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Vero Beach residents should brace for tax hike

STORY BY LISA ZAHNER (Week of May 15, 2014)

If Vero is to meet its capital expenses, provide essential training of police officers, reform its pension system and begin weaning itself off huge transfers into the general fund from the electric utility, property taxes will likely head upward this fall for city residents.

That’s the message City Manager Jim O’Connor conveyed to the council last week as he asked for direction on what elected officials want to see when they get their budget books on or about July 1.

If O’Connor was seeking some consensus that might prevent past budget showdowns over city spending, he failed. Council members could barely agree on when they wanted to get the budget, whether they wanted a preview before the official week of budget talks, or whether or not they needed a week of workshops.

Vice-Mayor Jay Kramer said he’d like to get a look at where staff was heading in advance to head off any major issues so maybe, for once, Vero could pass a budget in a day or two instead of a whole week of workshops in July.

Councilwoman Amelia Graves suggested O’Connor just come back with a budget in July and, if necessary, the council could tear it apart then. Mayor Dick Winger stoically acknowledged that the budget process is unpleasant however the city does it, but he recommended keeping the process the same as in previous years, ending the discussion.

Little attention was paid to the meat of O’Connor’s implicit question – how much money is he allowed to spend?

This year, the city billed property owners $4.1 million in ad valorem taxes toward its $19.4 million general fund budget for city hall personnel and operations, law enforcement, public works, the planning department, plus subsidies for parks and recreation programs. The electric and water-sewer utilities, airport, marina and solid waste department operate on separate budgets called enterprise funds.

O’Connor told the council the city has been postponing some expensive capital projects, such as a new roof on the Leisure Square Aquatic Complex. Police officers have also been putting off some costly training that needs to be completed to maintain the level of professional service city residents expect.

If he budgets for these things, O’Connor said, and follows the charge he’s been given to reduce dependence on utility transfers, “revenue streams will be affected.”

Councilwoman Pilar Turner offered the only concrete direction, saying that she wants O’Connor to hold the property tax rate to the current millage rate. Even keeping that rate of $2.03 per $1,000 of assessed property value will mean a tax increase for most homeowners as the real estate market continues to rebound from the lows experienced in 2009 and 2010.

“I’m going to keep digging in. Hold the millage rate and look for more efficiencies,” she said, expressing exasperation with her fellow councilmembers for knowing O’Connor’s item was on last week’s agenda and not coming forward with any concrete budget direction. “Nobody did their homework by even thinking about it ahead of time,” she said.

"What I got out of that was that they want me to bring to them a city manager's budget for them to alter as they deem appropriate," O'Connor said.

Reforming the city's pension system from a defined-benefit to a defined-contribution plan will cost taxpayers in the short run, starting this budget year. "We will lose 3 percent contribution to the pension program right away, so there is a cost to that. It's a short-term cost, long-term benefit where you take away future risk," he said.

”We've already taken note that we're not reducing police officers and we're considering increasing lifeguard coverage, so I guess we're kind-of out of wiggle room," O'Connor said. "We will be looking at all those items and we'll bring back a budget for the council to consider."

This past year, the budget started out in the early spring with a challenge by O’Connor to cut 10.5 percent across the board. As the council kept voting to put stricken items back into the budget, any meaningful cuts evaporated. When employee raises negotiated mid-year are calculated in, almost all the “unappropriated surplus” in this year’s budget is gone, and department heads go into the coming budget year with increased recurring personnel costs based on this year’s increases.

With regard to reducing transfers into the general fund from the electric utility, or the water-sewer utility this year, Turner said, “I think it needs to be done but I don’t think there will be council support for that. Nobody wants to be accountable.”

Vice-Mayor Kramer has pitched the idea of shutting down Big Blue and with the three-vote coalition of Kramer, Winger and Graves that has emerged in recent months, Kramer very well may have support for shutting down the plant, if the city can get regulatory approval to do so. That proposal presents a whole new set of budget challenges, Turner said.

“The whole electrical situation needs to be discussed,” she said. “If we can’t sell the utility, there are new security regulations going into effect in 2016 that we’ll have capital expenditures for, or if we want to take the power plant down we’ll have those costs. Plus they’re trying to trickle-down the rates.”

Winger and Kramer have both said they want to try to get electric rates down to narrow the gap between Vero and Florida Power and Light rates. O’Connor and the finance and electrical staff are in the process of analyzing various options for doing so, but nothing major has been put to the council for action, except for a vote to pay down a few million in bank loans earlier than scheduled to reduce annual debt payments.

The proposed 4.2 percent decrease in electric rates being recommended by the staff is not due to operational efficiencies, but to a cyclical downturn in power costs.