Miami Beach Faces Another Tough Budget Year

Susan Askew
Susan Askew

Miami Beach Faces Another Tough Budget Year:

Preliminary Property Appraisal Numbers Below Amount Needed to Maintain Current Service Levels

It will be another difficult budget process in the City of Miami Beach as Commissioners reconcile a smaller than needed increase in property values with maintaining current levels of City services. At the FY 2020 budget retreat, Miami Beach CFO John Woodruff told Mayor Dan Gelber and City Commissioners that, in order to maintain current service levels, a 5.6% increase in property values would be needed, 6.3% if the City were to meet its goal of not using any money from the Parking Fund for general operating expenses. The preliminary numbers released by the Miami-Dade County property appraiser this weekend show a 3% increase.
 
The 2018 Preliminary Taxable Value of approximately $38.9 billion increased to approximately $40.0 billion in 2019 Estimated Taxable Value. Existing property values showed a 2.8% increase while new construction values increased 26.3% for an overall 3% increase.
 
Prior to the release of the numbers, Woodruff told Commissioners, “I think it’s a safe bet that it’s going to be a fairly tight year.” His assessment of the real estate market: “I think we’re in a little bit of a trough of a cycle.” After double digit increases in values in FY 2016 and 2017, values began trending down in FY 2018. The City faced a similar budget gap last year. By law, the budget must be balanced when it takes effect October 1.

Commissioner Ricky Arriola, Chair of the Commission’s Finance and Citywide Projects Committee, told RE:MiamiBeach he hasn’t seen all the numbers yet but “One of the things that is abundantly clear to me is we cannot have a City budget that is based on a premise that property values have to increase 7% to handle city service levels. We have to grow government at a much slower rate than 7% because that’s unsustainable. It puts too much pressure on the City Commission to embrace new development just to meet its annual funding needs. We have to slow down the rapid pace of government growth of the last few years.
 
With the preliminary property appraisal numbers – the final numbers come out July 1 – the gap between revenues and expenses in the General Fund is estimated to be $4.9 million. (Each percentage increase in property value equals $1.7 million according to Woodruff’s presentation at the budget retreat.) That is the gap if the City continues to use $1.2 million in money from the Parking Fund which it has tried to ween itself off of in recent years.
 
The Parking Fund is one of the enterprise funds in which revenue is used to cover the costs of a system (e.g. Parking, Sanitation, Stormwater, Water and Sewer). In the case of the Parking Fund, the City has, in the past, used revenue over and above its costs for the General Fund. The amount has been reduced from a high of $8.4 million in FY 2014, 2015, and 2016 to $1.2 million in FY 2019.
 
“Over the last few years, the Parking Fund has seen substantial decreases in parking utilization due to the popularity of ride share services,” Woodruff told RE:MiamiBeach in an email. “As a result, our goal is to reduce the contribution to the General Fund to zero in the near future.”
 
If the City does not continue with the $1.2 million supplement from the parking fund this year, the budget gap would be $6.1 million. The City’s total budget in FY 2019 was $680.1 million which breaks down as a $631.4 million operating budget and a capital budget of $48.7 million.
 
The final property tax numbers are due on July 1. Woodruff told RE:MiamiBeach, “Last year the numbers increased from 3.4% to 4.0%. We hope the July 1st number increases from 3.0% to closer to 3.5%.”
 
While Miami Beach is less reliant on property taxes than other municipalities due to its resort tax, Woodruff told Commissioners at their retreat that the City’s reliance on the resort tax to fund general operating expenses has gone up over time which “means we are taking on more risk.” In FY 2019, the resort tax transfer to the general fund was 11%. In 2007, it was 8%.
 
As to resort tax collections this year, he said he’s waiting one more month to get a better idea of the trends. “Since beginning of the fiscal year we haven’t seen the kind of growth I thought would happen. We’re barely making budget,” he said.
 
In the meantime, he said, costs have gone up, “but our revenues haven’t really increased, so something has to give.”
 
“There’s a lot of pressure on new programs and enhancements at a time when property values are not growing a whole lot,” Woodruff told Commissioners.
 
As to where the City’s money goes, 74% of general fund expenditures go to personnel and salaries. Woodruff noted that public safety as a percentage of the general fund budget has increased from 50% to 58% since 2007. When trimming the budget, Woodruff told Commissioners, “You tend to not cut in public safety.” He noted some of the increased costs were due to the Emergency Management Department being moved into the Fire Department. 
 
