Budgets on the Brink

As the world continues to struggle with how to deal with the COVID-19 pandemic, municipalities and county governments across the nation have had to make hard decisions with their budgets.

Indeed, two of the largest municipalities in the Biscayne Corridor, the cities of Miami and North Miami, laid off hundreds of employees in order to avoid deficits due to plummeting revenues and rising expenses. In the

case of the City of Miami, 87 police officers and firefighters and at least a dozen employees from other departments will be let go. In North Miami, 159 full-time and part-time employees across departments have already been terminated. Additionally, the city’s quarterly utility bill will increase by $44.80.

But worse is yet to come, warned Frank Nero, the former CEO of the Beacon Council, a public-private organization tasked with assisting in economic development in Miami-Dade County. That’s because many small businesses that have been forced to shut down are not likely to come back.

“Just take a walk down a lot of the malls, walk down Lincoln Road, walk down anywhere, and you’ll see a lot of businesses closed up. That’s the ticking time bomb,” Nero said.

As for Governor ’ executive order that effectively reopens all businesses in Miami-Dade, Nero fears that it might actually make things worse.

“In many cases the damage has been done. Plus, this premature and politically driven decision may lead to a second wave [of COVID-19 infections] and even more business disruption,” stated Nero.

So far, at least, officials from Aventura, North Bay Village, Bay Harbor Islands, El Portal, Miami Shores, Biscayne Park, North Miami Beach and Sunny Isles Beach have avoided needing to slash existing staff to balance their respective budgets.

But in spite of the hemorrhaging local economy, property values in Miami-Dade overall, at least preliminarily, have actually gone up 5.1% compared to last year. Taxation on property values is the main source of revenue for all cities in Miami-Dade. According to the county property appraiser, these assessments were made on Jan. 1, prior to the onset of the pandemic in the United States. In a press release, Property Appraiser Pedro Garcia stated he will work with property owners wishing to appeal their assessments and “make the necessary corrections permitted by law.”

Broker Fernando Arencibia, CEO of Arenci Properties Realty, said many of Miami-Dade’s properties are going up in value because this is still an attractive place for people to invest, due to the international status of “Miami,” the low taxes of Florida, and, compared to other major metropolitan areas, the real estate bargains.

“Miami offers less expensive [commercial] properties than most other major metropolitan areas in the U.S. and in the world, and will continue to attract buyers, investors and businesses from the U.S. and worldwide,” said Arencibia, who is also president of the Miami Association of Realtors Commercial.

The same holds true for residential properties as well. Lynda Fernandez, chief of communications for the Miami Association of Realtors, said that single-family home prices have generally increased by 10% from last year. Condominiums only increased by 4% due to market oversupply.

“Consumers in high tech and high-density areas are moving to Florida and Texas because there’s no income tax. You get more bang for your buck.” Fernandez explained.

But Nero doubts property values will continue to rise if small businesses – the main employer of Miami-Dade residents – continue to go under. When that happens, commercial landlords will have a harder time finding renters who can pay rent and foreclosures will rise.

“These are going to be difficult times that are not going to go away,” Nero said.

Isaac Salver, a certified public accountant and a Bay Harbor Islands councilman for the past 22 years, admitted he’s not optimistic for the future.

“I would say that, maybe in the next six to 12 months, it will be much clearer … what the short- to- middle-term impact will be from the famous year of 2020,” Salver said.

Present Problems

The pandemic has already harmed the fiscal health of the City of Miami, in spite of the 6.9% increase in property values it has seen.

In his budget message to the Miami City Commission, City Manager Art Noriega said the revenue collected from properties and other sources fell short, nor did the municipality receive much COVID-19 relief from the county or federal government.

“The COVID-19 global pandemic has negatively affected the nonproperty tax revenues of the City of Miami. Property tax revenues have not grown as fast as expected. The county and federal government have not allowed the use of CARES Act funds for revenue relief,” Noriega stated.

To balance its $1.1 billion budget without raising fees or its 7.99 millage rate (or $7.99 per $1,000 of assessed property value), the city will be eliminating more than 100 unfilled positions and lay off at least 100 employees. Among those who will be fired include 66 sworn police officers and 21 firefighters. During the Sept. 23 budget hearing, Commissioner Joe Carollo said an impasse with the police and fire unions over promised pay raises led to the elimination of recently hired police and fire rescue officers, which is allowed under collective bargaining agreements.

“We have not been given any wiggle room from the two biggest unions.” Carollo complained.

Around 17 other filled positions were eliminated as well. This includes the chief resilience officer that was filled by Jane Gilbert until July, a post that will now be handled by the public works director.

