At a recent budget meeting, Miami Beach CFO John Woodruff told the Mayor and Commissioners the additional bump in values means the City will receive $1.4 million more in property taxes but cautioned that most of the increase in taxable property values came from new construction. Existing values increased 0.8%.
According to the July 1 numbers, Miami Beach’s overall taxable property value was $41.7 billion, with new construction adding $1.3 billion, “four times more than normal,” according to Woodruff. Four properties generated 77 percent of the new construction values – Palazzo Del Sol/Della Luna at Fisher Island ($383.8 million), the Ritz Carlton Residences ($323.2 million), Eighty Seven Park ($218.7 million), and L’Atelier ($86.3 million).
Woodruff anticipates the new construction number will come back to normal next year which gives him concern for FY 2022. The City’s fiscal year runs from October 1 through September 30.
“Based on this, we probably have not bottomed out and we’re leaning awfully close to zero [on existing property values] which is always concerning,” he told the Commission. In addition, he is worried about commercial property valuations due to the impact of COVID-19.
Commissioner Ricky Arriola, chair of the Commission’s Finance Committee, emphasized the point. “A lot of these properties are going to start being reappraised… With high vacancy rates, I think they will be successful in their readjustments downward,” he said. “Our existing property base, particularly commercial, is not looking good.”
“There’s not going to be a quick rebound. Unless we’re aggressive at cost containment, cost cutting, it’s going to be really tough,” Arriola warned. “If we don’t approve development, it’s going to be more difficult.”
With the increase in property tax revenue – $1.4 million from the increase in values and another $1.9 million as a result of the decrease in Redevelopment Agency values – the City is able to use less of its reserve funds after also taking into account budget reductions. During the first round of discussion, the City thought it might need $15 million in reserves to balance next year’s budget, then reduced it to $10 million. As of now, estimates indicate a need of $8 million. The City is required by law to have a balanced budget.
Prior to the COVID-19 crisis, the City had $80.6 million in General Fund reserves. Projections include using $2.8 million to balance this year’s budget. Using $8 million next year would leave a balance of $69.8 million, “well above two months of reserve,” Woodruff said. “That leaves us in a very strong financial position going into hurricane season and the uncertainty going into [the fall].”
The Resort Tax Reserve Fund was at $15.2 million pre-COVID. The City projects using $5 million through the end of this fiscal year, leaving $10.2 million.
The use of reserves does not include COVID-19 related expenses that are considered reimbursable.
Impact of COVID-19 on Miami Beach Convention Center Revenue and Reserve FundThe COVID crisis is also impacting the Convention Center Reserve Fund which stood at $12.9 million at the end of FY 2019. Closed since mid-March, the current assumption is that the Convention Center could “burn through $8.8 million of that reserve,” Woodruff said, though he acknowledged “that number could be a little bit worse,” depending on when events can restart.
With no events through September 30, $4 million is needed from reserves. The number assumes $2.2 million in revenue from the U.S. Army Corps of Engineers for the Alternate Care Facility that has been at the ready since April to handle any overflow of COVID-19 patients from local hospitals. Though the Corps has a lease through September 6 with an option to continue for another 30 days, the facility has not treated any patients.
An additional $4.8 million in reserves is projected to be used during FY 2021 to balance the budget due to the continuing impact of COVID-19 on events.
Spectra, the operator of the Convention Center, informed the City that “17 events with a net revenue of $1.7 million would be at risk if events were not able to be held during the first [fiscal] quarter (October through December 2020),” according to a memo from City Manager Jimmy Morales. “Of the $1.7 million, half of the amount would be attributable to Art Basel (room rental is at $750,000).” Currently, Art Basel is planning on hosting its December event but extended the withdrawal date for exhibitors to October.
“Spectra confirmed that they have a contingency plan to cut expenses that could offset the potential loss of $1.7 million of net revenue. The expense reductions include $1.1 million in personnel cost savings (frozen positions, furloughed positions, no merit/COLA) and 600,000 in operational savings (reduction in capital expenses and various other areas),” according to the memo.
If the losses extend into the second quarter of FY 2021 (January through March), however, more reserve funds would be needed above the $4.8 million baked into the budget assumptions now.
“Spectra has identified 24 events with a net revenue of $2.2 million that would be at risk if they have to be canceled or rescheduled,” Morales wrote. Given the front-loaded cuts, Spectra’s capacity to reduce expenses in the second quarter is estimated to only be $700,000, meaning a deficit of $1.5 million that would reduce the Convention Center reserve fund further.
“I would be very surprised if we ended up into contingency 2” assuming zero events from January through March, Woodruff told Commissioners. “But at this point no one can really see the future… I feel comfortable we have a good plan in place as we face what happens in the next few months.”
Property Trend AnalysisAt the July budget meeting, Woodruff also presented an analysis by ICF on recent property value trends commissioned by the City. Following a “clear downward trend in the last three years,” the City wanted to understand what factors could be contributing to that.
The analysis included data from the County Property Appraiser from 2012-2018 as full 2019 detailed data was not available at the time.
According to ICF, overall assessed values have grown citywide since 2012 “but the growth rate has slowed notably since 2016.” The analysis focused on Miami Beach and does not compare local trends to the broader Miami-Dade County or other regional property markets.
ICF took a look at thirty-one factors which were “analyzed for association with property value trends” including year built, luxury status, neighborhood amenities, environmental factors, parcel and road elevation, crime, and walkability. Market segments analyzed included neighborhoods and property types (e.g. residential or commercial).
According to the analysis:
Properties built in the last 10 to 20 years depreciated most quickly.
Citywide, residential properties subject to nuisance and King Tide flooding grew more slowly than other properties, as did properties with lower elevation roads. The trend varied by neighborhood.
Luxury property values are declining in most neighborhoods, relative to non-luxury.
Areas that declined in value (2016-2018):
West Avenue commercial
City Center entertainment and condos
South Pointe condos
Flamingo Lummus condos
Normandy Shores condos
The entertainment/tourism property type is described as “restaurants, theaters/auditoriums, nightclubs, golf courses, hotels/motels, recreational areas, and properties that have a ‘tourist attraction’ or ‘entertainment’ or ‘entertainment’ use.”
The relationship of nuisance flooding to property value growth rate varied by neighborhood:
The relationship of road flood risk to property value growth also varied by neighborhood:
ICF left the City with some “Key Open Questions” including:
Will these trends persist through 2019? How will 2019 data alter this picture?
How do these trends compare to other markets in Florida and the U.S.?
What is the outlook for assessed values?
What is driving some of these trends?
What is the effect of the City’s investments on these trends?
How can the City encourage development that is likely to result in greater property appreciations (e.g. policies/programs/incentives)?
Despite the budget challenges, no change is proposed in the operating millage rate which is used to calculate property taxes though your taxes would increase if your property value increased. The debt service fee, however, will increase as payments on the first tranche of the General Obligation Bonds approved in 2018 kick in.
The first public hearing on the budget will be September 16th with the second on September 29th.
Memo and attachments on the ICF analysis
July 24 Finance Committee materials
July 17 Finance Committee materials