Miami Beach Police Chief Dan Oates reminded Commissioners they added “25 police officer positions alone in the last five years” which “explains that number.” Fire Chief Virgil Fernandez noted that the addition of the North Beach fire station and lifeguard towers are also reflected.
 
The preliminary budget does not include an additional $2.6 million Oates said would be necessary to fund additional Spring Break police costs at a level equal to emergency measures taken this year to enhance police presence in the Entertainment District. Any allocation for Spring Break would come from the Resort Tax Fund, Woodruff said. Currently budgeted, $1.1 million. Added to the $2.6 million enhancement request during March, the total request is $3.7 million.

“It’s clearly unworkable to have a $4 million enhancement for police presence during Spring Break,” Arriola told RE:MiamiBeach. “So, we’re going to have to find another path. And that path will include things such as alternative programming which has been shown to work during other busy periods.” When asked about Oates’ comments at the budget retreat that there will be a transition period during the initial years of alternative programming as Spring Breakers will expect the same type of atmosphere as previous years, Arriola said, “I disagree.”
 
Woodruff told Commissioners the average expenditure growth since FY 2007 is 3.2%. In an email, Woodruff acknowledged the growth since FY 2014 has averaged 5.5% though he noted “the average of the previous seven years is 1.6%.” The Consumer Price Index (CPI) averaged 2.2% during the same 12 year period. 
 
The City’s average daily resident population is 92,000 but, according to Woodruff, the average daily population is “probably over 200,000” when you add visitors into the equation. “That average daily population has grown a lot,” he told Commissioners. That average daily population needs to be taken into account when considering how the budget has increased. If not, “you’re going to get skewed” data, he said. 
 
“The budget per Average Daily Population has increased by less than 1% since FY 2007,” Woodruff said. With the increase in visitors, “services can feel degraded” and the City feels “not as clean. The budget really hasn’t kept up with that.”
 
The number of City jobs has increased by 30 since FY 2007, Woodruff told Commissioners. “And I’m pretty sure we’re providing a helluva lot of service more than once upon a time.” The preliminary FY 2020 budget includes $6 million in “inflationary” costs, pensions, pay increases, cost of living adjustments, and an 8% increase in health insurance, along with some annualized expenditures such as the new STEAM Plus educational program and the overnight police captain for the Entertainment District. 
 
Arriola told RE:MiamiBeach, “Clearly, we have to be more aggressive in trimming government payroll. Frankly there are departments and people working at City Hall and I don’t have a clue as to what they do.” He’s advocating for a zero based budgeting approach “where you start your year from zero and rebuild your budget so that you’re justifying every person in your department at their salary level and every expense because that imposes discipline on the organization versus what we do which is carry over things from the previous year and adding 7 percent... that is not sustainable.”
 
The millage rate, or property tax, is at the “lowest in the history of Miami Beach and is 34% less than in FY 1999 and 23% less than in FY2007,” Woodruff said at the budget retreat. The preliminary FY 2020 budget assumes no change in the operating millage rate of 5.7288. [To calculate property taxes, you multiply the mill rate by the property value and divide by 1,000.]
 
With debt service on the GO Bonds approved by voters, taxes will “start to inch up” he said to cover the debt service.  Because the bonds are being issued in tranches, the increases will be spread out over 10-12 years but, he noted, “We’re not going to have the lowest millage rate anymore in the City of Miami Beach.” The new millage rate will be adopted on July 31.

Woodruff presented Commissioners with ideas for potential new revenue sources including indexing some fees to CPI, advertising opportunities on the exterior of the trolleys which is being piloted now, as well as naming rights for the new Convention Center.
 
In an email exchange asking about the potential value of a Convention Center sponsorship, Woodruff said, “Based on the comparative information, a range of $1 million to $5 million annually seems reasonable.” He expects Commissioners to consider a Request for Qualifications (RFQ) for firms that have experience in advertising and sponsorship opportunities at their July meeting.
 
In the meantime, he said, “We are researching the [Convention Center] naming rights with our Legal Department.” Naming rights would require a referendum but questions remain as to if a specific name would require approval and, if so, would a new referendum be needed whenever there was a sponsor / name change.
 
Commissioners will get their next budget update on June 14. 
 

Image: Husni Baharudin / Shutterstock
 

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