In a Blow to the County, Palm Coast Explores Switch from Sales Tax to New Utility Taxes
FlaglerLive | March 27, 2012
Last Updated: 3:04 p.m. with County Administrator Craig Coffey’s reaction.
Palm Coast is considering realigning the kind of taxes and fees residents and businesses pay, eliminating a half-cent sales tax surcharge and an $8-per-household stormwater utility fee but replacing both with steep new taxes on utilities.
That Palm Coast is considering moving away from the half-cent sales tax signals a potential break with the county, as well, that would cause the county to restructure its own revenue sources if it’s to keep up with its infrastructure obligations. Those obligations include a new office for the sheriff, an expansion to the jail, and an expansion to the library–all services Palm Coast and other cities need, but that the county pays for disproportionately, according to County Administrator Craig Coffey.
“If they want to do this, they’re going to hurt the other cities,” Coffey said. “The reality at the end of the day is the county has to figure out a solution to fund its infrastructure.”
One essential difference between the sales tax surcharge and the utility taxes is this: the sales tax surcharge is generated by whoever shops in the county and the city, but it’s split with the county, disfavorably to the city. The utility tax revenue is generated on the back of Palm Coast residents, but the entirety of the revenue stays in Palm Coast’s coffers. Landon says that would ultimately cost Palm Coast residents less.Another essential difference is the consequence to the county: absent Palm Coast, Flagler County’s government, which has been benefiting from the half-cent sales tax, could not continue levying it in its current form, since it’s been doing so jointly with the city. “I do not believe that the county has that option to add that half-cent sales tax unilaterally,” Palm Coast Mayor Netts said. That would seriously hurt county revenue.
“That’s not a correct statement,” County Administrator Craig Coffey said later this afternoon. The statement is correct only in so far as the current sales tax agreement is concerned. But the county has the authority to levy six additional types of taxes , including sales tax surcharges, unilaterally.
The Palm Coast City Council discussed the switch this morning, but made no decision. Rather, it was sending a signal to the county that the last 10 years’ way of doing business may not be the next 10 years’ way. But the council is open to discussion, though Coffey said the commission is not likely to agree to an arrangement where county priorities are short-changed.
“I don’t think it’s fair for us to presume how the five county commissioners feel until we’ve asked them,” Netts said. “On the other hand if three, four or five of them want to take a greater share of the half-cent sales tax, I think our voters need to know that.”
The split in sales tax surcharge revenue has been a bone of contention between the county and the city. The county is getting too large a share, by Palm Coast’s calculations.
The city and the county have two options for splitting the money: a so-called “state default formula,” but that formula assumes a 50-50 split in population and business distribution between the county and the city. The county wouldn’t mind. But that’s obviously not the distribution in Flagler County, where Palm Coast has a much larger share of population (79 percent) or businesses (76 percent of sales tax collections). The other option is an agreement between the two governments based on a new formula. Currently, the city controls 65 percent of the half-cent sales tax revenue, for a total of $2.6 million a year in revenue. That’s not to the city’s satisfaction.
Palm Coast sees several advantages to dropping out of the sales tax surcharge formula and adopting its own utility taxes. The city would generate the same revenue it’s generating now from the sales tax, at least initially. It would generate considerably more revenue over time.
“You’re basically pushing it from your water bill to your electric bill,” Palm Coast City Council member Jason DeLorenzo said.
The city council could do the switch without asking voters’ permission: the switch would require only a vote of the council. And unlike the sales tax surcharge, which has to be renewed through voter approval periodically, the utility taxes don’t have to be renewed. They historically become a permanent part of residents’ and businesses’ bills, with the added advantage—to politicians facing voters, anyway—of keeping property taxes low even as the overall tax burden rises. The city would also have the option of increasing the utility taxes up to their allowable maximums (assuming it sets the rates lower, at first).
Finally, the city would not have to risk losing the sales tax revenue should voters turn down the half-cent renewal.
