the current budget. If adopted as proposed, this budget would collect a total of $835,144,556 in the 2012 fiscal year.

In July, the commission voted to set the “maximum millage” to the “rollback rate” of 4.8751. This means that in September they can adopt a lower rate but cannot exceed this maximum. Three of the four commissioners have indicated a desire to avoid raising the rates, and they could prevail. Therefore, to facilitate discussion, the budget proposal “bridges” the two rates by listing the programs that would have to be cut if the millage rate were kept at this year’s 4.75, but would be “restored” if the commissioners go with the higher “rollback rate”. Six separate proposals are provided, representing “steps” that add up to the $16.8M difference between the two rates (4.7500 vs. 4.8751). Controversial programs that are “restored” under the 4.8751 proposal include Palm Tran fares, lifeguard funding, nature centers, some financialy assisted agencies and about $12M in PBSO appropriations (less $5M in “excess fees”).

---

The first three points of our TAB proposal for this budget year are unchanged from July, but we have added a fourth point which reflects a conclusion drawn by Florida TaxWatch in their recently published study – namely that county fund balances are excessive compared to either our peer counties or objective measures of “prudent reserves”.

The TAB Proposal

1. Maintain the county-wide millage at 4.75
2. Take the majority of cuts from PBSO, not the county departments
3. Take action to reduce the inventory of county property and reduce the debt
4. Cover any remaining shortfall from current fund balances (reserves) which are excessive compared to peer counties.

We also want to see a charter amendment for a county version of “Smart Cap” placed on the 2012 ballot. Detailed arguments for each of these can be found later in this article.

Background

---

Last year, TAB was formed in July, after the county budget process was well underway.

After researching the growth in county spending for the period 2003-2011, we concluded that it had grown 11 times the population growth and 3 times the rate of inflation. For FY2011, the proposed budget raised the millage by more than 9% on top of an increase of more than 15% in the previous year. Although the ad-valorem equivalent (and the total amount of collected taxes) declined in the 2011 fiscal year with the steep decline in property valuations, those with homestead properties saw their taxes go up.

Overall spending, propped up by state and federal stimulus funds, continued to increase in 2011 and only now is declining a bit. (See % changes from a 2003 baseline in the chart below). Adopted tax followed the valuation curve upwards until 2007 where after a slight decline as excessive reserves were burned off, it has been relatively flat, even as the economy has been in decline and valuations have plummeted. Ad-valorem equivalent (which is spending minus non ad-valorem revenue) has declined since 2010, while spending has been supported by intergovernmental grants.

With the weak economy and double digit unemployment in the county, we thought another tax rate increase was wrong, and argued for keeping the millage flat at 4.344. As part of the proposal, we went through the staff’s “green” and “blue” pages, and made specific spending cut proposals totalling over $50M, argued for deferring raises in Fire/Rescue and PBSO, and listed $100M in capital projects that could have been deferred.

In meetings with the individual commissioners, we made our case and had a productive dialogue, but were not persuasive enough to carry the day against the hordes of special interests (including PBA members supporting the Sheriff’s budget) that flooded the meetings and lobbied the commissioners to keep the taxpayer money flowing. The final budget passed with a 9.3% rate hike on a 4-2 vote, with commissioners Abrams and Santamaria voting against, and the district 2 seat vacant after the resignation of Jeff Koons.

This year we started earlier and have focused on educating community groups about the budget history, preparing them to join the discussion armed with the proper facts.

• The Sheriff submitted a budget request with spending that is 4% higher than last year, mostly to cover raises under the collective bargaining agreements in place until 9/2012. In the flat millage budget, he is being asked to cut 5% more than he saves with FRS, but so far has been unwilling cut any deeper.
• The property appraiser, who had been projecting a 6% decline in valuations this year, has softened his outlook to a 2.3% decline.
• FRS reform, passed by the legislature and signed by the Governor, will result in savings to the county departments, PBSO and Fire/Rescue of $15.4M, $20.6M, and $11.6M respectively (by our calculations). Note: The county shows the PBSO savings to be $18M.
• Although the difference between last year’s adopted tax ($603M) and the tax generated by flat millage this year ($591M) is only $12M, cuts are necessary because the “hole” is really $45M. This is explained (although not to our satisfaction) by “decrease in one time funding sources”, “increases in general fund transfers”, and other matters. See: County Budget Update – July 8

The following is an outline of the “TAB Proposal” for 2012:

