Increasing Sales Taxes a Bad Idea

A little shy of two years ago, the County Commission voted 4-3 to reject a staff proposal for a ballot initiative for a half penny sales tax increase. This was the third sales tax attempt since 2012, and we are about to see the fourth attempt unveiled at the February 9th BCC meeting (Items 5D2, 5D3).

County Administrator Verdenia Baker has been shopping around her proposal for a half cent increase to fund “infrastructure” – roughly defined as roads, bridges, drainage, parks, and other physical items. The increase would last at least 10 years, and bring in more than $110M per year of new revenue for each 1/2 cent increase. The plan was defeated last time around partly because it was perceived as funding a “grab bag” of small unrelated projects, with nothing that would capture the imagination as a critical need. As one of the Commissioners put it – what is the constituency for road striping and drainage ditches?

Complicating matters this year is the “feeding frenzy” that is surrounding the whiff of new revenue. The School System, with infrastructure needs of their own, are also considering a half cent increase, and since “for the children” is more compelling than “for the drainage ditches”, the county would like to combine their request into a full cent that would be split with the District. So far the district isn’t buying it, figuring (rightly) that their chances are better alone. Not to be muscled aside, County Fire/Rescue, which is funded by its own taxing districts (county and Jupiter), has wanted since 2010 to convert some of its revenue flow from property taxes to sales taxes, and would like at least a half cent of their own. The 2010 proposal was turned down by the BCC over the complexity of dividing it up among the county and cities. And outside of the process (but perhaps thinking they can bring marketing skill to the ballot proposal), the PBC Cultural Council would like a piece of the action. The CC is funded today by the “tourist” bed tax on hotel stays and rental cars.

So is this potential 1-1/2 cent increase in the sales tax (to 7.5% if everyone gets theirs) justified?

Please consider:

  • For the current fiscal year, the county-wide property taxes levied reached an all-time high of $730M, up 9.4% over the previous year, and up 23% in just 4 years, far exceeding inflation and population growth.
  • Although the Sheriff’s portion of the budget increased by almost $30M, he deferred some capital spending into the next fiscal year and we expect an even larger increase in the 2017 budget – therefore the county will be considering another big property tax hike as well.
  • Maintaining the infrastructure is one of the basic things we expect from government, and it should not need its own special revenue source – it should be given priority in the normal budget process.
  • Sales taxes, by their nature generate revenue untied to specific spending needs and outside of the public budgeting process. This leads to a lack of oversight and wasteful spending.
  • A portion of sales taxes (40%) by statute must go to the cities. Some cities are actively opposed to a sales tax increase, and others have budgeted responsibly and do not need additional revenue sources. This is a wasteful and inefficient way to generate county level revenue.
  • For the county, the designated infrastructure “needs” are still a grab-bag of small unrelated projects, and not a compelling list of urgent priorities justifying up to $2.5B in new taxes over 10 years.
  • The schools budget proposed at the state level by the governor will provide significantly more money for the school system next year, easing any need they have for more sales tax revenue.
  • While a case could be made to shift some revenue from property to sales tax to capture more from non-residents (there is some of this in the Fire/Rescue proposal), neither the county nor the School District is considering a reduction of ad-valorem taxes.

We think raising the sales tax for any of the stated purposes is a bad idea, and if any of these do get on the November ballot, we think it will very likely be defeated by the already overburdened taxpayers.

If you agree, let the Commissioners know at or speak at the meeting.

For TAB Articles concerning the various sales tax schemes of the last few years see:

  • Mar 12 2014: Dodging a Bullet – No Sales Tax Referendum
  • Mar 7, 2014: Another Go at the Sales Tax on Tuesday
  • Dec 18, 2013: Dark Cloud of Sales Tax Referendum Hangs over the County
  • Dec 11, 2013: Another Attempt to Raise the County Sales Tax
  • May 11, 2012: “Half Baked” Tax Proposal put back in the oven for another year
  • Apr 27, 2012: TAB Opposes Sales Tax Increase
  • Dec 8, 2010: Fire/Rescue Sales Tax Surcharge to Make a Comeback
  • Final Hearing on FY2016 Budget, 9/21

    Next Monday, the Commission will take their final vote to set the county-wide millage rate at 4.7815, unchanged since 2012.

