The numbers are based on a “current service level budget” which represents the cost of providing the same level of service as in the prior fiscal year. It assumes no change in the operating millage rate (property taxes), a 10% increase for health and life insurance, no Cost-of-Living Adjustments (COLAs), and no new revenues or COVID reimbursement funds. The City received $37M in Cares Act funding for COVID-related cost reimbursements in FY 2021 helping to close a large budget gap following complete and partial shutdowns.
Miami Beach CFO John Woodruff said an anticipated $22M in American Rescue Plan Funding could be used to cover the $19.5M temporary, COVID-related gap in FY 2022. The City has received half of that funding to date which Woodruff said gives him confidence the other half will be forthcoming.
“The $6.2M is really what I’m worried about,” he said of the permanent funding gap. By law, the City must start its fiscal year with a balanced budget so Commissioners need to identify new funding or cut expenses to get there. The fiscal year runs from October 1 through September 30.
The gap, Woodruff, noted is “driven by the property values” which, based on preliminary numbers from the Miami-Dade County Property Appraiser, dropped 0.2% from 2019 to 2020. The property values are based on the previous calendar year which, of course, was during the pandemic. In order to balance the budget, the City needed a 3.1% increase in property values.
Woodruff believes about half of the gap can be dealt with through “different types of strategies” which would leave “$2 or $3M” in cuts that would have to be identified, “at a point,” he noted, “where this community and this body wants to ramp up.”
Anticipating a much better 2023, Woodruff asked the Mayor and Commissioners for feedback on whether they wanted to cut the budget this year “while trying to fund additional police officers and code officers” and then add it back in next year or if it was “more reasonable to bridge $3M” by using reserves and “then grow into it the following year.”
Woodruff said he would not normally recommend using one-time funds for operating expenses but given the “skewed year” with COVID and the many “indicators that 2023 is going to be really good,” he wanted to take the Commission’s temperature on how to fund the gap.
Noting the risk if the revenues did not rebound, he reiterated his belief that “Next year should be a strong year” giving Commissioners the option to “build a bridge so you don’t have disruption in public-facing services at a time when the community really needs them.”
The final property values are available on July 1 and usually change only slightly from the preliminary values. One of the factors impacting values was the dramatic drop-off in new construction from $1.3B in 2019 to $115M last year which, given the pandemic, is “not really a big surprise,” Woodruff said.
The increased sales activity this year, he said, will help in 2023. “When you know the following year is going to more than likely be good, sometimes you can build a bridge to what that year’s going to be,” he added.
In addition to anecdotal evidence in the housing market, Woodruff said he’s “hearing from hotel operators that 2021, as of right now, is better than 2019, [an] indicator at least on the commercial side that’s positive.”
“The COVID recovery stretched out longer than anyone thought,” he added, with 2023 getting “back to normal or better” but that means 2022 is “turning out to be a transition year.”
“It’s only the last 3-4 months that we’ve seen real estate activity really boom,” he said. The Finance team will continue to look at data throughout the budget planning process and report back on the trend before Commissioners vote on the final budget, Woodruff said.
“Give us enough reasons to believe that we will grow into it,” Commissioner David Richardson said with regard to using one-time funds this year to balance the budget. If the trends are right, he said, “It will make sense… to make a one-time exception but if we’re wrong, in 2023 not only would we have to make cuts, but our reserve account would also be $3M less.”
If Woodruff can provide “assurances that are reasonable,” Richardson said, “then I think that’s the way we should go so we don’t have to cut services as we’re coming out of a pandemic.”
Finance Committee Chair, Commissioner Ricky Arriola, asked for a review of potential cuts. “You’re not going to convince me that every department is streamlined.”
“We can’t assume 3% growth [in property values] every year just to balance our budget,” he said. While he agreed that “our residential market is going to hold up quite well,” he said, “I don’t think [commercial] is going to bounce back as well.” The mega-million-dollar home sales are fascinating, Arriola said, but constitute only a “very, very small portion of our residential market.”
He urged the City to “prepare for lean times until we have comfort of what our growth rate is going to be.”
Newly appointed City Manager Alina Hudak said Miami Beach is “probably the only municipality in Miami-Dade County that actually took very aggressive action in terms of cuts” during the pandemic, furloughing and eliminating some employees permanently.
“We have staff… that do two and three jobs at this point because of the level that they’ve been asked to absorb,” Hudak said. Decisions to cut further, she warned, will affect the City’s ability to meet its obligations from “a regulatory perspective, direct services perspective and to do things at the level that we’re currently accustomed to.”
Woodruff noted the City’s expenditure level has averaged 3.1 percent growth since 2007 if you exclude last year, 2.4% if you include the pandemic year. Meanwhile, the City experienced 35% more visitors over that time period. “[Visitors] drive our service levels as well,” he said.
“We’re doing a lot more than we did in 2007 with less people. Sometimes there’s tension with what you want to accomplish with the bodies and what we feel we can deliver,” he emphasized.
Reserve FundsTo get through the pandemic, the City had to dip into its reserve funds, though less than originally anticipated. The General Fund Reserve balance is currently $70.2M, down from $80.6M while the Resort Tax Reserve Fund ended the fiscal year at $10.2M, down from $15.2M.
Woodruff said here, too, the trend is looking up. During the worst of the pandemic, hotel rates were averaging under $200 a night. Now, rates are averaging $350 with occupancy trending above 70 percent for the last three months.
Resort tax collections are now “approaching robust normal level,” he said.
Because there is still some uncertainty as to what will happen now that other destinations have opened up, Woodruff said the Finance team used an 85% of normal projection for resort taxes to build the FY 2022 budget.
The elephant in the room – Spring Break.
The budget “sounds good… but this doesn’t really include Spring Break programming [or] additional police staffing for Spring Break,” Woodruff said.
