Adopting an Interim Millage Rate

State law requires every city to follow a complicated and time-sensitive process for the adoption of the millage rate (also known as the property tax rate) and budget. This year the process has become more complicated with the adoption of Amendment One last January, representing the second wave of property tax reform. In addition, the consideration of the Fire Assessment Fee by the City Commission adds more potential for misunderstanding, as City staff is recommending that the interim millage rate be adopted at 7.7459 rather than 5.7157. In this column let’s explore the requirements for the adoption of the property tax rate and budget, and why timing – as they say – is everything!

The Process

State law requires that cities have a fiscal year that begins on October 1 and ends on September 30; therefore, the adoption of the millage rate and budget for each new fiscal year takes place in September, at two separate public hearings.

State law also requires that property owners receive a mailed notice of the first of these two meetings, along with what is called the “interim” millage rate. In order to provide adequate time for the mailing of the notices, this year the interim millage rate must be adopted no later than August 4. To add a further complication to the process, state law also requires that the interim millage rate may be reduced later, at the adoption hearings… but it cannot be increased. Therefore, there may be a tendency among cities to adopt a higher interim millage rate and have the opportunity to reduce it at the adoption hearings. The untenable alternative is to set the interim rate too low and not have an opportunity to raise it upon adoption.

Millage Rates

In addition to the “interim” millage rate, there are several other rates that are calculated:

• The “rollback” rate is the rate that will provide the same amount of revenue that was produced last year;


• The “maximum” rate is the highest rate that can be adopted by a simple majority of the City Commission. The rate may be higher with a two-thirds vote.

In the past, the rollback rate was usually lower than the rate the City Commission adopted for the previous year, because when new growth is factored in, it will take a lower rate multiplied times the higher tax base to produce the same amount of revenue. However, for the first time in anyone’s memory, this year the rollback rate is higher than our present millage rate – because the value of our tax base declined (by over $18 million or 2.25%) rather than increased. The actual rates are as follows:

• Current rate 7.3521


• Rollback rate 7.7459


• Maximum rate 7.3277

City Staff Recommendation for the Interim Millage Rate

City staff is recommending that the City Commission adopt the rollback rate as the interim millage rate. The rollback rate is revenue neutral for the City, providing the same amount of revenue that was provided in the current year. If the Commission wishes, this rate can be reduced at final adoption.

Effect of the Fire Assessment Fee

City staff is also recommending adoption of the fire assessment fee and an equivalent reduction in the millage rate. The schedule for the timing of these actions is as follows:

• Second reading of the ordinance to establish the fire assessment fee ordinance August 4


• Final approval of the fire assessment fee rates September 2


• First public hearing of the millage rate (with the equivalent reduction in the millage rate allowing for the fire assessment fee revenue) and the budget September 3


• Second public hearing of the millage rate (with the equivalent reduction in the millage rate allowing for the fire assessment fee) and the budget September 16

Conclusion

The interim millage rate cannot be set assuming that the fire assessment fee and the proposed rates will be approved; therefore, the rollback rate is proposed for the tentative millage rate. If the Fire Assessment Fee and the proposed rates are approved, then City staff recommends a millage rate of 5.7157 be adopted – which is the maximum millage rate with the equivalent reduction provided by the approval of the Fire Assessment Fee and the proposed rate schedule. This would provide the revenue allocated in the proposed budget and reach the goal of significantly reducing the millage rate.

Adopting a Fire Assessment Fee

The City Commission will finally get to consider the fire assessment fee this month! First reading is scheduled for the July 15th meeting, and if approved, it will be heard on second reading at a special meeting on July 29, at 6 p.m. in the City Commission chambers at the Municipal Administration Building.

The fire assessment fee has been discussed at four open forums. It wasn’t until the final forum that City staff could present preliminary numbers on the effect of the fire assessment fee on the City budget in terms of a tax reduction – the tax base figures from the county property appraiser’s office were not received until Monday, July 7. This figure is the basis for determining how much property tax revenue will be received by the City. The formula is: Tax base x millage rate = property tax revenue. The millage rate this year is 7.3521.