    Out of the $63M tax increase, the $775K that they did not commit to new spending will be rolled into reserves, ready for use to increase the BDB subsidy and other priorities that didn’t make the budget proposal.

    This is how the budget compares to last year:

    2015 2016 Change
    County-wide $667.3M 729.9M + 9.4%
    Library $41.5M 45.0M + 8.4%
    County Fire Rescue $196.6M 214.8M + 9.3%
    Jupiter Fire Rescue $17.6M 17.7M + 0.6%

    Keep these large increases in mind as you contemplate the coming push for raising the sales tax to pay for “infrastucture” projects that should have been addressed in the normal budget process.

    Public Hearing on the Budget – What to expect

    On Tuesday, September 8 at 6 PM, the county commission will meet to consider the 2016 budget in the first of two meetings to set the millage rate. See: 1st Public Hearing Package

    In the June workshop, before the county valuations were adjusted upward slightly, flat millage projections yielded $724.8M in property taxes – an 8.6% increase over last years budget. With the new valuations, the yield became $729.9M or a 9.4% increase.

    All of this $62.6M windfall has been allocated to new spending, including large increases for the Sheriff, another 3% across the board pay increase for all county employees, new hiring, some capital projects and increases to reserves.

    What is not being addressed in this budget is infrastructure – roads, bridges, parks, etc., which both staff and commissioners have been saying is an urgent need. Why? Because they plan to hit you with a sales tax increase and/or higher debt loads for that.

    A sales tax increase would have to be passed by referendum and is not guaranteed, but staff and commissioners appear eager to make the attempt, even Hal Valeche, who laughably calls himself a “tax cutter”. To my knowledge, there have been no county tax cuts since he has been on the dais.

    Funding critical infrastructure “off budget” is devious. One of the most important functions of local government is to build and maintain public roads and spaces. When these projects are funded as they should be, through a public budget process that allows for public input and discussion, commissioners are forced to make tradeoffs and set priorities. Because of the “Save our Homes” statute that limits homestead tax increases to the inflation rate (0.8% this year), there is a limit to the amount they can gouge the non-homestead propery owners. If they can get an “infrastructure sales tax” passed, it would generate an enormous amount of new revenue – just .5% would exceed $100M / year, and none of it would have to be justified through the budget process.

    So what to expect?

    The additional $5M that would be generated from the higher valuations (determined since June), could be used to reduce the millage and “give a little back to the taxpayer”. Do not expect that from this Commission. In the July workshop it was mostly allocated to other spending, including a mid-year pay increase for the tax collector’s office. With a little less than $1M unallocated going into the September hearing, likely recipients will be the Business Development Board (which has requested another $500K), and additional hiring in other areas.

    The maximum millage rate set in July at 4.7815, unchanged since 2012, will very likely become the adopted rate after the two September hearings, and you can expect a push in the 4th quarter for the sales tax referendum to go on the November 2016 ballot, and/or a very sizable bond issue for “infrastructure”.

    Since for homestead property owners, the 0.8% limit makes their tax increase minimal, there is not likely to be much public opposition in these meetings, and TAB does not plan to oppose the increase. The sales tax though is another matter, and now is not too early to consider what can be done to defeat such a move.

    Maximum Millage to be set Tuesday, 7/21

    The county commission will act to set the maximum millage for fiscal year 2016 on Tuesday, 7/21, as part of a regular agenda. Staff recommends holding the county-wide millage flat at 4.7815.