The 2012 TAB Proposal

---

1. Maintain the county-wide millage at 4.75
   • County-wide property tax rates have risen 25.6% in the last two years alone
   • Although the total taxes collected have declined over the same period, those with homestead properties saw double digit increase in their county taxes
   • This year, the reduction in valuations has slowed from an expectation of -6% to a more modest -2.8%, reducing the pressure on the budget and millage rate
   • TAB estimates that reforms to the Florida Retirement System (FRS), passed by the Legislature, will result in a $48M savings to the county this year ($20.6M in PBSO, $15.4 in county departments, and $11.6M in Fire/Rescue). This should be used to hold or reduce the millage, not for new spending on programs or salary increases.
   • The county is still experiencing double digit unemployment and slow economic growth. This is not the time to be raising taxes.
   • Thankfully, the Fire / Rescue and Library MSTUs are not projecting an increase in tax rate.
2. Take the majority of cuts from PBSO, not the county departments
   • County-wide ad-valorem taxes pay for the county departments and the constitutional officers, including the Sheriff. In the last 8 years, PBSO has grown from 46% of the budget to 58%.
   • Most of the growth in the PBSO budget has been in personal services costs (salary and benefits), and PBSO deputies are now compensated more than 30% above the national average for similar positions.
   • Measured against a hypothetical population+inflation cap since 2003, county departments are now comfortably under the cap (although they exceeded it in the boom years by a cumulative amount of $50M). PBSO has greatly exceeded the cap in each year, with a cumulative overspending (versus the cap) of $500M in the 8 years. (See charts below)
   • The Sheriff provides only the statutory minimum of budget data to the county (and the public) so it is difficult to see where the money is being spent. Through Chapter 119 (open records law) requests, TAB has determined that almost all the spending growth has been in salaries and benefits for employees covered by collective bargaining agreements, not in operating costs.
   • The reduction to PBSO from $470M to $448M in the submitted budget would meet our criteria if allowed to stand.
3. Take action to reduce the inventory of county property and reduce the debt
   • Florida TaxWatch has conducted a Palm Beach County Study funded by the PBCA and others, that created an inventory of underutilized land and other property owned by the county, and compares our debt and capital programs to our peer counties. This study can be used as a blueprint for action to reduce the debt (currently $1600 per county resident with interest costs estimated at 14% of taxes collected) and make plans to sell off assets like Mecca Farms.
   • The Clerk and Comptroller has identified the county-wide debt (including the Solid Waste Authority) as being significant already, and it is about to be increased even further with the building of the waste to energy facility and the convention center hotel.
   • During the boom, windfall tax receipts were used to start projects that committed the county to long term debt that is difficult to justify now that the boom has ended. We need a plan to correct the problems caused by earlier bad decisions.
   • TaxWatch obtained a list of vacant properties owned by the county and has assembled a table of current value. As long as these properties remain on the books it is a double liablility – there is a carrying cost associated with them and they are held off the tax rolls. Many of the over 2400 properties listed in the PAPA database as belonging to the county should be sold, even at a loss.
4. Cover any remaining shortfall from current fund balances (reserves) which are excessive compared to peer counties
   • The TaxWatch Study analyzed unreserved fund balances against peer counties as well as against an objective measure of “prudent reserves” for a government entity, even one within a hurricane zone.
   • They concluded that the Palm Beach County fund balances are way in excess of what is needed and should be utilized to fund current spending until the balances fall at least below 40%.
   • Sufficent fund balances exist in excess of a 40% cap to fund any shortfall this year and can be used in lieu of raising the tax rate.

It should be noted that items 3 and 4 can be used together. Property can be sold over the next 1-2 years and the proceeds can be used to replace fund balances used to fund current expenses. Asset sales can also be used to retire debt.

This year’s TAB Proposal is really not asking that much. With the smaller decline in valuations and the large savings from FRS reform, there should be very little difficulty in making the modest cuts that will be necessary to avoid an increase in the tax rates.

---

Smart Cap

Separate from the TAB Proposal for the FY2012 budget cycle, but important for long term budget restraint is a charter amendment to bring the state level “Smart Cap” proposal (SJR958) to the county. This will be a separate track, aligned with the charter review process, but if you agree with it, please mention it in the context of the budget discussion.

Adopt a “Smart Cap” charter amendment for county government

• The state-wide “Smart Cap” (SJR958) will be on the ballot in 2012. What is good for the state is good for the county.
• “Smart Cap” limits the revenue that can be collected to last year’s cap plus an adjustment factor that reflects inflation (change in Consumer Price Index) and population growth – an objective measure of “appropriate spending”.
• Although the decline in valuations has currently dampened the large increases in county spending that occurred during the boom, spending has continued to rise, even last year. When “normal” returns to the real estate market, a cap could prevent the out of control spending that occurred during the bubble.
• Unlike Colorado’s Taxpayer Bill of Rights (TABOR), a smart cap is based on last year’s cap, not on last year’s revenue. That prevents the “ratcheting down” of the cap that caused problems in that state during a recession.
• A well designed Smart Cap can provide emergency override (Supermajority BCC vote) and exemptions for unfunded mandates and other areas identified by the League of Cities as as problematic.

Growth in ad-valorem equivalents compared to hypothetical “Smart Cap”

---