There is no doubt that Palm Beach County has a large backlog of infrastructure projects to address. Although there are several reasons the backlog exists, by far the most significant reason is the serious recession which we all lived through starting in 2008. The County’s property tax revenues declined sharply because of lower home and commercial property values. As a result, spending declined over our entire budget, but more severely affected infrastructure maintenance than other County departments.
I fully support making these needed repairs, which County staff has estimated will cost approximately $700 million. I just don’t believe the proposed sales tax increase, taking it from 6% to 7%, is the best way for the County to proceed. I have always thought that funding this work via a Bond would be a much better solution, and I’ll explain why further on.
First, some history about how we’ve gotten to this point, with the tax scheduled to be voted on as a referendum in November.
About two and a half years ago, the Commission met to discuss infrastructure needs. We got a pretty good idea of the magnitude of the work that had to be done. We all agreed that we needed to address this and directed staff to come back with a plan for how it should be funded. There are really only three serious options available to local governments--a sales tax, a bond issue or through an increase in property taxes.
Staff brought their ideas on this to us is the Fall of 2015. Their preference was the sales tax, with a complicated structure and several other interests lining up for some of the proceeds. The structure was complicated by the fact that staff had decided to partner with the School Board. Ultimately the Board would be getting 50% of the proceeds, which are projected to total $2.8 billion over the ten years the tax will be in effect. Additionally, the statute which allows us to impose a local-option tax such as the sales tax requires us to share 20% of the proceeds with our municipalities. So Palm Beach County’s share of the proceeds turns out to be 30%.
The initial proposal I received from our staff included $300 million for the Cultural Council. I was frankly pretty shocked when this was presented. There didn’t seem to be a very clear relationship between infrastructure and culture. Although I support what the Cultural Council does, this was, I believe, an overreach. The initial $300 million request kept getting reduced until finally it was removed from the proposal, due to strong public pressure against it.
So we’re now at the straight 50-30-20 split of the sales tax proceeds. In the Spring, with Commissioner Abrams and myself dissenting, the Commission voted to accept staff’s proposal and place it on the November ballot. I’m not sure what the outcome of that referendum will be, but I will say that I haven’t seen that much enthusiasm for it.
So why do I oppose the tax? There are several reasons, which I will go over in no particular order.
First and most obvious, any sales tax is by definition regressive, meaning people of lower means are much more hurt by it than the more affluent, because it consumes a greater percentage of their income. Although I am no fan of taxes in general (having voted against any tax increase which was presented to us), when we’re imposing one on our constituents, it should be done in the most equitable way possible. A sales tax is not equitable.
Second, sales tax proceeds can vary greatly from projections. Who predicted the Great Recession? Practically noone. Although I hate to say it, the dictates of the economic cycle would imply there will be a recession within the next ten years. How severe it might be is anyone’s guess. So we could wind up with stalled or postponed projects if the cash is not there. With a bond issue, on the other hand, you raise all the money you need initially and there is no question about its availability. Every project will get done because the funding is there.
Third, there is a control issue here. I have always felt that the County should operate on its own and be in charge of its own destiny. We certainly have control of the 30% of tax revenue we receive, but the other 70% is beyond our reach. Although I believe the School Board will use the money appropriately, up until very recently there was very little detail about how they would spend their 50% share. The Board has recently provided more disclosure because of public pressure, but I’m not sure how detailed it is considering the Board’s share is $1.4 billion.
Re the municipalities. We now have 39 municipalities in Palm Beach County, and they are by statute entitled to 20% of sales tax revenue. What’s problematic to me about this is
1) there are many cities, including several in my district, who don’t need any additional money for infrastructure because it is already in their budget plans, nonetheless they will get it and probably find a way to spend it; and
2) of the 39 municipalities, there are a significant number who have not submitted any information to the County about how they plan to spend the money. I have a strong objection to raising taxes on anyone if we don’t know what the money will be used for, and that is the case here.
So the control issue boils down to this for me. The County is viewed as a major, if not the pre-eminent, sponsor of the sales tax. Yet we have no control over how almost $2 billion dollars of it will be spent. I don’t doubt the good intentions of all the parties, but things happen, projects go way over budget, money is misspent. There will be oversight committees, but they are limited in their powers. When the County acts independently, we are totally responsible for the outcomes, and I certainly prefer this way of going about it as opposed to taking joint responsibility.
Last, a major reason I favor a bond issue, in addition to my comments above, is that interest rates, as you all know, are near historic lows. The County has a AAA bond rating. I’m sure we could come away with a very low cost of financing. There are very few opportunities to go out to the municipal bond market under the conditions we’re seeing now. Unlike the federal government, we are not loaded up with debt, so the capacity exists.
I hope I’ve made my point that the sales tax, as currently proposed, has too many inherent flaws for me to support it. Given the current conditions in the municipal bond market, I will continue to support a bond issue as a better alternative.
Hal Valeche is a County Commissioner representing Palm Beach County’s District 1. He served in the Navy in Vietnam, having flown the F-8 Crusader, a single-seat supersonic fighter deployed on the USS Oriskany. This was part of Carrier Task Force 77, which included many carriers, cruisers, destroyers. Hal flew 85 combat missions.
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