    Since the June budget workshop, where the flat millage would have generated $724.8M in taxes on $151.6B in valuation, the property values have been adjusted upward to $152.7B. With flat millage, that will provide another $5.1M in taxes, or $729.9M.

    Compared to last year’s adopted tax of $667M, this represents a 9% tax increase, and the largest proposed tax in county history.

    The $5.1M windfall since June could have been used to reduce the tax rate, but only Commissioners Steven Abrams and Paulette Burdick have even suggested that as a course of action. Other Commissioners scoffed as they have plans for that money.

    Most disappointing was Commissioner Hal Valeche. A founding member of TAB (see: BCC 7/20/10), his interest in restraining the growth in the budget seems to have vanished, showing that once elected to office, one’s priorities change. Commissioner Valeche favors taking all the windfall and (since all is never enough) later floating a bond issue for “infrastructure” spending. Quoted in the Palm Beach Post as the countywide spending soars above $1B, he remarked: “Government has to eventually spend some money on some basic things. This isn’t fluff.

    It should be noted that the area of “infrastructure” – roads and bridges, where it has been repeatedly claimed that more money is needed, saw no significant increase in the budget. The Engineering and Public Works department actually saw a decrease of $1.2M. Remember this when later in the year there is a discussion of the bonds and/or raising the sales tax to pay for basic maintenance of roads, bridges and parks.

    As previously noted, the taxable value increase on homestead property is limited this year by the Save Our Homes statute to about 0.8%, so this increase will be mostly borne by non-homesteaders – businesses and second home properties. As a result, homestead owners may feel they have no dog in this fight, but they are wrong. As we saw throughout the downturn, Save Our Homes just delays the tax hikes. Eventually, taxable valuations will catch up – even if market values decline.

    The agenda item on 7/21 is not expected to generate much discussion – they will set the maximum millage and go on. In the September public hearings (9/8 and 9/21) though, the Commission will have the opportunity to adopt a lower number – but don’t hold your breath.

    $725M County Budget Proposal Largest in History

    The county budget proposal, to be discussed in the first budget workshop on Tuesday, June 9 at 6pm, proposes flat millage at 4.7815 producing $57.5M in new taxes on rising valuations.

    With property values having returned to 89% of the peak seen in 2007, this budget is actually $36M higher than the record set that year, making it the highest dollar value budget in the history of the county.

    Coming on top of a $44M tax increase last year, during a time of negligible inflation and little population growth, the county is intent on taking a larger and larger share of taxpayer wealth. Many of the municipalities have already started talking about decreasing their millage – why not the county?

    As usual, the Sheriff is claiming a big slice of this largesse, but the county-wide departments are also upping their spending. There is an across the board 3% “cost of living” increase on top of a similar 3% last year. Hiring is being turned on again with 66 new positions to fill. And $19M is targeted for capital projects.

    Since the proposed millage is the same as last year, and there is a slight decline in the debt service, this budget will be presented as if it contains a slight tax rate decrease in aggregate. Don’t be fooled – at $725M, the proposed countywide taxes collected is both the largest total amount in history, as well as the largest dollar increase since 2007 at the peak of the bubble.

    So what does this mean to the property owner?

    Thanks to “Save our Homes”, the most that the taxable value of a homestead property can increase in a single year is 3% or the inflation rate, whichever is lower. This year the state has set the rate to 0.8%. With flat millage then, the homesteader’s tax bill increase is limited to less than 1% and much will be made of the fact that this is only a few dollars at most.

    Calculation of non-homestead share

    2015 Tax x 39% = homestead share
    $667M x .39 = $260M
    Allowable increase = 0.8% x $260M = $2.08M

    Remainder ($57.5M – $2.08M = $55.4M)
    to be paid by non-homesteader
    who paid
    $667M x 61% = $407M for 2015
    and will pay
    $407M + $55M = $462M for 2016
    or + 13.6%

    But what of the non-homesteader?

