Tough Budget Decisions Loom in Miami Beach

Susan Askew
Susan Askew

Tough Budget Decisions Loom in Miami Beach:

Commissioners review expenditures, grapple with lack of development

With preliminary assessed property values up only 3.4%, Miami Beach Commissioners began a tough look at the FY 2019 proposed budget. Last month, CFO John Woodruff told Commissioners it would take a 7% growth in values to balance the budget at current service levels.
Looking at historical trends, Woodruff said this week, “We’re pretty darned low compared to the last five years.” 
After negative growth during the recession years from FY 09 to FY 12, the City began a trend of growth in FY 13 with 4.9%. That was followed by some significant growth of 9.9% in FY 15, 13.3% in FY 16, and 13% in FY 17. Growth began to slow down in FY 18 with an increase of 7.7% and now a projected 3.4% for FY 19 tax collections.
At the first budget briefing since the preliminary assessments became available, Woodruff told Commissioners, “We’re at one of the lowest points we’ve been in recent history here so that’s a cause for concern.”
He further reviewed the development numbers he provided earlier via email to City Manager Jimmy Morales. New construction values this year dropped to $97m from $858.8m last year.
“Development goes in cycles,” he said. “Now it looks like we’re in a downward trend here so that’s something to keep in mind. We’re not looking at this as maybe a one-time blip. We’re more concerned that maybe we’re entering some cycle here where we’re going to see lower than average for a while.”
Morales added, “A lot of other cities, what carried them over was new construction coming online.”
Woodruff said, at this point, the City has very little detail on the numbers but when the final assessed values become available July 1, “We’ll be able to dig into those property value increases and so on and see maybe on a map for example in the city which areas – is it waterfront, is it single family homes, is it condos – what numbers are where so that we can have a much better idea of what we’re facing here.”
Finance Committee Chair Ricky Arriola said, “This is a critical point and it needs to be said publicly over and over so that people understand… In terms of what to expect for the future, I think this is what we need to be expecting for the future, low single digit property growth.”

