Sales Tax Increase – Are the intended uses lawful?
As you probably know, the County Commission voted 5-2 to proceed with a 1% sales tax referendum for the November election. Ballot language is expected to be voted on at an upcoming meeting.
Under the terms of the proposal, the $270M annual proceeds are distributed as follows:
| 48.0% | $130M | School District |
|---|---|---|
| 27.5% | $74M | County |
| 18.5% | $50M | Municipalities |
| 4.5% | $12M | Cultural Council Projects |
| 1.5% | $4M | Economic Development |
A sales tax can only be imposed under the rules established by Florida Statutes 212.055 “Discretionary sales surtaxes; legislative intent; authorization and use of proceeds”, which spells out how proceeds may be used.
Specifically, it says in 2(d): “The proceeds …. shall be expended … to finance, plan and construct infrastructure; to acquire land for public recreation, conservation or protection of natural resources ….”
Section 2(d)1 provides a definition of “infrastructure”, which includes construction and improvement of public facilities, acquisition of public safety vehicles and equipment, etc.
Then in 2(d)3, it says “a local government infrastructure surtax … may allocate up to 15 percent of the surtax proceeds for deposit into a trust fund within the county’s accounts created for the purpose of funding economic development projects having a general public purpose of improving local economies, including the funding of operational costs and incentives related to economic development.”
It is probably safe to assume that the school district, county and municipalities can easily identify their intended projects as “infrastructure”. The Cultural Council projects though, as they are privately owned, do not qualify. Therefore, to be able to spend money from the sales tax, the museums, theaters and other entities would have to be considered “economic development” projects.
Are they really? Do they have “a general public purpose of improving local economies”? Is improving the outside appearance of the Norton Museum really in the same category as offering an incentive to a company to move its headquarters to the county?
What about the argument that these projects encourage tourism, and thus bring jobs and economic activity to the county?
On the WPTV show “To the Point” last Sunday, Tourist Development Council Executive Director Glenn Jergensen spoke of the drivers of county tourism – specifically beaches, baseball, and the convention center. He never mentioned theaters, museums or the zoo.
The statute also says that the “economic development” money needs to be put in a trust fund, presumably to be allocated for projects that are prioritized by some process. How can it be lawful to designate a fixed 4.5% of the proceeds to the discretion of the Cultural Council – an unelected board representing private interests?
The Cultural Council itself gets money from the bed tax and provides grants to the museums, theaters and other entities who typically have their own endowments or sources of private funding, and are not totally dependent on public money. Many of the projects intended for sales tax dollars were already in the pipeline and would happen with or without public funds.
It would seem that allocating 4.5% of the proceeds to these cultural projects may violate the letter of FS212.055, making the entire proposal subject to legal challenge. As such, we think the county should seek an opinion from the state Attorney General before proceeding with this ballot initiative.
As the municipalities are in the process of deciding whether to sign an interlocal agreement in support of the package, they too should be concerned. If any of you plan on attending your city or town’s meeting on the subject, consider bringing it up.
Sales Tax Referendum Gathering Steam
The county commission will vote Tuesday whether to ask the voters to raise the county sales tax from 6% to 7%. (Agenda Item 5B1)
After aborted attempts in 2012 and 2014, when a majority of the board thought the proposal was “half baked” and the need not urgent enough to convince the voters to cough up several billion over ten years, this time no one will say that the proposal hasn’t been finely tuned.
To her credit, County Administrator Verdenia Baker has put enormous energy and thought into lining up partners and getting potential opponents on board. She has made countless trips to the District, the League of Cities, business groups, city and town governments, and even homeowners associations to solicit ideas and sell the concept.
The School District has bought in, voting to partner up and accept just 48% of the take – less than they would have received with a go-it-alone half cent increase “for the children”.
The cities have also rallied to grab a piece of the potential windfall, producing a detailed wish list of projects to absorb their 18.5% – many of which would never have been conceived under their own municipal budgets.
