Electric Service Tax Is Back As Part of Proposed Options to Rebuild Palm Coast’s Public Works

In late 2016 Palm Coast City Council members toured the city’s 7-acre public works facility off U.S. 1 to see firsthand what the city administration says is in dire need of expansion, upgrades and reconstruction. At the time the city paid a consultant $89,000 to analyze how to modernize the facility, on the assumption that it would be a $6 million, five-year project.

The cost since rose to a projected $21.5 million, though the figure is still fluid. The question then and since has been how to pay for it, with not disagreement from council members that, as the city describes it, the facility “does not meet current operational needs and is deficient in safety, technology, capacity, traffic flow, and workflow.”

Council members again toured the facility late last year, and in October discussed adding a public service electric tax or an electric or utility franchise fee to customers’ bills to pay for the public works facility expansion and for what the city considers to be a large backlog of unfunded street improvements that could cost around $3 million a year.

Both taxes were considered almost seven years ago, drawing staunch public opposition and forcing the council to back down. When the council discussed the taxes again last fall, the same thing happened: residents rose in opposition. The council tabled the proposal and asked its staff to come up with alternatives, both to phase the project and to to find different ways to pay for it.

“We’ve been presented with a very serious need in our city,” Mayor Milissa Holland said at the time, “not only having to do with safety issues, but efficiency issues, and one not up to code and ADA requirements and everything like that. But I think everyone can agree the facility needs to be built. It’s just how we go about finding the money to do it.” She said the need will compel finding “a different revenue source.”

The city administration Tuesday returns to the council with alternatives, though those alternatives are not significantly different from the core proposals in October. While the franchise fee has been dropped altogether (it had no support from any council members last fall), two of three phased options again call for an electric public service tax as a source of revenue. In the current proposal, the service-tax approach would cost residents either $1.87 or $3.12 a month more (or either $22.44 or $37.44 a year more), less than what was projected last fall.

“We’re putting all the options forward,” Interim Manager Beau Falgout said. “We’re not making a strong recommendation on what option.” That’ll be up to the council, as “This one is sort of a big long-term policy budget policy decision.”

Two of the council members were not on the council when the panel last discussed the issue–Eddie Branquinho and Jack Howell, neither of whom has yet experienced the sort of raw reactions elicited by some issues. This could be their baptism.

The administration’s proposals are straight-forward. Option A would undertake the whole public works project without a phased approach, with construction taking place in 2020 and 2021. It would be funded through debt, with the public service tax as an option to finance the debt, which has to be backed with a solid revenue source. Some $11.5 million would have to be financed the first year, $8.5 million the second year. That’s assuming the city would still maintain its other capital-improvement projects at parks, paths and city facilities.

Option B would be a two-phase project, with improvements to the fleet side of public works first (with a new building and a wash-down station for city vehicles), followed by improvements to its operations side. It would require a combination of debt and pay-as-you-go approach. The administration is proposing the service tax as an option for that approach as well. The administration cautions that the phased approach would result in costs about 15 percent higher given the two smaller projects as opposed to one large project. Over time, the cost of construction increases as well. Going that route, the administration proposes delaying some planned capital improvements in trails and parks projects from five to seven years, while using the public service tax to finance $5 million each of the two years of construction.

Option C would also be two-phased and have that estimated 15 percent added cost, but would all be pay as you go. It would be paid for through existing revenue sources such as the ongoing capital improvement fund, which generates money through the property tax, and by shifting and delaying parks and trails projects up to a dozen years, among them the planned development of the Long Creek Preserve, which has been awaiting a visitor center for several years. (Impact fees are not considered to be an option, Falgout said.)

While the administration is not recommending one option over another, it is recommending against an electric franchise fee (which, unlike the electric service tax, does not allow for exemptions and locks in the city in a very long-term contract with Florida Power and Light). It is recommending against a fire service assessment fee–much talked about by opponents of the electric taxes last fall–because such an approach would not fund capital projects directly. It would fund the fire services and enable a large shift in property taxes to capital projects. But it cannot be used to leverage debt, the city says, and would result in “higher impact to residential taxpayers,” according to the city’s presentation. The administration is also recommending against raising the property tax to fund the public works expansion, as that would not diversify the city’s revenue sources, among other reasons.

In sum, the options are specific but few, and differ in details, but not in the main, from the discussion in October. The estimates of how much the new tax would cost a typical rate-payer are also tailored strictly to the public works project. But there is another large unfunded burden on the city’s horizon: street improvements, which will also be discussed at Tuesday’s meeting.

The administration projects that city streets will need $2.5 million this year. That’s taken care of. But to keep roads from deteriorating, the bill rises to $3.1 million next year and keeps rising to $3.9 million by 2023. The funding gap will be $1 million next year, then $1.9 million in each of the following two years, rising to $2.2 million by 2023. The administration in this case offers as options raising the property tax, cutting the budget, or using the service tax as part of the new funding to pay for streets–again essentially renewing the proposals made last fall.

The discussion on public works and roads is part of a lengthy workshop agenda for the council Tuesday, starting at 9 a.m. at City Hall in Town center. The presentations on roads and public works are below.

Utilities Plant and Roads (2019)

Click to access utilities-roads-presentations-2019.pdf