The preliminary figures indicate the following:

1. If institutions such as non-profit agencies and churches are charged the fire fee, the millage rate can be reduced to 5.7157


2. If institutions such as non-profit agencies and churches are not charged the fire fee, the millage rate can be reduced to 5.7451

The latest draft of the report on fire assessment fee indicated the fees to be as follows:

• Residential & Duplexes - $68.68 per unit


• Multi-Units & Mobile Homes - $52.72 per unit


• Commercial - $88.13 per 1,000 square feet


• Industrial/Warehouse - $108.08 per 1,000 square feet


• Institutional - $13.68 per acre


• Vacant/Agricultural - $87.56 per acre

It is important to note that if the City Commission adopts the fee, the fee amount will not be set until the Commission meeting on August 26th before the Commission adopts the millage rate, budget, and all other fees for the next fiscal year.

The Effect of the Fee

A good argument can be made that user fees are more equitable than property taxes. A user fee is based on the cost to produce the service; the property tax is based on the value of one’s home and has no relation to the cost of providing services to that home or that type of house.

At the last forum, which was held on July 8th, I pointed out that while a user fee is more equitable as noted above, the imposition of the fee, coupled with a reduction in the millage rate, will affect homeowners in different ways depending on the assessed value of the house. For example, there is an exemption on the first $25,000 on assessed value of a home (assuming it is listed as the owner’s homestead). This means that anyone who owns, lives in, and has a homestead exemption on a home that is assessed at $25,000 or less has never paid any property taxes. (It has been estimated that there are about 130 such properties in the City). However, if the fire fee is implemented, this home owner will now pay a fee for fire protection – a service that is provided to the homeowner’s property but one that this exempted homeowner has never before paid for. City staff is recommending that the City implement a lifeline program for such properties, similar in concept to the lifeline rate adopted by the City Commission in the water billing rate structure last year.

Some property owners with large tax bills will see a reduction in their overall payments. Why? Because the millage reduction is going to be greater on a highly assessed property than the amount of the fire fee. Taking the amount of cash raised by the fee and lowering the millage rate by that amount is revenue neutral for the City – but as noted above, it affects individuals differently, depending on the value of the property.

Why do this?

The fire fee will raise about $1.1 million, which the City staff is proposing to reduce from the cash raised by property taxes by lowering the millage rate. Again, why are we doing this? For three very good reasons:

1. For economic development – our town is in competition with every other town in this area to attract new industry and commercial businesses. One of the cost factors that stands out is a city’s tax rate, and this year ours is the second highest in the county. We have a great opportunity here to significantly reduce our tax rate. The fact that we are raising the same revenue with a fee is not felt as much, since every city has different fees – some have stormwater fees, some have downtown development fees – we have neither of those fees.


2. More equitable - every property owner will pay what it costs our town’s fire department to serve their category of property.


3. A sure revenue stream for one of our most critical services – as the state legislature set up two waves of tax reforms that are being felt by every city and county statewide, some legislators have said there is still more cutting to be done. The fire fee provides a sure revenue stream for one of our most basic, critical services. Unfortunately, this is the only public safety service for which such a fee is permitted.

Discussing a Fire Assessment Fee

One of the topics that has brought out a great deal of citizen interest is the discussion of the feasibility of having a fire assessment fee for city property owners. There has been good attendance at the first three forums on the subject, and the City Commission is scheduled to hear the proposal on first reading at the July 15 regular meeting (6 p.m. in the City Commission chamber at City Hall). Baring technical difficulties, this meeting will be broadcast live on Comcast channel 5.

The City staff is bringing this proposal forward for the City Commission to consider. In this article, let’s take a look at what the fee is and why staff believes that this fee is a good idea to pursue.

What is the Fire Assessment Fee?

Cities and counties are permitted to assess a fee for the cost of providing fire response services. When approved, this fee appears on the property tax bill and is paid along with the annual property taxes. The residents of unincorporated Polk County pay a fee for fire service, as do property owners in the City of Avon Park. The City of Sebring is considering the fee and recently voted to proceed with it.

The fee charged to each property must reflect the actual cost of that fire department to properly respond to that type of property to combat a fire. Without the fire assessment fee, the cost of fire service is paid with general fund revenues, including property taxes. The goal of assessing the fire fee is to remove the amount of money raised by the fee from the amount needed to be raised by property taxes -–thus allowing the City Commission to lower the tax rate.

Determining the actual cost to provide fire service to each type of property is a task with very exacting requirements. A company has been hired to make these calculations, which includes a review of our fire department’s response to fire calls at all the different types of property, with the number of firefighters needed and the equipment used. Costs are then calculated, and the cost per property type is determined.