And the master stroke was to bring in the Cultural Council as the tip of the spear. Acting in a capacity that can be looked at as “fee for service”, the Cultural Council is the hired gun whose “One County, One Plan, One Penny” campaign is already cranking up. The School District and the County Government are prohibited by law from engaging in political campaigning to pass a measure favorable to them, but the Public/Private Cultural Council is under no such restraint. Their 4.5% of the proceeds (about $122M over 10 years) is payment rendered to convince the public that this tax increase is to their benefit.
If it passes, the county will receive 28.5% of the proceeds, and although it is an “infrastructure surtax”, intended for maintenance of roads, bridges and facilities, much of the money is earmarked for new capital projects. It even contains a $27M “Economic Development Fund” for unspecified projects “to attract, retain, and expand businesses to improve the local economy.”
We think this a bad direction for the county, but there is enough muscle behind the proposal, that keeping it off the ballot would seem unlikely at this point. Only one Commissioner has signaled his opposition (Hal Valeche, to his credit), and the usual folks who oppose tax increases – such as the Economic Council, the Palm Beach Post editorial board, even some TAB partners, are either supporting the proposal or remaining neutral.
If you would like to go on record as opposing this referendum, send an email to the BCC or speak at the meeting on Tuesday.
Here are some things to keep in mind:
- It is a net tax increase of $220M per year – there is no talk of reducing ad-valorem taxes
- It is not subject to the scrutiny applied to items in the annual ad-valorem budget
- It creates an incentive to make purchases outside the county (both Broward and Martin are at 6%)
- It is regressive
- It is not an “infrastructure maintenance” tax, but includes many new capital projects
Sales Tax Proposal Sent Back for More Info
During a long meeting that stretched from before lunch until 5pm, the Board of County Commissioners yesterday deferred action on staff’s sales tax proposal, sending it back for more information.
Commissioners Valeche, Burdick and Abrams all wanted to see things slow down while the proposal is fleshed out. They did not want to see ballot language as of yet, rather the next session should discuss the unknowns of the proposal, including:
– What is the project list from the cities and School District?
– How would funds be distributed among cities, Cultural Council, county, schools?
– What it looks like without the Cultural Council projects included?
– What does the Hospitality Industry think of it?
While no one wanted to shut it down, they are clearly not ready to move on it. Some concerns expressed were that the proposal had expanded way beyond the original infrastructure funding, encompassing new construction projects, equipment for the Sheriff, and other items. Commissioner Abrams worried that the “Christmas tree” could tip over from all the ornaments.
Regarding the proposals from the Cultural Council – illustrated by a procession of over 10 museum directors, zookeepers, theater managers and the like, some of the projects go way beyond what you would expect from public funding, including architectural enhancements to the exterior of existing buildings to make them more trendy.
We will wait and see. We have listed objections to the plan as it is currently known. We expect that the devil is in the details though, specifically:
– Will the cities give up some of their share to fund CC projects?
– What will each of the 39 municipalities do with their share? Will any reduce their ad-valorem?
– What effect will this have on the county Ad-valorem budget process this year?
Regarding the Fire/Rescue sales tax proposal, there were too many questions about the enabling statute to move forward at this time. In particular:
– It is unclear what happens if sales tax revenue exceeds needs – can the surplus be spent on non fire/rescue projects by the county or cities? – It needs a statute change or AG opinion.
– What would be the process for collecting and distributing the cash, and how could ad-valorem be adjusted after trim notices are sent – Tax Collector Anne Gannon came and listed some of her process issues with it.
– What does Fire/Rescue administration (ie. Fire Chief Collins) think of the proposal. (The proposal is being brought forward by the IAFF union, not Fire/Rescue management).
We will keep you posted.
Some of the organizations with whom we have spoken, are also in a “wait and see” mode. Many believe there are real infrastructure needs, but many of the add-on projects give them pause.
For the Post story on the meeting, see: Action on Sales Tax Issue Delayed.
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 BCC-AllCommissioners@pbcgov.org 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.
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