It's Almost Time to Build Another City Budget: How That Happens

By Suanne Thamm

There is never a good time to be without a permanent, full-time city manager. But the worst possible time not to have the city’s CEO in place is the time when the budget for the next fiscal year is being crafted. And for the city of Fernandina Beach, that is now.

For the record, let’s just stipulate that no one enjoys paying taxes. Federal income taxes, the most unpopular, have become more complicated and difficult to understand over the years even though Congress allegedly looks for ways to simplify a tax code that has blossomed with ever-increasing rules and regulations. Floridians luckily do not need to deal with a state income tax. So that means that most of the financial burden required to support local government comes from property taxes, also called ad valorem taxes, paid by local property owners.

Unlike the federal government, local government cannot print money or run a deficit. By law, local government revenues and expenditures must balance out on September 30 of each year. The new fiscal year begins on Oct. 1 with a budget that has been fashioned by the city manager with input from city staff and modified via public input and/or the city commission.

The final vote to approve the millage rate is where the rubber hits the road.

More conservative city commissions will call for a cut in the tax rate or the adoption of something called the rollback rate. This rate is calculated by the property appraiser and it is predicated upon tax revenues generated the prior year and property value increases in the current year on, in general, the same universe of properties.

Under the law in Florida and a few other states, if a local government adopts the rollback rate, that government is not increasing taxes, even if the rate itself increases. That's because the rollback rate calculates taxable property values in relation to the total revenue they generate for a government. Once the rollback rate is determined, the revenues generated by new properties and improvements are considered “new revenue” for the taxing authority.

Any millage levied above the rollback rate is, by Florida statutes, defined as a tax increase. As part of the budget process, the city is required, in a specified format, to announce that the proposed budget will include a tax increase if the budget is based upon a millage rate above the rollback rate.

Many people consider the approval of the millage rate and the approval of the annual budget as two sides of the same coin. They are definitely connected, but they are different actions. The budget is presented to the city commission by the city manager, who has worked with department heads to identify priorities and costs of personnel and projects. Department heads argue their cases for any need to increase budgets or staffing levels in the next year. The city manager then decides what must be done in the next year, and what can wait; whether to contract out a service or perform it in-house. Driving the city manager's decision is direction from the city commission, which identified its priorities for the coming year during a strategic planning session held earlier in the year.

Once the city manager arrives at a total cost to provide services during the next fiscal year, he/she determines, based upon information received from the Nassau County property appraiser, what millage rate is needed to fund operations for the next fiscal year. The proposed millage rate and the proposed budget are presented to the city commission and the public during a series of publicly noticed meetings generally held in July and August.

Despite the city manager preparing and presenting the budget, it is the city commission that approves the budget (last year unanimously). After having been presented by the city manager, the city commission has the authority to revise the budget as desired.

Commissioners are caught between providing instant gratification to those taxpayers who want their rates lowered immediately and the long-term interests of the city and future residents, including improved facilities, attractive streets and neighborhoods.

Over the years past city commissions have generally caved to the vocal protestors against any type of tax increase, opting for the rollback rate. Today’s commissions must deal with the results: poorly maintained beach accesses, a 75-year-old Atlantic Avenue Recreation Center with serious structural problems (and an equally old Martin Luther King Rec Center), and a 120-year-old City Hall that would never be given an occupancy permit today because of safety and structural issues.

Adding to city costs is inflation, the need to pay more to get and retain qualified staff, the problems associated with global sea level rise, and the need to spiff up the Central Business District (Centre Street) which was last tackled more than 50 years ago.

The city commission must find creative solutions to many problems that have accrued over years of neglect in the maintenance of existing buildings and budgeting for new facilities. One positive step taken by the previous commission is underway: opening the Alachua Street rail crossing, a project first called for 40 years ago. It is now up to the current commission to chart a fiscally prudent path forward to address the many remaining issues.