Six years ago, the Palm Coast City Council came close to adding a pair of new taxes on electric bills to replace its stormwater fee, which was $8 a month at the time. Residents’ rebellion was swift and angry. The council backed down, and soon raised its stormwater fee to $11.65 a month. Last month it doubled it to $30 two months after raising water and sewer rates 21 percent over the next four years.
And now the council is looking at those additional taxes on electric bills again: a “utility franchise fee” of up to 6 percent, and a “public service electric tax” of up to 10 percent that could add up to $15 or more on the monthly bill–not as a replacement for any existing fees or as a means of lowering other taxes, but as a net surcharge to all other existing taxes and fees. That is, as a net new revenue source.
The council this morning asked its administrative staff to draft two ordinances, each of which would lead to the potential imposition of the new tax and fee, neither of which would need public approval beyond public hearings.
The council wants new revenue to pay for a new public works facility, to pay for a new, multi-year round of street paving, and to add a new source of revenue separate from the property tax.
“We’re doing for multiple reasons,” Mayor Milissa Holland said. “One of them is finding an additional diversification of our revenue. Our auditors have very clearly said this annually, ‘You’re not being fiscally responsible by just putting all your eggs in one basket of revenue source,’ so we’re sort of solving a few items from my perspective in this decision.” Holland asked the city staff to bring back a “matrix” of options that would show how the city could finance the new public works facility and its streets program without overly burdening taxpayers.
It is almost certain that the council will not impose both a franchise fee and a public service tax. A franchise fee, which would have to be between 3 and 6 percent, requires the city to enter into a 30-year agreement with Florida Power and Light. The council doesn;t want that sort of locked-in commitment. But the council is leaning heavily toward a public service electric tax, albeit with caveats. It may not impose the entire 10 percent. And if it imposes any tax, it may exempt users’ first 500 kilowatt-hours so as not to overly tax retirees on a fixed income and other low-income residents.
Whatever approach the council takes, however, will be a new and substantial tax burden on residents and businesses, adding an additional $65 a year to electric bills, and potentially close to $100 a year more. And whatever approach the council takes, it’s unlikely that it will face less of an uproar than it did in 2012, when none of the existing council members were in those seats.
This morning’s council discussion also made clear that the existing council is wrestling with the idea of those new taxes, with Bob Cuff most opposed to them because they’re regressive, and Vincent Lyon raising broader questions without quite opposing the taxes specifically. Holland and council member Nick Klufas favor a new tax, and likely the public service electric tax, though they still want to study the details.
Why did this come to be? Start with the city’s public works facility on U.S. 1.
The facility is old, getting older, and, after it was inherited from the county, for years has been in need of reconstruction. It was in need of reconstruction when when a different council and then-City Manager Jim landon pushed to build a $10 million city hall and an $8 million community center instead of earmarking some of the money toward a better public works facility, This, even though the justification for a new facility is centered on employee safety, and even though public works is central to parks and sports field maintenance, all the city’s beautification programs, the stormwater division, which maintains all swales, canals, ditches, and the streets division that maintains traffic signals, signs, roads, paving and so on.
The public works facility is not visible to the public, but it’s a beehive where fleet maintenance maintains 220 light vehicles, 352 pieces if heavy equipment and 33 fire trucks and trailers, 79 mowers and 700 hand-held pieces of equipment such as saws and weed-whackers. Its parking is inadequate. Office workers occupy decades-old structures or trailers. The facility has outgrown its needs and the 7 acres it uses.
Since 2017 the city carried out a land swap, giving up 5 acres to the north for more acreage to the south, where it had 3 unused acres, resulting in a total of 16 acres now within the property limits of the public works facility. A reconstruction plan means building two 30,000-square-foot facilities, one of them for fleet management (the Community Center, for comparative purposes, is 21,000 square feet).
Space isn’t the only thing getting outgrown.
Less than two years ago when the members of the Palm Coast City Council toured the facility they were told the upgrade would cost $6 million. In July 2017, the consultant hired to deliver a “master plan” on a new facility estimated the cost at $15 to $20 million. Today, after another tour, the council was told it would cost nearly four times the original estimate: $21.5 million.
A new tax the council claims is needed to diversify the tax base and pay for pressing needs.
Helena Alves, the city’s finance director, says the city has no revenue source to pay for that project, let alone pay for a new round of street improvements pegged at $16.4 million between now and 2023, with $7 million of that unfunded.
“We weren’t able to accommodate those projects with our current resources,” Alves said, referring to the capital-improvement plan. “So what we did is we went out and analyzed non-ad valorem revenues,” that is, revenue unrelated to the property tax, “and the reason why we focused on non-advalorem was to spread the cost not just to property homeowners, but also to renters and commercial renters, and we focused on revenues that are being used in neighboring cities around us, so we wouldn’t be unique.”