“As far as new construction when we’re all running around politicking about stopping new development, stop the construction, all the cranes, that’s just a falsehood,” he said. “There is very little new development going on as evidenced by this number.” He asked Morales to take a look at the City’s pipeline to forecast what the next five years look like.
“This is why I’m pushing very hard for development to begin in North Beach because just look around. There aren’t many cranes in Miami Beach at this time,” Arriola said.
Commissioner John Alemán agreed. “There are not and there haven’t been. If you sort of go through the city, whether it’s Ocean Terrace, whether it’s Town Center, to the south Washington Avenue, maybe the Convention Center hotel, if the 5-600-700 Alton project can come together, but all of them are projects that – some of them aren’t even approved – all of them will have multi-year construction cycles… all of them are several years away from shifting this at all.”
Arriola added, “It’s a policy direction for this Commission and the public at large to decide, but if we want to continue the services that we all enjoy or see them increase, we’re going to have to get revenue from somewhere or we’re going to have to decrease City services, plain and simple.”
Woodruff said his team would do an analysis of the development and dig further into the property values to “try to get a sense of what is happening here.”
For now, budget cuts are on the table. He noted that for FY 2019, expenditures are up 4.0% while projected revenue is only up 2.3%, leaving a deficit of $5.431m.
However, he noted, the City added nearly a million dollars to the deficit this week when Commissioners approved police officers in Miami Beach public schools. “So we’re looking around $6m that we’re looking to find,” Woodruff said. “We’re concerned that we’re in a trend here where we’ll have relatively flat growth in property values at least for a while.”
Between now and July 13, Woodruff’s team needs to balance the budget and he asked Commissioners to look at the program budget and make suggestions for areas to cut. To help, they will be provided with a summary of programs that were expanded over the past six years along with the head count for each department and growth over the same period.
Commissioner Mark Samuelian asked for a list of potential revenue enhancements. “We talked [at the budget retreat] about advertising on the trolley inside and outside as an opportunity. Maybe there are other things we can explore. Maybe some line items we have that we could do a better job at revenue capture.”
Morales said he has “instructed staff to look across the board where there are revenue opportunities that don’t necessarily affect residents.”
Commissioner Michael Góngora noted his last stint on the Commission was “after the  bubble burst” and he said, “We found lots of opportunities to cut the budget at that time and I’m sure if we really put our minds to it, we will find lots of areas to meet this goal.”
Woodruff is proposing to leave the millage rate the same. The millage rate is the amount per $1,000 that is used to calculate property taxes. In Miami Beach, the rate is 5.7224 per $1,000 of property value.
While the proposed General Obligation Bond is separate, some of its components may have an impact on the General Fund Budget as Samuelian pointed out. “I just want to highlight the importance of focusing on operating cost impacts of any of these new investments,” he said. “We already called that out. We know it’s important but, boy, is it really important now. That may actually factor a little bit into our criteria here to make sure that we don’t make investments that we’re not going to be able to sustain given the more of a conservative outlook we need.”
Arriola responded, “It’s an excellent point and very valid. I’d balance that with the fact that these investments – if they’re well done – will increase our property values and continue the progress, success of Miami Beach. The failure to invest will, for sure, result in the decline in property values and the sustainability of our city, so operating cost associated with new investment is something to be considered in future budgets, but we also have to consider the fact of the cost of doing nothing. And, typically, if you invest your dollars well, you get a return in excess of your cost of capital.”
“It’s a mindset that I think a lot of people, particularly governments, cut back, then it becomes a self-sustaining, self-fulfilling prophecy that the decline continues,” he said. “I’d argue that the GO bond is an investment in our city to continue forward progress. We invest those dollars well, we’ll see property values increase and we’ll be able to sustain ourselves. That’s where I’m coming from with this, but your point’s well taken. Operating costs will be something we’ll have to factor in, but I already know that there’s opposition out there using that as a bogeyman to maybe derail the GO Bond and I’m not gonna be very tolerant of that kind of thinking.”
Samuelian replied, “I agree with your perspective as well. I think what it speaks to is not that we don’t want to invest, we want the right investments, and we just need to be focused on that, especially given the data we see.”
Alemán said, overall, “This is painful. We had the 3.4% growth only and only 25% of the new construction that we had in the prior year. And we are, as you can see, we’re going to have to cut services in a climate where we’re only asked for more services… all across the board we’re being asked by the community for more services, be it code enforcement, policing, park rangers, sanitation, all across the board we’re being asked by the community for more services.”
“The money has to come from somewhere,” she continued. “While I feel like anti-development sentiment is just how we roll in Miami Beach, we need to make sure that we are encouraging and approving the right development, because we need it. We need that growth to provide the services that our residents expect.”
In the areas where projects have been approved, Alemán told Morales, “We need, Jimmy, to be dedicated to providing a high level of service to those projects which have passed the approval of the residents, they’ve passed the approval of the [land use] boards. We need to make every effort to streamline our processes so that those projects can get done and producing value and benefits to the community quickly.”
Calling out proposed projects for Ocean Terrace, North Beach Town Center, the Convention Center Hotel, and the South Shore Hospital site, Alemán said, “There’s a will of the community for all four of those. We need to make sure that we’re supportive of those going forward because that’s new construction that’s a good fit, that our residents want. We need to be supportive and help get those things off the ground.”