There is a great deal of work required, with its attendant cost, to set up a fire assessment fee system – so why would this be of interest to the City?

Facilitating Economic Development

One reason for considering this fee is that it helps facilitate economic development. One of the most important goals for the City is to set conditions that encourage business expansion and attract new businesses to locate here. Our county includes two other towns (Auburndale and Haines City) that are about our size, and by comparison we have the lowest tax base and the highest tax rate. The City Commission has directed that major efforts be made to encourage economic development, and this goal is included in the City’s Strategic Plan. (The strategic plan can be viewed on the City’s website: http://www.cityoflakewales.com/)

When considering whether or not to move to a community, one of the criteria that is reviewed by company representatives is the city’s tax rate. Our present rate of 7.3521 mills is not the highest in the county, but it is not far from being so. Only Mulberry is higher, at 7.8358 mills. The implementation of a fire fee would permit the City to decrease the present millage rate to a rate that is below a number of other cities in the county.

The addition of the fire fee is one of many potential fees that new business reps would expect to find in a prospective new location – but the tax rate always stands out as a key indicator.

Fairness

The argument has been made that the charging of a fee that is based on the service provided is more equitable than a tax based on the value of property. Many citizens have expressed their distain of the property tax system. Some cities seek to charge user fees as much as possible to keep their property tax rates low. User fees are directed at the persons or entities benefiting from a particular service, and thus make a direct connection to a service made available.

In this era of state legislature mandates for property tax reform, Lake Wales and many other cities are exploring the use of fees (rather than taxes) to pay for city services. This is especially important for the critical services provided by our fire department.

Next week let’s continue on this topic and take a look at the fees recommended by the independent company hired to conduct the fee study.

Dealing with the Challenges of Tax Reform

When I was in college a professor told us that the founding fathers intended for the government of these United States to be like a layer cake with three distinct layers: federal, state, and local. However, over 230 years later, our layer cake looks more like a marble cake. The federal government is setting priorities for states and local governments; the state is reviewing and approving city annexations and zoning designations; and the cities and states are lobbying Congress for favorable legislative action.

The “marble cake” analogy comes to mind when I think of Tax Reform, a popular topic in Tallahassee these days. Our town’s budget has been through one wave of tax reform, and on January 29 voters across the state will decide if there will be a second wave. What were the consequences of the first wave? And what will likely be the consequences of the second wave?

THE FIRST WAVE

In the last three years the Lake Wales City Commission has lowered the city tax rate over two mills, from 9.44 mills to 7.3521 mills. The reduction of the first mill was called for by the City Commission; the reduction of the second mill came after careful deliberation as the Commission’s response to tax reform. (Please note that some cities did not follow the path intended by the legislature and kept their previous millage with a super-majority vote of their city council.)

If our City Commission had not reduced the tax rate the second mill it would have received $921,276 more than what is now being received at the adopted millage. This was a very difficult decision for the City Commission to make in light of these prevailing conditions:

1. Just like in everyone’s household, the price of necessary items keeps going up. In the last three years, City expenditures for the listed items have gone up as follows:


• Gasoline - 40%


• Insurance - 40.2%


• Electricity - 35.2%


• Operating Supplies - 41%

Also note that in the first two years, insurance costs – health, worker’s compensation, and property – went up 74%! In response, the City Commission approved a change in the health insurance carrier and the terms of coverage. With these changes and fewer employees to be covered, insurance costs leveled off to 40% in the third year.

These and many other necessary items have risen drastically in the last three years, leaving the City (just as in your own household) with a limited ability to control these cost items. Despite the increases noted above, the overall General Fund expenditure budget for the current year is below the level it was two years ago.


2. The City has been working to build up its cash reserves since the 2001 fiscal year, when cash reserves were used to cover a serious budget shortfall. The City had made good progress towards establishing a healthy cash reserve until the unanticipated insurance costs rose drastically in the last two years. The City is committed to re-building this reserve.
   
   These reductions have been welcomed by taxpayers, especially small business owners and the owners of rental property who are not covered by the “Save our Homes” Act, (which came into effect in 1995) that capped the county property appraiser’s office assessed value of homesteaded property at 3% per year. At the same time, the difficulty of achieving a balanced budget in the face of these thorny conditions faced by the City Commission last September can now be appreciated.

THE SECOND WAVE

On January 29, voters will have the opportunity to vote on the second wave of tax reform. Next week’s column will explore the expected results and ramifications of that important election.

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.