    There are approximately 630K taxable properties in the county, of which 298K are homesteaded (47%), and last year these paid about 39% of the taxes. Using these figures we can calculate that the homesteader’s share of the $57.5M tax increase is about $2M or about $7 per parcel on average (see box). The remaining $55M will be paid by the non-homestead properties (both residential and commercial) and they will see an increase of about 13% over last year, or about $167 per parcel. Since some non-homestead properties are capped at 10%, those not so fortunate will pay even more.

    From a historical perspective, the millage has been unchanged since 2012, when the county property valuation was about $125B. As it now sits at $152B, the county has been able to increase its “take” from the $595M in 2012 to this proposal’s $725M, up $130M, without having to increase the tax rate. How much different it was in the years leading up to the bubble bursting after 2007. For the years 2006, 2007 and 2008, as valuations climbed, a different set of Commissioners actually DECREASED the millage rate. Even though tax amounts continued to climb, their action resulted in lower taxes than flat millage would have produced.

    It is clearly time to start decreasing the millage rate, even a small amount. Maybe this Commission should study the actions of their predecessors.

    Let’s Be Honest about the “Biotech Cluster”

    Yesterday, the Board of County Commissioners voted unanimously to void their interest in the deed restriction that would have prevented “Project Diamond”, the UTC techonology showcase proposed within the “biotech campus” on the Briger tract. The other government players – Palm Beach Gardens and the state (represented strangely enough by FDEP), concur. Scripps, while disagreeing that this is an appropriate use, is not strongly objecting. Kolter (of course), the NPBC Chamber and the Economic Council are all strong supporters.

    As part of the complex and expensive (to the taxpayer) deal that brought Scripps to Jupiter, 100 acres adjacent to I-95 was set aside for use only by biotech related enterprises, all part of the vision for a “biotech cluster” in Northern Palm Beach County.

    It would seem the deed restriction standing in the way of the UTC project has been cleverly sidestepped by the BCC and the other government players. They are not “ending the Biotech era” and blowing up the restriction you see, just making a one-time exception in a way in which Scripps cannot object. In Commissioner Hal Valeche’s words: “You get a bird in the hand like this, it doesn’t come along that often.”

    UTC, being an excessively green “smart building”, that “fits the vision of high tech enterprise” may end up being similar to a biotech campus in meeting the 2003 goals, but avoiding the restriction is tacit agreement that the whole vision of the Scripps Project was flawed. “We’re not giving up on bioscience or biotechnology,” said Commissioner Melissa McKinlay. Surely not.

    The Scripps Project, by most measures, has been a failure. Although Scripps itself has met their committment in terms of jobs created, the 40,000 related jobs promised when the deal was done have not materialized. The amount of public money that was spent to bring Scripps to Jupiter exceeded $1M for each job actually created.

    The UTC HQ project will be a fine addition the county and the city, although the amount of cash and tax avoidance they are being given is distasteful to one who believes in free markets and fiscal responsibility. Clearing the way for them with a deed “exception” though is not being honest. Let’s just acknowledge that the Biotech vision was a failure and move on.

    Maybe when Kolter brings their next non-biotech project forward they will finally admit it.

    See: County OKs UTC HQ near Scripps

    Final Budget Hearing on 9/22

    On Monday, September 22, the final county budget hearing will take place at 6pm at the Government Center at 301 N. Olive.

    We still believe the Sheriff’s increase is much too large, but the show of support he mustered at the September 8 meeting has precluded any substantive discussion of the issue before the Commission.

    And although Commissioner Abrams suggested they discuss a modest reduction in millage (and the size of the $44M tax increase) at the upcoming meeting, we do not sense the rest of them want to go there.

    We therefore expect the proposed budget (4.7815 millage, $667M proposed tax) will be adopted.

