Newsletter: October 11, 2024

Is Lowering Taxes Good or Bad: You Decide

Delray Beach has established a millage rate for 2024-2025 budget which reduces tax payments (termed “roll back”). The fact that neither the County nor any other city in Palm Beach County followed suit raises the question of whether they know something we don’t know. The purpose of this article is to look at both the positive and negative impacts of reducing taxes.

Advocates generally believe tax cutting is a good thing because it removes bloat and “returns” tax money to voters. However cutting generally comes with a cost, everybody likes reducing taxes but they also like public safety and clean streets. We should all ask our city officials what is being cut or where new revenues are coming from.

Staff reductions by not replacing resignations or retirees? Reduced park maintenance or garbage collection? Raiding the reserve fund? Anticipating future funds like reimbursement from FEMA?

Arguments for lowering local tax rates:
1. Cutting taxes is often a popular campaign promise
2. Reduced taxes puts more money in the pockets of residents and potentially increases consumer spending
3. Lowering taxes is thought to attract business, increase jobs and growth, and attract new residents
4. Reduced revenues might encourage local government to be more efficient and reduce “bloat”
5. Lower property taxes might make homeownership more affordable
6. Lower taxes buttresses the finances of retirees on a fixed income
7. It is possible that a reduced tax burden could encourage start-up activity.

But we cherish our Village by the Sea and its amenities so there are also arguments against lowering local tax rates:
1. Lower tax revenues may lead to cuts in essential services like education, public safety, rapid
response times, and infrastructure maintenance
2. Real estate tax cuts are a regressive tax so cutting them often benefits higher-income residents disproportionally
3. Reduced tax revenues could result in revenue shortfalls and dangerous reductions in the city’s reserves.
4. If the City reduces its investment in future public projects (think road resurfacing and water processing plant), Delray could become less attractive to residents and new businesses.
5. Quite often tax reduction causes a need for increased fees for basic municipal services
6. Lower local taxes might lead to increased reliance on state or federal funding
7. Unfunded mandates from state or federal government, the expiration of one time grants, and inflation drive up costs and require reduction in public services
8. If reduced taxes cause underfunded maintenance of infrastructure and social services, property values could be reduced and vulnerable populations further underserviced, potentially causing social issues.
9. If amenities (like parks and beaches) are compromised over time, our quality of life could be impacted.

Case Study of Colorado Springs

The city of Colorado Springs, Colorado, experienced a tax reduction followed by financial difficulties. A “Taxpayer Bill of Rights (TABOR)” was instituted in 2008, limiting tax increases and resulting in a rollback of government revenues. By 2010, Colorado Springs was facing severe budget shortfalls due to a combination of factors including TABOR restrictions, the economic downturn, and previous tax cutting measures.

Some of the measures taken due to these budget constraints include:
1. Streetlights turned off to reduce electricity costs
2. Trash cans removed from parks
3. Transportation services minimized
4. Swimming pool hours reduced.
5. Smaller police force. (And police department had to sell its helicopter)
6. Parks and median strip maintenance cut.

Faced with these cuts to public services, the Colorado Springs taxpayers began to reconsider their position. Seeing the impact of rollbacks, citizens voted to boost tax revenues in 2015, voters in the Colorado city chose to retain $2.1 million in “excess” revenue. In that year voters also agreed to increase sales tax of .62%. In 2017 a storm water fee was approved and in 2019 the City voted a road improvement sales tax.

So over time city residents came to recognize the downside of tax rollbacks and restored public services and the upkeep of essential infrastructure. Colorado Springs officials found it necessary to reinstate taxes and fees over time to address budget shortfalls and restore public services.

This case illustrates how tax limitations can lead to severe cuts in public services, eventually prompting voters to support targeted tax increases to maintain their quality of life and essential infrastructure. Well-intentioned tax cuts can sometimes lead to unintended consequences.

As Delray taxpayers ponder this dilemma they might consider two facts:
The City has been reducing tax rates each year for 10 years so the pressure to be more efficient has held sway for at least that period. Randomized, statistically significant polls taken during Delray Beach’s 2023 municipal election showed 50.7% of the electorate thought taxes were too high; 49.3% thought taxes were about right or too low.

Voters indicated that major areas of concern were good governance (23%), water quality (19 %) and education (17%), not taxes. Perhaps these matters are the issues the Commission should focus on.

It’s too early to determine the impact of the 2024-2025 rollback. Each taxpayer will get a reduction of $67 per $300,000 of property valuation. But that benefit needs to be measured against the following: all city Directors and the Financial Director (who has now resigned) advised against the rollback, if attrition reduces staff there are still legally mandated services to be performed, rapid response to issues like homelessness and violence on the beach will likely be curtailed, etc. In addition, the budget doesn’t account for expenses already recognized for the upcoming year including contract negotiations with the police and non-uniformed unions, or cover the $700,000 owed to underpaid administrative staff.

Inevitably these additional costs will require budget amendments and the only source of that money is the reserve fund. Delray’s reserve is already dangerously close to the minimum recommended by the National Organization of Municipal Accounting (NFMA).

Is the extra $67 dollar of pocket money worth these risks?