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Government's challenge: Build solid budget on financial quicksand

If you had to sit down right now and create a family budget, but you had no idea — and no way of finding out — how much money you would have to spend or whether it would be enough to cover your bills, you might find yourself wide awake at night, staring at the ceiling. You might be consumed with worry.

No doubt lots of city and county budget officers in Florida are lying awake at night. State law requires local governments to adopt a proposed tax rate for next year's budget this summer. They adopt final budgets for the 2008-09 fiscal year in September. Government staffers would normally be quite busy now, projecting revenue and creating preliminary budgets for the elected officials who must make spending decisions before the state deadlines.

But the staffers are stumped. They don't know how much money will be coming in. They do know this: It won't be enough to keep doing, at the same level, everything people have come to expect of local governments.

Last spring the state Legislature ordered local governments to reduce their tax rates immediately, and also passed a law tying future tax revenue growth to the growth of personal income of Floridians. Local governments sliced programs and positions.

Then on Jan. 29, voters approved Amendment 1 to the state Constitution, giving homesteaded property owners the right to take nearly $50,000, rather than $25,000, off the value of their homes for tax purposes. Amendment 1 also gave them "portability": the opportunity to carry the Save Our Homes tax cap with them when they move to a new home.

Local officials have lifted their budget-cutting knives again, but they don't know how much to lop off. They have no way of figuring how much portability will cost them. They have only rough estimates of the effect of the increased homestead exemption. Clearwater, for example, expects to lose about $3-million in revenue; Pinellas County about $55-million; Oldsmar about $250,000.

If that were all, local governments could adjust their spending plans and be done.

But it's not.

• Property values are tumbling because of the economic downturn and the glut of unsold homes on the market. Since the property tax revenues on which local governments depend are based on the assessed value of properties, revenues will fall, but there are no soothsayers to predict how far or for how long.

• Because the economy is staggering and people are spending less, sales tax revenue, which also helps fund local government, is dropping.

• Homes are going into foreclosure and people are moving away, leaving empty houses that no longer require utilities, telephones and cable service. Utility tax collections, which go to local governments, may therefore drop. If residents whose family budgets are tightening start cutting out cable TV or using less electricity or water, those tax collections will drop even more.

• Local governments make money from fees charged for building permits and occupational licenses. When the local economy is booming, those fees help fund city services. But occupational licenses and building permits are down.

• The Legislature may reduce taxes more this session. One senator said he will introduce a Proposition 13-like bill that could cut property tax collections statewide by 26 percent. An antitax group is seeking signatures to put a similar measure on the ballot. That could gut local revenues.

All this creates a chaotic setting for the start of the local budget season. The cities and counties that saved a lot of money during the recent boom times likely will draw on those reserves, thereby cushioning some of the blow and preserving, at least for now, core local government services such as police, fire, utilities and infrastructure maintenance.

However, most I've spoken with expect to have to consider cuts to noncore costs such as parks and recreation, libraries, environmental services, and health and housing programs, especially if they want to save some reserves for hurricane season. Some cuts, such as reduced transportation expenditures (Hillsborough County's bus agency already has cut routes to reduce costs) and less spending for charitable medical care (under consideration by Pinellas County officials) will hurt those who need help the most during this economic slowdown.

Some local officials, quietly and mostly behind the scenes, are beginning to talk about worst-case scenarios that go well beyond cuts to quality of life programs for the next year or two. They are looking at trend lines that portend continued declines in local government revenues because of slowing growth in Florida, changing population demographics, leveling off of wages, antitax movements and raids on local government home rule by state government.

They are talking about whether it will be necessary to create a new blueprint for city and county governments of the future. They are putting on the table ideas such as consolidating fire services — a controversial idea suddenly much more appealing in Pinellas — and outsourcing public responsibilities such as library and park operations to private companies — an experiment that hasn't worked so well in state government.

Local governments are closest to the people and presumably best positioned to deliver residents' immediate needs. But these days, they seem to be at the bottom of the food chain.

Diane Steinle can be reached

at steinle@sptimes.com.

Government's challenge: Build solid budget on financial quicksand 03/01/08 [Last modified: Saturday, March 1, 2008 10:12am]

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