Opportunity in Adversity appeared in the "Biscayne Times," a monthly publication about the Biscayne Corrridor, published by Jim Mullin.
It’s budget time for local governments, and the pressure is on like never before. The county’s newly elected property appraiser has already sounded the alarm, delivering the “bad news” to municipal leaders that the assessed value of real estate has dropped significantly. That will have a negative impact on governmental coffers. The leaders have only two choices -- they can raise their millage rate or cut their budgets.
The millage is the rate at which we are taxed on our real property, and it is set by our local elected officials. Right now in the City of Miami, we have a millage rate of 8.25, which means that we pay $8.25 for every $1000 of assessed value. So if the value of your home is currently set at $400,000, you multiply the millage rate (8.25) times 400 (the number of thousands at which your home was valued), resulting in real-estate tax imposed by the city alone in the amount of $3300. Your total property taxes, including those levied by all the taxing authorities (the county, the school district, and the state) would be $8862.
Now, let’s say your assessed value has dropped 20 percent to $320,000 and the millage rate remains the same. Your new City of Miami taxes would be $2640 -- a reduction of $660. However, here comes the rub. If the current millage rate is maintained, the available property taxes to the city government will drop by the same 20 percent. You can see the dilemma facing our elected officials. They must either raise the millage to make up the difference, cut the budget by the amount of lost tax revenue, or enact some combination of the two. No elected official wants to sit in the “raise taxes” hot seat.
Before commissioners finalize the budget, they must first set the maximum millage rate for the coming year. They can lower it at the final hour, but once set, they cannot raise it. So to hedge their bets, they will almost surely raise the millage rate to a level that will produce enough revenue to run the city -- based on projected new property assessments. Therefore it is our elected city commissioners and no one else who ultimately determine what our taxes will be.
The commissioners and the mayor set the tone for what kind of budget the city administration will propose. For instance, if the commission were to pass a resolution directing the city manager to present a budget requiring no millage increase, the administration would have clear marching orders to develop a budget significantly reduced from last year.
Such a directive would, in turn, elicit a response from the administration that services will most certainly have to be cut, usually through staff layoffs. This is known as the “sky is falling” scenario. All the doom-and-gloom predictions are delivered to the elected officials with a basic message: “Sure, we can cut the budget, but you commissioners will be responsible for cutting those services your constituents now enjoy, from police and fire protection to trash pickup, parks programs, road maintenance, and much more.”
You can imagine the commissioners squirming, then posturing, as they prepare us for the inevitable.
We taxpayers recognize the realities facing us and that something has to give. First, our basic services (police, fire, solid waste) are not going to be cut -- that would be political suicide. We will probably end up with a hybrid of the two options, some cuts and some millage increase, with the hope that property values will come rise over the next few years and the millage can be lowered.
The main issue to be addressed is how we got into this position. Governments have a tendency to grow in size and expenditures, consuming greater and greater amounts of money until the squeal factor kicks in -- that’s the point at which taxpayers start raising hell. When times are good and residents are sharing in a booming economy, it’s easier to spend more without sparking complaints.
It’s been relatively painless for our elected officials over the past few years because the cash flow has increased as a result of property values rising at an unprecedented rate. The assessed values have increased so much, in fact, that Miami commissioners have been able to lower the millage side of the tax equation while revenues actually increased. Though they boast that they’ve lowered our taxes, they really have not. They’ve just lowered the rate at which taxes are calculated. Today, however, the “cheese is binding,” as they say, and something must change. I suggest the following actions be taken by our elected officials:
• Keep the millage exactly where it is right now. Because that will mean a drop in revenue, the stage will be set for meaningful budget cuts.
• Direct the city manager to develop a “zero-based budget” (ZBB) instead of the “line-item budget” currently employed. A ZBB process requires city departments to begin with zero dollars and build up their proposed budgets from there, starting with required or mandated expenses (union contracts, service contracts, fees, and so on), and working their way toward the end product. This method quickly and clearly identifies discretionary expenditures that can be eliminated -- just as you and I do every day, depending upon our available cash.
The line-item-budget process allows departments to begin planning where they left off the previous year and make adjustments, usually by implementing five-percent or ten-percent reductions. The “damaging results” of those cuts (the doom-and-gloom scenario) are then presented to the commission by the city manager. Keep in mind that roughly 80 percent of Miami’s budget is consumed by salaries and fringe benefits. Significant cuts are simply not possible without impacting employees. By utilizing the ZBB process, the impact on the employees will be greatly reduced as unnecessary programs and expenditures are ferreted out.
• Eliminate all departments and offices not specifically called for in the city charter. It’s time to get back to basics, and there is no better way to trim the fat than to eliminate those functions not dictated by the voters of the city. If a function is truly necessary for the health, safety, and welfare of the residents, just place it before the voters and have it approved and made a mandate of the charter -- plain and simple.
It’s also time for our elected officials to bring the mission of the municipal government into focus. The pending budget crisis should be viewed as an overdue opportunity to get the city back on track providing the basic services for which it was formed, building up reserves for lean times, and making this community an affordable place in which to live, work, raise a family, and retire without the constant fear of being pushed out because of taxes that are out of control.
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