September 7, 2011

Florida TaxWatch Questions Palm Beach County Budget And Property Use

Florida Tax Watchdog: Analysis of Unreserved Funds, Debt, and County Property Utilization in Palm Beach County:
Executive Summary - Forida TaxWatch analysis of Palm Beach County has revealed significant opportunities for improvement in the management and utilization of specific assets. Palm Beach County is proposing a maximum property tax increase of 3 percent to fund the FY2012 budget. Implementation of the recommendations made in this report would provide additional needed county revenue and help avoid an increase in taxes.

County Funds Analysis: Bond Ratings & Reserve Levels
Numerous financial measurements reveal that Palm Beach County has engaged in management practices that have resulted in higher than normal unreserved funds for several years. Palm Beach has consistently held its level of reserves far above any of its peer counties– Broward, Hillsborough, Miami-Dade, and Orange – without much benefit to taxpayers.

While a county‘s bond rating relies heavily on the level of reserves the county holds or ― unreserved funds‖, the industry standard for a healthy reserves level is maintaining ―unreserved funds‖ above 15 percent of total expenditures. Local officials have told Florida TaxWatch that it is common for a hurricane-prone county to hold ―unreserved funds‖ at a level of 25 percent of its total expenditures. However, Palm Beach County exceeds informal targets for unreserved funds. Over the past six years, Palm Beach County has consistently maintained ―unreserved funds‖ at 50 percent or more of its total expenditures (2005-2010). More importantly, Hillsborough County has maintained a level of ―unreserved funds‖ between 13 and 24 percent of its total expenditures during the same period (2005-2010). Yet, both counties have maintained the same AAA bond rating.

This trend is more clearly illustrated in per capita terms. Among all peer counties, Palm Beach has consistently maintained a significantly higher ―unreserved‖ fund balance per capita over the last six years. Despite recent declines, aggregate total growth of the Palm Beach‘s ―unreserved‖ fund balances was 47.2 percent from FY2001 to FY2010.

Further analysis revealed that Palm Beach County is most egregious in its holdings of ―unreserved funds‖ for capital projects. Palm Beach has designated a larger portion of its fund balance for capital projects than all peer-counties over the past six years. When looking at ―unreserved‖ capital project funds as a share of total revenue, Palm Beach County has maintained the largest balance of ―Unreserved Capital Projects Funds‖ as a percentage of the total revenue from FY2005 through FY2009.

Palm Beach County appears to be designating revenues for capital projects at a higher pace than peer-counties and the county may be accumulating revenue for capital projects faster than it can acquire or construct them. It is important to note that the purposes for which the county may designate unreserved capital project funds are at the discretion of county officials and are not imposed or enforced by an external constraint, such as state or federal law. The county may remove or re-designate funds to other projects unless there is an encumbrance or other external restriction. Palm Beach County officials must immediately revisit how it allocates its funds and reclassify some of its ―unreserved‖ funds to help address budget shortfalls and align the level of funds it holds with Hillsborough County instead of increasing the property tax rate imposed on Palm Beach residents.

Although recommended by Florida TaxWatch in 2006, the county does not have a formal cap or limit on the level of reserves or ―unreserved‖ funds it may hold. If Palm Beach County had implemented a formal cap on its ―unreserved‖ funds, it would free up a significant amount of money. If a formal cap on all ―unreserved‖ funds of 40% of expenditures was instituted in FY2010, it would allow $187,674,718 to be reclassified or redirected to be used for other purposes. (This cap exceeds the common target of hurricane prone counties of ―unreserved funds‖ as 25 percent of total expenditures.) With a formal cap of 30 percent of expenditures for total ―unreserved‖ funds, the county would have freed up $372,345,306 to be reclassified or redirected for other uses in FY2010. Even if a formal cap was placed only on ―unreserved‖ Capital Projects Funds, there would still be a significant amount of money freed up for reclassification.

Vacant Property
Palm Beach County owns more than 2,500 parcels of land, including parks, land for environmental conservation, slivers of land between sidewalks and streets, and commercial and residential vacant properties. With the exclusion of land parcels designated under the Department of Environmental Resource Management and the Airports Department, there are 353 parcels totaling approximately 6,200 acres of ―vacant‖ land owned by Palm Beach County.

If Palm Beach County sold 25 percent of its listed ―vacant‖ property, its sale would generate more than $54 million in revenue and more than $270,000 in recurring ad valorem tax revenue (based on currently appraised value). . . . Further, Florida TaxWatch recommends that the Division of Property and Real Estate Management work with a commercial relator to help designate surplus property; assess their market values; and design and execute a marketing plan to sell the property designated as surplus within the next 18 months. . . .

Underutilized and Vacant County-owned Buildings
Palm Beach County owns 646 buildings consisting of roughly 7 million square feet of space. Approximately 1 million of this is considered to be office space for general county government or constitutional officers. Of these 1 million square feet, approximately 50,000 square feet or 5 percent is considered vacant. Due to unavailability of key pieces of data, it was not possible to independently determine the current utilization of county buildings. . . .
[Full Report with details and graphs provided in the report.]

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