She also urged “process efficiency” because “Once the community and the boards and this Commission say a project is okay, we gotta get those things moving because this [the revenue] isn’t getting any better.”
Arriola said, “You mention certain areas that are strategic. Washington Avenue. It’s been blighted. We put some significant resources there to help them revitalize that area and some of that’s going to start coming online soon. So, I agree with you. Let’s help them get out of the ground and help provide the renaissance to Washington Avenue. They’ve been dormant for the past couple of decades.”
“North Beach,” he continued. “We’ve talked to exhaustion about North Beach, but we still haven’t finished the overlay for Town Center. Voters voted on that. We’ve gotta move on that. I’m looking to my colleagues on that,” he said glancing toward Góngora. “Town Center, that is something residents want. It’s part of the Master Plan, but let’s get out of our own way and help that move forward. Ocean Terrace is another one. Our Convention Center hotel. These are all projects that the community wants and so, strategically we need to look at these things to try to accelerate them… Politically it’s fun, easy to use them as footballs and score easy points [with an anti-development message], but it delays the development of our city. I think we really need to be strategic and try and get those things moving.”
“We all understand numbers,” he said. “We need to come together, try to figure out where we cut [the budget], but also where we generate new tax dollars to pay for all the services that our citizens want… I want us all to be on the same side because we’re the people who slow things down and we’re the ones who can fix it. And I want us to fix things.”
Góngora responded, “Development is important to any community. I don’t think this body is anti-development as was stated. I think that the history of the Miami Beach Commission is we’ve always been cautious. We’ve always benefitted from the fact that we were such a unique island that developers were always very interested in building here so we kinda had to hold the line.”
“I think we’re all excited about a lot of the projects you’ve talked about,” he said. “The voters voted for the North Beach Town Center FAR and that has been implemented and the zoning changes will be made. We will see development happening there. Washington Avenue is well underway. I drove by last night and 6th street is down to a shell so that’s moving forward pretty quickly.”
“The concern some people on the Commission have, that I have, is I want to make sure that the development that we approve benefits our city and our public,” Góngora explained. “Yes, having increased tax dollars is a benefit because we do need to find the money for services. I agree with all of those comments, but we also have to see how we absorb that development, whether that development is coming with infrastructure improvements or transit improvements, how that new development is going to impact the City because people want something but then when you have it, you know, if it’s not done right, they can’t get from point A to point B and traffic is worse and out of control. Then we’re going to have those residents unhappy that were pushing this all along.”
Voters who wanted the increase in FAR in North Beach may ultimately feel priced out of the area, even though they wanted the development, he said. “We’re going to make North Beach so fantastic with these new stores and housing, but I believe that North Beach is going to grow exponentially. I’m not sure if that lower income population is going to even [be able to] afford to be part of our city.”
Góngora concluded, “We are moving forward… the feel is there. I think we all know we need to move forward and find income sources. I think the process in which we get there, sometimes in how we implement it functions at a different speed because I know you’re like ‘let’s do it now,’” he said to Arriola.
Alemán said, “We do have to protect our city because it is very unique and there are many development pressures, not all of which are healthy and good. My point was that when we finally get through all of that and we have agreed a project is good for the community – and you and I both know it takes a long time to get there” she said to Góngora. “Look at Ocean Terrace. Completely blighted. Washington Avenue. Completely blighted. The South Shore hospital is a empty husk…”
“I don’t think any portion of our city is blighted,” Góngora interrupted.
“Ocean Terrace is blighted. It absolutely is,” Alemán responded.
“I can assure you that there are cities across America that would take the areas that we call blighted and that would be the main part of their town,” Góngora said. “So, we’re lucky we get to say Washington Avenue is blighted… I agree with the view that it needs to be better, needs a push forward with it, but it is not blighted. I would be happy to take any of you on a tour of some of the areas [I went] when I ran for State senate in Liberty City and Overtown and Little Haiti and I’ll show you what blight really looks like. So these are areas that need to be developed but they’re not blighted.”
Alemán responded, “We don’t need to go back and forth. Let’s go to Ocean Terrace, okay? And let’s go look at that. My point is that once we agree on these projects then I’m asking the administration to remove a lot of the process inefficiencies and obstacles so that we can get to the finish line much, much more quickly.”
Morales said that process will begin shortly. The City has awarded a contract to a firm that will conduct “a review of the entire permitting system… hopefully, we can do a lot to streamline,” he said.
“On a positive note,” Morales added, “the tax news is what it is but one positive from our hospitality industry is, despite hard hits the last two years, Zika and hurricanes, we’re rockin’ and rollin’. The hotels are busy. The City is full. I think that’s going to show in our resort numbers and, hopefully, all those people will help maybe jumpstart the retail and restaurant business. So that aspect of it, at least, is going well through the City.”
The briefing was attended by six of the seven Commissioners and Mayor. Kristen Rosen Gonzalez was absent. [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.]
Commissioners will again discuss the budget at Finance Committee meetings on July 13 and July 20 budget meetings prior to public hearings in September.

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