For years, the City has struggled with how to control unruly crowds that descend here for the annual event, taxing patience and resources. One suggestion has been programming similar to the Memorial Day Weekend which now includes the annual Air & Sea Show.
“We have not really landed on what does Spring Break look like, how do we budget for Spring Break,” Woodruff said.
Programming has been estimated at $1.4M while enhanced policing costs about $1.0M.
Commissioner Mark Samuelian said, based on the impact he’s seen from the Air & Sea Show, he wants to see “family-friendly programming, programming that will appeal to our residents.” He does not want to see “Spring Break” programming. “I don’t think the Spring Break… activity is one we should be catering to,” he said. Many people would like to come here in March “that’s not our traditional Spring Break crowd” and that’s who he wants to cater to.
Richardson said he wants to “budget for what we know now, not pretend we’re not going to need enhanced police spending.”
“We know we’re going to spend money for enhanced policing,” he emphasized. “I believe we should budget it rather than get into March and say, ‘Where are we going to get the money?’” While the programming number is unknown at this point, the enhanced police staffing is a solid number that should be included in the budget now, he said.
Arriola who has been a strong advocate of programming Spring Break said, “That doesn’t mean you’re programming to the Spring Break crowd.” He urged programming “that’s consistent with the Miami Beach brand and appeals to our residents,” though he noted the City relies on tourists to make its budget work. “It can’t only be residents,” he said. The programming “has to make people want to travel” to Miami Beach.
He threw out the idea to “give away the Convention Center” to attract something during the month of March. “Do anything we can to try to fill hotel rooms” with a “business crowd, a different tourist market so we can put this Spring Break experience in our rearview mirror as soon as possible.”
Gelber said, “We don’t want to program to simply entertain people who are coming here as a right of passage… I think we’re going to have to program things that fit who we are as a real cultural destination.”
“It’s a great idea to figure out how we leverage this structure,” he said of the Convention Center where the budget retreat was taking place. The City could provide “huge discounts,” he said. “I think we have to be more aggressive. I think that’s a great idea.”
Later in the day, Convention Center General Manager Freddie Peterson noted two events had already been scheduled for March 2022, and another 3-4 are in the pipeline.
One thing the Commissioners present agreed on, the need to “start now” to develop a Spring Break plan.
Commissioner Michael Góngora said, “We talk about it every year and we never do anything” during budget planning and then it becomes a last-minute conversation. “Doing nothing has gotten very expensive [with] policing, a lot of overtime, and people are very unhappy.”
“I’m happy to consider all types of alternative events, symphonic events, a country music festival,” he said, throwing out ideas.
Richardson agreed. In his two years on the Commission, he said, Spring Break has been something talked about “at the last minute.”
“Let’s put it in the budget. Let’s not pretend it’s not going to happen and at the last minute we look for the money,” he said. “By October 1 we should have a general idea of what we want March of 22 to look like, that’s six months out… If we don’t move on it now, we’ll get to October and we won’t talk about it and then we’ll get to January and we’ll only have two months” left to plan.
Woodruff said his team would put money into a contingency account as the budget discussions continue.
He implored Commissioners to avoid the temptation to add items to the budget. “There are a lot of different needs,” he said. “We really need your help to slow the spending especially over this next year… Your CFO is asking you… please try to limit additional asks in the budget to help make this plan work” and allow the City to “grow into these various different high priority needs that we have” over the next couple of years.
Convention Center FundThe Convention Center Reserve Fund had been sitting at a healthy number pre-COVID but, by the end of FY 2022, it could be in the red. To fill the gap left by the COVID shutdown, nearly $5M was needed in FY 2020 and $8.2M in FY 2021 to cover the base operations of the closed facility, though the State did pay rent briefly to use it as an alternative in the event COVID cases overwhelmed local hospitals. The facility was never used to house patients.
The Convention Center has begun to ramp back up but there are long lead times for scheduling major events. As a result, another $548K may be needed in the next year, leaving a $530K deficit in the Convention Center Fund, but Woodruff noted, “Planned events are trending up so this amount may decrease.” Any deficit would need to be covered by the Resort Tax or General Fund.
Peterson said, “The outlook is very positive… We’re projecting in the next fiscal year at least 45 events.” He complimented the City for “the job you’ve done.” And the early actions the Convention Center took to put safeguards in place around meetings, gave meeting planners confidence, he said. “We did three site tours today. There’s a tremendous amount of activity that’s happening right now.”
Over the last year, he said, his team managed costs, treating the Convention Center “like our own business.” Now, Peterson said, “We’re firing on all pistons here across the board. We’re very confident in what we’re doing.”
The Convention Center reserve number, Woodruff said, includes all contracts that are firm to date.
“The number’s getting steadily a little better,” he said. “I think this is the worst it could be and I’m guessing it will be better, on the plus side, not by much but the following year we’ll start to rebuild. If we can just ride this out through the rest of this year and into next year, I think we’re going to be okay,” but he said he wanted Commissioners to know “We are depleting the fund. Eyes wide open. Make sure everyone’s aware.”
Peterson added there are “14 annuals, steadies in the stable” giving momentum for the coming years. “[We’re] building into that. I’m extremely confident that it is going to come back much stronger.”
The “sweet spots” according to Peterson are the tech, finance, and health industries.
“We’re starting to see big whales coming in here,” he added.
In her first budget retreat as City Manager, Hudak, said, the budget is “the single most important thing that any government does any year… It sets the tone and sets the policy for the year.”
She commended the “strong, aggressive cost containing team” at the City that shepherded it through the COVID crisis. Now, she said, “All of the economic indicators are good. There are a lot of things to be hopeful about.”
Image at top: Shutterstock
Spring Break photo: Miami Beach Police Department