Tuesday, August 28, 2007

Effects of Tax Reform on the City Budget

In June, the state legislature held a special session and approved a two-part tax reform package. A number of newspaper stories have appeared reporting on the effect of tax reform on various cities. In Lake Wales, the effect from Part One of the tax reform is severe. If Part Two is approved, it will amount to a fiscal train wreck.

Part one of the tax reform package requires cities and counties to cut their tax rates. (The legislature also provided a method for cities and counties to exempt themselves from the requirement, but most local governments felt that the exemption was not feasible.) The formula for the tax rate cut results in a property tax reduction of 12.89% for Lake Wales --from 8,44 mills in the current yeaar to 7.3521 mills in the new fiscal year starting October 1. (A mill is $1 of tax per $1,000 of taxable value.)

Because Lake Wales is growing, even with the rate reduction next year, the tax revenue proceeds will increase by $16,251 in the General Fund over the proceeds from the current year. But to put this in perspective, had there not been tax reform, at the current 8.44 millage rate, the General Fund would have realized $921,276 next year in additional revenue over the current year.

The problem with this relatively small increase in tax revenue next year is that other revenues are also down, and expenses continue to climb. For example, revenues other than property taxes in the City's General Fund, which include state revenue sharing and other intergovernmental revenues, are down to the same level as six years ago; and the County contract for City fire services to the unincorporated area around the City has been cut 40% below what it was two years ago.

At the same time, the City has had alarming increases in some expenses. Insurance categories in the General Fund other than health insurance have increased 31.2% in the past six years! This expenditure now tops $1 million annually. Health insurance costs have risen drastically --over 20% from the current year adopted budget. Recently the City went to bid to provide other options. Other expenses gave grown to ensure that City services are adequate to cover the growing areas of the City. Furthermore, the City is still re-building reserves from the reduction in General Fund balance in the 2000-2001 fiscal year.

Tax Reform Part One had had a severe effect on the City's proposed budget, eliminating 12 positions (one person serving in a part-time position is the only actual lay-off), and not funding $487,450 in capital outlay requests including the purchase of replacement police vehicles and a fire department truck.
This part of the program will be voted on in a statewide referendum on January 29. If approved, the General Fund would lose an estimated $683,000. When coupled with the cuts already made in Part One, there would be noticeable reductions in service.

Part One of the Legislature's tax reform package did not include schools. Taxes supporting schools will be included in Part Two.

Judy Delmar contributed to this article.

Tuesday, August 14, 2007

Adopting a Budget for Fiscal Year 2007-2008

Like every city and county in our state, the City of Lake Wales is deep into the process of preparing the budget for the October 1 start of the new fiscal year. Each year in August the City Commission holds one or more budget workshops, and this year a budget workshop is scheduled for Thursday, August 23, 2007, at 5:30 pm in the City Commission chambers at City Hall. The final budget is scheduled for adoption at the regular Commission meetings in September, on the 4th and 18th, at 6:30 pm at City Hall. Everyone is cordially invited to attend these and all City Commission meetings.

The preparation of the draft budget this year has been unusually challenging. The state legislature’s new Property Tax Reform law will have a drastic effect on the City’s General Fund budget. (The General Fund provides for most City services other than utilities, street repairs, and special programs like the Community Redevelopment Agency or CRA.) At the City’s current tax rate of 8.44 mills, the General Fund would have received $921,276 more than it will at the new property tax rate mandated by the state legislature. As a result, many difficult decisions will have to be made on how to best accommodate the loss of funds. The proposed budget message can be viewed on the City’s website at cityoflakewales.com, and the full budget document can be reviewed at the Library or at the City Clerk’s office at City Hall. Anytime anyone has a question about the budget or city finances, City staff is always willing and able to provide the answer. Questions can be called in (678-4182 extension 225), e-mailed in through the city website, or discussed at the City Manager’s Open Forum held on the third Thursday of each month at 5 pm at the James P. Austin Jr. Community Center, 315 Dr. Martin Luther King Jr. Blvd.

A few highlights of the Fiscal Year 2007-2008 draft budget include:
  • Property tax rate: It is anticipated that due to the tax reform, property taxes will be reduced slightly more than one mill. This year’s rate of 8.44 mills would go to 7.3521 mills next year. (A mill is equal to $1 in taxes for every $1,000 of assessed value after exemptions.) For example, a house assessed by the County Property Appraiser with a taxable value of $125,000, minus the $25,000 homestead exemption, was charged $844 this past year in City property taxes, and would be charged $735 in the upcoming budget year, a savings to the resident of $109;

  • Utility rates: Last year at this time City staff proposed raising utility rates to cover the cost of repairing our aging water and sewer facilities. The City Commission asked that staff develop a rate to assist low income persons. The City’s engineering firm has just completed a study that recommends new rates: for the lowest water users, the rates are lower than the present rates. For higher water users, the rates are higher – significantly higher for persons using more than 15,000 gallons per month. The entire utility rate study is available on the city’s website, with review copies available at the Library and at the City Clerk’s office;

  • The CRA bond issue is included in the draft budget, which will provide funds for utility and street improvements;

  • The City Commission has emphasized code enforcement, and the draft budget continues with two code enforcement officers;

  • Proposed budget cuts include the elimination of one police patrol position; the re-assignment of the museum curator and elimination of that position, and the addition of a half-time position for a net loss at the museum of a half position; and the elimination of the following items: college tuition for city employees, July 4th fireworks, Christmas decorations, most city grant programs, travel expenses, and newspaper subscriptions; and significant reductions in mowing contracts, recreation services, and capital expenditures;

  • The City budget must be viewed in the context of the City’s overall financial situation. The City ended Fiscal Year 2000-2001 with an alarmingly low cash reserve in the General Fund and has by necessity been making efforts to re-build “fund balance” every year since then. It is presently projected that just over $200,000 would be available to contribute to General Fund balance at the end of next year. At this rate, it will take us another five years or more to reach our General Fund cash reserve goal.
In most years, the budget discussions receive relatively little citizen input. This year, because of the changes proposed, City officials are encouraging more input and discussion. Your thoughts, comments, and input are most welcome.