Miami Beach property values need to increase 7% this year to hit the “breakeven” point for maintaining current City services in the 2018/19 operating budget. That was the message City Commissioners heard this week from Miami Beach CFO John Woodruff at their annual budget retreat.
The FY 2018 Operating Budget is $611m with a $60m Capital Budget. Of that, $330.8m makes up the General Fund. Enterprise Funds make up $208.9m of the overall budget and include major projects such as the Convention Center; Water, Sewer, and Stormwater operations; Parking; and Sanitation. Another $5.9m goes to the G.O. Bond Debt Service Fund.
With merit pay increases, projected health insurance costs, and pension contributions, an additional $12,175,000 will be needed in the General Fund for FY 2019. Annualizing mid-year budget additions from this year, including a new meal program at Unidad, necessary maintenance for Unidad, and education initiatives, adds another $462,000. When those items are added to this year’s budget, the City needs additional revenue to cover the costs. An increase of 7% in property values would bring in enough additional tax revenue to balance the budget.
The trendline for the past five years shows a strong recovery from the recession that may be starting to cool off. In FY 2014, property values increased 6.9%, growing 9.9% in FY 2015, 13.3% in FY 2016 and 13% in FY 2017 before dropping off to 7.7% growth in FY 2018.
Should there be an 8% increase in property values, Woodruff said, the City would have an extra $1.7m to work with.
Meanwhile, the property tax revenue as a percentage of the overall budget has declined from 59% in FY 2007 to 53% in FY 2018. Resort tax revenue, on the other hand, has increased from $19.6m in FY 2007 to $34.9m in FY 2018. The issue with the resort taxes, Woodruff pointed out, is that “they are more volatile than property taxes” and are vulnerable to unpredictable external events such as hurricanes and the recent Zika experience.
Woodruff and his team will not know what the property values and tax revenue look like until at least June 1 with final numbers available July 1. The first public look at the preliminary property value number will be at the June 8 Finance Committee meeting.
General Fund budget trends show an average growth in expenditures since FY 2008 of 3.1% with an average growth of 5% in the past 5 years.
Public safety has grown from 50% of the budget in FY 2007 to 59% today. Woodruff said that percentage was affected by the elimination of non-public safety positions which resulted in the public safety expenditures becoming a larger portion of the budget, though he said he continues to watch the trend.
He noted that the City’s average daily population (which includes tourists) has grown faster than the General Fund and G.O. Bond debt budget since FY 2007.
City Manager Jimmy Morales told Commissioners, “A lot of what we spend, particularly on public safety, is not spent all on our residents.” Public safety and infrastructure expenditures are made for the benefit of residents and tourists, he said.
Meanwhile, “The big weekends are growing in number,” Morales added. “There used to be 3 or 4” but now there are many more. The challenge in making staffing decisions, he said, is how you balance 400,000 people on the weekends and 100,000 people Monday through Friday.
Commissioner Ricky Arriola, Chair of the Commission’s Finance and Citywide Projects Committee, agreed. “We’ve become a much more year-round city,” he said.
Woodruff also presented a list of enhancements that Commissioners have talked about over the past year, seeking guidance from them on their priorities if there is extra money to allocate.
Among them, the Office of the Inspector General which will be on the ballot this November, estimated to cost $484,000 for the first partial year and then $1.1m for a full budget year. Commissioners are trying to determine what they want the duties of the OIG to be: fraud and abuse prosecution and/or efficiencies and prevention of fraud, waste, and abuse in the system.
Public Safety enhancements include full-time police officers in the City’s public schools, additional staffing for high impact weekends, and more park rangers. Currently, the Commission has authorized overtime to place police officers outside the schools until an agreement can be reached with the County on the role of officers inside. Hiring 1 sergeant and 8 officers to cover the public schools and check-ins at the largest private schools would cost more than $900,000.
With regard to the high impact weekends, Woodruff told Commissioners “We haven’t done a great job in matching up budget with actual cost.” In FY 2018, for example, the budget for high impact weekends was $1.96m while actual expenditures topped $2.8m. He is suggesting an additional $700,000 in the budget for high impact weekends to come from the resort tax revenue.
Police Chief Dan Oates told Commissioners, “We had a significant policy discussion after spring break and how things went. The clear sense we got from you was more police coverage for spring break. If we police like Memorial Day Weekend, there will be significant additional costs in terms of overtime. They are not built into this [assumption].”
Mayor Dan Gelber pointed out that a bigger spring break means more money coming in as well, allowing for an increase in expenditures on police.
Woodruff agreed. “We feel that we can afford $700,000 because we had a great spring break.”
Given the increase in the number of high impact events and the larger spring break crowd, Woodruff said we need to ask if this is our new reality and do we need to treat them the same as Memorial Day Weekend. He told Commissioners he and his team would come back with ideas.
Oates said, “There is always going to be one weekend where I need more cops than I had this year for spring break and that’s expensive.”
With regard to the resort tax revenue, Woodruff reiterated the positive revenue impact of spring break which resulted in a historical monthly high for resort tax receipts in March. Still, he said, the Finance team is not taking anything for granted on its estimates for the rest of the year. “We’re going to be pretty conservative here because hurricane season’s coming and we never know what’s going to happen. As we get further in we can revisit the numbers.”
When it comes to allocating resort taxes, Woodruff is trying to get Commissioners to be conservative on the asks. In recent years, he said “yes” to expenditures that were deemed “one-time” but “what I’m running into is they’re not really one-time.” When requests are made, he asked Commissioners to be more clear on if an item is truly one-time. “I may say we have money for one-time, but if you tell me it’s more than one time, I’m going to say no.”
“If these are things we’re probably going to expect on funding next year, I’ll treat them a certain way so I’m not indicating to the Commission that we have funding capacity we don’t actually have,” he said.
One-time expenditures in FY 2018 that may also be potential expenditures in FY 2019 include $350,000 for the Air and Sea Show, $250,000 for the Memorial Day concert, $100,000 for Memorial Day programming, and $100,000 for the International Tennis Federation tournament.
Arriola said the City needs to consider the amount of revenue events bring in while Commissioner John Alemán added, “The Memorial Day Weekend concert was for incubation. Next year it should support itself. We shouldn’t be subsidizing that.”
Woodruff said they would do a post mortem look at Memorial Day but for now he’s being “conservative and assume we’re going to make a commitment like this year.”
The City is also looking at insuring its resort tax funds to make up for disruptions caused by events such as hurricanes or another Zika-like occurance.
Morales said there will be a bump up in resort tax revenue when the new Convention Center comes back online this fall.
The City’s budget year begins October 1. Between now and then, there will be Finance Committee meetings and budget briefings. Arriola said he will use those meetings to dig into the major line items to figure out how to better contain costs. At Commission meetings, he said, “We kill each other over $50,000 awards to small pet projects.” Meanwhile, he said, annual liability payments, workers comp, and property and casualty insurance expenditures “make up $15m of our budget. Not once have we discussed that. We are not focused on where the money is. We never talk about that.” At upcoming Finance meetings he wants to drill down on the larger expenditures “by department, category, head count, and a description of what the spend is about” as part of the budgeting process.
Mayor Gelber and Commissioners Alemán, Arriola, Michael Góngora, Mark Samuelian, and Micky Steinberg attended the budget retreat along with a large contingent of staff from various City departments. Commissioner Kristen Rosen Gonzalez, who resigned her seat effective January 3, 2019 as required by law to run for Congress, was not present. [Update: Rosen Gonzalez wrote to let us know she was teaching at Miami Dade College where she is a full-time faculty member. "I promised the college I would not miss class," she said.]
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