    For some thoughts on the growth in the Sheriff’s budget and the Commission’s inability to deal with it, see: On Oversight, Checks and Balances, and the County Budget

    On Oversight, Checks and Balances, and the County Budget

    Our system of government imposes an arrangement of checks and balances, so no person or group can acquire unchecked power.

    When it comes to the county budget, Florida statutes clearly designate the legislative body – the county commission, to have the authority and responsibility to set priorities for spending and taxation. The administrator and his staff prepare a detailed budget, following whatever guidelines they have been given, and the commission meets in the sunshine for two workshops and two public hearings to discuss and adopt a budget before the fiscal year begins on October 1.

    WIth $4B at stake, a bureaucracy exceeding 11,000 people, and limited time available, the commissioners themselves cannot physically evaluate every line item in this very complex budget, so they focus on insuring adequate funding for their own public policy priorities while much of the budget travels on automatic. Lower level line items like specific road projects, nature centers, or other items with a constituency, only get discusssed if the staff recommends a substantial change to the item.

    What does get discussed every year is the Sheriff’s budget, since it is the major consumer of tax dollars, and outside the control of county staff.

    Most everyone will agree that the function of PBSO – law enforcement, the county jails and courtroom protection, is necessary and should be adequately funded. The agency should have modern equipment suitable to the mission, and deputies and staff should be adequately compensated in line with peer agencies around the state and in the rest of the country, and it is the Sheriff’s responsibility to request a budget that delivers what he needs.

    But what if his request is excessive?

    In the county departments, managers submit budget requests that are a mixture of needs and wish list items. It is the nature of organizations to want to grow. The Administrator and his staff must adjust the requests of his departments in creating the overall budget, so that spending growth (if any) fits within the revenue expectations of the organization as a whole. If the priorities are not in line with the Commission’s expectations, they are free to make adjustments as a part of the process. Not all wish list items are funded. Although the other Constitutional Officers have a similar autonomy to the Sheriff, they usually “play nice” with staff and their budgets are rarely controversial. They are also relatively small.

    The Sheriff’s budget is different. It is very large and complex, and very little detail is available to staff or Commissioners, and certainly not the public without a chapter 119 (open Records) request. The attitude is one of arrogance – “this is what I need and I am not willing to discuss it further.” Since the PBSO request must fit within the overall county budget, big increases there crowd out other county spending and severely limit the ability of staff or Commission to be fiscally responsible. Since they are charged with approving the budget, the public typically blames them for the excessive tax increases that result.

    This year, many of the Commissioners told us privately that they agreed the Sheriff’s budget is out of control. They know they are responsible for approving his spending, but see no effective way to challenge him. This has been true for many years, as Commissioners have come and gone. While it is true that they have the statutory authority to reduce his spending (subject to appeal to the Florida Cabinet), they do not feel they have the political basis to do so.

    This year, only Vice Mayor Paulette Burdick and Mayor Priscilla Taylor have publically questioned the Sheriff’s spending. This takes courage and we appreciate what they have said and done.

    As for the others, they are hostage to an impressive political machine that can bring enormous pressure on wavering commissioners from the districts where the Sheriff provides most of the law enforcement. Just witness the array of speakers at the September 8 hearing – HOA Presidents, concerned citizens, even PBSO employees – all came out to speak the Sheriff’s praises and remind the Commissioners what the price of resistance would be. One particular Commissioner went so far as to admit that without the support of the Sheriff, their re-election would be in doubt.

    There are about 1.3 million citizens of Palm Beach County. Almost 900,000 are voters. Yet only a small number of people follow what happens at the county, and fewer still participate in the process. We believe that most of the county residents would be surprised at the size and growth rate of the Sheriff’s budget, but they are not organized, and lack the time and assistance to provide sufficient cover to those commissioners who would act if they could. By carefully limiting the size of his increases, the Sheriff assures that we never reach that tipping point that would so outrage the citizens that they would spontaneously rise in opposition.