What’s beyond question is that Palm Coast will seek out one source of revenue or another, whatever the voters decide, because its deteriorating infrastructure leaves it no choice. And that the county will do likewise, whatever Palm Coast decides. Taxpayers could end up holding the heaviest bag.“I think they’ll hurt themselves in the long run, and their citizens,” Coffey said of Palm Coast’s move away from a sales tax. “The reality is the county will have to adopt something, and if we adopt something the citizens could end up with a double whammy if we’re to meet our responsibilities.” The county, Coffey said, is proposing to continue the existing surtax rather than move to a new tax. But the county can;t see its sales tax revenue decline and meet its obligations, he said.
“It’s just a shame that it has to go this way. I mean, it’s unfortunate,” Coffey said.
When ITT developed Palm Coast infrastructure was built in the early 1970s, with very little maintenance subsequently. When Palm Coast incorporated, its roads were in poor shape, with many stretches displaying “grassphalt”—asphalt riddled with grass growing through cracks. The city and the county floated a joint half-cent sales tax surcharge that voters approved with a 62 percent majority in 2002. By December the city’s portion will have generated $23.4 million.
“One hundred percent of that money was allocated to the road-resurfacing program,” at a rate of about 50 miles a year, Ray Tyner, the city’s planning manager, told the council. Some 550 miles were resurfaced in 10 years.
The resurfacing program is over for now. “To continue to resurface these streets isn’t necessary immediately, but there are other needs out there,” City Manager Jim Landon said.
The city has a big inventory of stormwater infrastructure, including 19 major canal structures, 72 major roadway crossing culverts and 1,555 minor ones, 1,100 miles of swales, 154 miles of drainage ditches and 26 miles of saltwater canals. Some of those are a wreck and need to be repaired or replaced. A single canal control structure (think vast drainage pipes) costs $500,000. The city has 31 such structures. Two of those structures are in critical need of repair, eight are barely less than critical. The city has 22 bridges. Five of them are rated C or D. Some of them are main arteries in and out of some neighborhoods. It costs $1 million to $2 million to repair a bridge.
Most of the city’s 550 miles are in good shape, but more than half that mileage is in the “moderate” shape category, which means those miles will be deteriorating with the years. They may not need attention now. But they will need it soon.
Maintaining the city’s paths, such as the five miles along Seminole Woods Parkway, may be another objective. “We don’t think it’s as high a priority as your stormwater and your streets,” Landon said.
Assuming the city were to take in $26 million over the next 10 years, the city administration is proposing, as one option, to spend $7.2 million repairing 9 stormwater control structures and five major crossings, $16.2 million on roads and bridges, and $2.5 million on multi-purpose paths.
The city has several options to raise the $26 million: it could raise the property tax. It could levy a new utility tax of up to 10 percent that residents will pay as part of their electricity or water bills. Bunnell and Flagler Beach, along with all the cities in St. Johns and Volusia, levy that tax. “So we are the exception out of the rule,” Mayor Jon Netts said.
“By far the exception,” Chris Quinn, the city’s finance director, said. “The majority of cities do go to the 10 percent,” he added, though they don’t have to.
Under that proposal, the typical resident would pay $106 a year, based on current rates. Florida Power & Light is requesting a substantial base-rate increase this year. If approved, that would bump residents’ costs all around, and likely put the annual public service tax above $110.
The city could also levy a “utility franchise fee,” which amounts to the same thing as a utility tax. The difference is that the tax would be levied on the totality of the electricity bill, including the bill’s fuel-supplement charge. It would typically be set at 6 percent.
Both types of utility taxes would generate $4 million a year, if set at their maximum allowable rates.
The council can approve these options without going to voters.
The council could also join the county and ask voters to approve an extension of the half-cent sales tax for 10 more years. Or it could raise property taxes to finance debt (or float bond levies), but that, too, would require voter approval.
“We look forward to meeting with our good friends,” Netts said, referring to county commissioners. The two sides will discuss the matter, along with other cities, at a scheduled meeting between all local government boards on April 11, and likely at a joint Palm Coast City Council-County Commission meeting in May.