The options Alves and Interim Manager Beau Falgout presented to the council were limited to the two franchise fees, to the exclusion of any discussion of the property tax–still among the lowest in the state for a city of Palm Coast’s size–or revenue from the city’s share of the sales tax supplement it receives from the county.
Alves, however, was repeating a common but inaccurate assumption: that renters and non-property owners don’t pay the property tax. Council member Bob Cuff later sharply corrected her.
“The notion that families that rent a house or an apartment and business that rent 5,000 square feet of commercial space don’t pay ad valorem taxes is just wrong,” Cuff said. “Everybody that uses real estate, whether they own it themselves or they pay somebody else for the right to use it, is paying ad valorem taxes. I don’t know of a landlord in the state of Florida or anywhere that doesn’t set their lease rate high enough to recapture that, or just say in the lease that you’re going to pay the real estate taxes on this structure while you’re using it. I’m not saying we should go back to ad valorem and raise the millage rate, but I really want to make sure I understand what this tax is being imposed on and what the impact is aside from raising enough money to provide us with the money we need for capital improvements.”
Along those lines, the city could impose an electric franchise fee of up to 6 percent on residents’ and business’ utility bills. The franchise fee would be imposed for 30 years, locking the city into a contract with Florida Power and Light for that period. The city could alternately (or in combination) impose a public service electric tax of up to 10 percent. That tax does not expire. It would also be added to utility bills.
Many cities, including Flagler Beach, Ormond Beach, Bunnell, St. Augustine and DeLand impose the maximum 10 percent public service electric tax and, with the exception of DeLand, a franchise fee. Some cities, including Flagler Beach and DeLand, also impose a 10 percent water public service tax. (The 6 percent electric fee is applied to the entire bill. The utility tax is not applied to the fuel portion of the bill.) The city’s finance director says 80 percent of cities in the state impose either the fee or the tax, or both.
Anticipated revenue with a 10 percent electric tax would be $6.5 million a year. A 7 percent tax would generate $4.5 million. The franchise fee would bring in $4.3 million even if set at 6 percent.
Put another way, and based on figures the city administration calculated, for a house using 1,000 kilowatt-hours a month, the bill would go up by $8.10 a month, or nearly $100 a year, if a 10 percent tax was imposed, and by $5.67 a month, or $68 a year, if a 7 percent tax was imposed. It would go up by nearly $6 a month, or $72 a year, if a 6 percent franchise fee were imposed.
But those are somewhat under-estimates: According to the Florida Public Service Commission’s 2017 annual report, average monthly residential consumption for FPL customers was 1,118 kilowatt-hours per month.
“These are regressive taxes. They’re essentially a version of the sales tax.”
“These are regressive taxes. They’re essentially a version of the sales tax,” Cuff said, “and if you’ve got a homeowner that’s barely making it now, adding another 6 percent to their electric–I mean, electricity is not a luxury in Florida. I don’t think air conditioning is a luxury in Florida. So one of my concerns is, is there any minimum portion of the bill that either will not apply to, say, low-income residents.”
There is: the city could, for example, exempt the first 500 kilowatt-hours a month from the tax, thus defraying the burden for lower-income residents. Most council members liked the idea, though Holland asked for the eventual matrix to include revenue estimates if the exemption was lower than 500 kwh per month.
“I think we have to discuss it,” Cuff said, saying there’s a reason groceries are exempt from the sales tax. “For somebody that’s existing on what passes for a living wage here in Flagler County, this, added to the stormwater, this added to this, this added to that, you know, a million here, a million there, before you know it, you’re talking about real money,” Cuff said. He was the only council member to refer to the council’s recent and substantial increases in stormwater, water and sewer rates. We need to be realistic, but we need to look at it compassionate[ly],” Cuff said. “We talk a lot about workforce housing, we talk about affordability of housing.”
But Holland–who’s herself spoken forcefully in favor of workforce and affordable housing– pushed back on several occasions. “We have to figure this out,” she said. “I guess we have to find that balance of making sure we’re moving forward with these projects, not kicking them down the road for another 10 years, having something probably seriously happen in that time to one of our employees.” She said she wasn’t inclined to have both new taxes added, but she wanted options.
“These are decision points that are challenging and difficult,” Holland said. “They’re not easy for any of us sitting here, but it’s what we do.”
Vincent Ligouri, the local activist and tea party firebrand who six years ago led the fight against utility taxes, said this evening he would be “mobilizing” his ranks again and opposing the renewed initiative.