    Some Commissioners have suggested that next year can be different, but we doubt it. As long as the status quo goes unchallenged, or the funding mechanism for the Sheriff’s office is modified through statute or charter, the Sheriff will continue to claim whatever portion of the county budget he desires.

    First Public Hearing on 2015 County Budget

    The first Public Hearing on the 2015 County Budget is Monday evening, September 8th, at 6:00PM at 301 N Olive, WPB, 6th floor.

    Unchanged from June, the county proposes to keep the county-wide tax rate at last year’s 4.7815 despite a 7% increase in valuations, which will result in a tax increase of about $44M over the 2014 adopted tax. This follows a $23M increase last year.

    These additional funds will mostly go to the Sheriff (67%), and BCC operations (driven by salary increases).

    Note the growth in the Sheriff’s budget relative to other county departments. Those departments under control of the Administrator have tracked the valuation changes while the Sheriff showed no such restraint.

    When the real estate bubble was expanding prior to 2007, the county budget grew by leaps and bounds, because a flat or mildly decreasing millage was easier to execute than raising it during the downturn. We are about to experience something similar. Back to back increases of $23M and now $44M is our warning. If not opposed now, the county spending will climb unrestrained. Some Commissioners (Burdick, Abrams, Valeche) see this. Others (Taylor, Vana) have embraced it. Returning even a small portion of the 2015 windfall to the taxpayer would set a precedent for the future.

    The county is not alone in claiming all the valuation increase for more spending – most of the municipalities are following suit.

    If you have a homestead exemption, it may appear that the tax increase on your TRIM notice is smaller than the 7% that the budget would project. This is because valuation increases in a single year are capped at the inflation rate (1.5% this year). Rest assured that your taxes will climb every year hence until you are “caught up”, even if valuations fall. This year, the difference is made up with higher taxes on commercial property and residences without the homestead exemption, for which the cap is 10%.

    If you find all this troubling, let the Commissioners know you care about the growth in the county tax burden and spending. Attend the meeting on Monday if you can, or send them an email to

    Let them know that we don’t want to return to the spending excesses of the last real estate bubble. A decrease of millage this year, sharing the windfall with the taxpayers, would be a tangible signal of responsible governance.

    For some details of the 2015 budget, see: “2015 Budget – Flat Millage, what’s not to like? PLENTY!

    Maximum Millage Adopted

    Yesterday, the County Commission set the county-wide maximum millage at 4.7815, unchanged in four years. Reduced payments on county debt have very slightly reduced another line item called the “voted debt” millage, and they are trying to claim a slight reduction by combining the two rates, but I am sure you are not fooled. (See: Rate to ensure tax hikes for many in the Palm Beach Post, and Palm Beach County holds the line again on property tax rates in the Sun Sentinel.)

    At this millage, rising valuations will generate an additional $44M windfall for the county over last years take, a hefty increase. It is not enough for some commissioners though – Shelley Vana and Mayor Priscilla Taylor argued strongly that there are so many additional things they would like to spend money on, that we should actually increase the tax rate. Commissioner Berger joined them in supporting Vana’s motion, but it failed 3-3 with commissioner Burdick absent. Hal Valeche and Steven Abrams argued against any increase, and Jess Santamaria joined them to defeat it.

    We were surprised by this attempt to raise the rate, given the hefty tax increase already planned, and expected a pro-forma vote, coming as it did at the end of a long and involved commission agenda. As such, we did not participate in the meeting, nor call for others to do so. Only two members of the public spoke against the tax rate, Anne Kuhl and Alex Larson.

    The $44M tax increase (more than $63M in aggregate, when Fire/Rescue’s $14M hike is included), is too much, coming as it did after last year’s $22M hike. The September public hearings on the budget (September 8 and 22) are the time to make our voice heard on that subject. Although the maximum millage has been set (required to generate initial TRIM notices), the rate can be reduced in those meetings. Reductions in the rate of growth of some programs, particularly the Sheriff, are warranted.

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