There may be additional City of Miami firings within the Neighborhood Enhancement Team, or NET offices, as the city switches to a new “hybrid” system. In that system, the district offices of Commissioners Alex Diaz de la Portilla, Manolo Reyes, and Carollo will take over the duties performed by the old NET system, which include fielding complaints, expediting permits and other needed city services on a neighborhood basis. Commissioners Ken Russell and Keon Hardemon will keep the current NET system in place – overseen by the city manager – in their districts.

In spite of protests from dozens of residents, Commissioner Diaz de la Portilla pushed for a “district office” system that is handled directly by commissioners, arguing that it would save $1.2 million. Diaz de la Portilla also wasn’t bothered with the prospect of additional layoffs, insisting that Miami’s “bloated bureaucracy” needs to be streamlined.

“People lose jobs all the time. Go look at the private sector,” he said.

Because Russell and Hardemon were worried about losing NET services already offered in their districts, the hybrid compromise was worked out. A visibly frustrated Noriega said running such a system will be extremely difficult and “cumbersome.”

“You’ll figure it out,” Diaz de la Portilla replied.

Looming Deficit

The City of North Miami saw its property values go up by 10.4%. Unfortunately, it was already experiencing fiscal problems even before the arrival of COVID-19.

In order to pay down a $14.7 million deficit, complete a $29 million rehab of its water plant, start a needed $4.9 million water and sewer upgrade, and fund various other capital projects, City Manager Theresa Therilus proposed a lean $63 million. Under that budget, North Miami’s property rate remains at 7.588 mills, but its quarterly utility bill for water, sewer, sanitation and recycling will be going up for the first time since 2014, by $44.80. For an average family of four, that means the quarterly bill will go from $265.29 to $310.09.

North Miami also laid off 140 part-time employees in April and 19 full-time employees in September. Employees who remain will go on unpaid furlough one day a month.

“Nobody is happy with the budget, but we just have to swallow it,” Mayor Philippe Bien-Aime said at the end of the budget hearing.

Vice Mayor Alix Desulme blames the actions of past administrations for the poor financial situation the city is now in.

“There was a lot of overspending,” said Desulme, the lone dissenting vote on the budget. Now, with an uncertain economy, the city will “hunker down and see what happens.”

Councilwoman Carol Keys is glad the city is finally raising its utilities fees instead of trying to subsidize those costs with the general fund, as it had in years past.

“I think [Therilus] did an excellent job. She cut a lot of fluff, everybody took a hit, and it wasn’t easy,” said Keys.

Falling Property Values

North Bay Village felt some pain as well. It was among four cities in Miami-Dade County that actually saw its property values go down compared to last year. According to a July 1 press release from the county property appraiser’s office, those four cities had a high concentration of condominiums and the drop in value was due to an overabundance of units.

North Bay Village’s drop wasn’t huge, just 0.7% from last year, but it also experienced a 50% decrease in other funding sources, said Mayor Brent Latham. That’s one reason why it’s opted to raise its millage rate from 6.1179 to 6.9287. The other reason: the Biscayne Bay-surrounded municipality is already in the midst of a series of capital improvements.

“We are cutting spending significantly, but there’s only so much you can cut in a place like North Bay Village,” Latham said. “We have a very ambitious program of citywide improvement and we’re going to carry that forward to the best of our ability.”

To help balance its $8.8 million budget, top administrators volunteered to take pay cuts of up to 10%. Fortunately, Latham said, North Bay Village has not had to lay off any of its 100 employees.

“We are relatively lean to begin with,” he said.

Aventura experienced a drop in property values, too – a 1.8% decrease from last year. Nevertheless, the city managed to balance a $54.4 million budget with a $14.8 million reserve where the millage remains 1.7261, which is the lowest in Miami-Dade County. Aventura even gave all of their 181 employees a 3% pay raise – the vast majority of whom are either administrators or police officers. The rest of Aventura’s services are contracted out to private companies.

“We did take a little bit of a hit, but we’re very frugal, and the way we do business allows us to really adapt very quickly,” said Aventura Mayor Enid Weisman.

Miami Shores Councilman Stephen Loffredo said his village only had to eliminate four vacant positions to balance its $25 million budget. The Shores, which experienced a 5.1% hike in property values, even managed to lower its millage rate slightly, from 8.3 to 8.2784.

“We’re a well-run, conservatively managed village. We’re in good financial shape. And, if there’s a problem with tax collections, we will deal with it next year,” he said.

North Miami Beach, which experienced a 3.9% increase in property values, also saw its total millage rate lowered slightly, from 6.8194 to 6.8. Esmond Scott, North Miami Beach’s city manager, said revenues were 7% lower than expected. Still, the city passed a $166.8 million budget with no fee increases, no layoffs, and a modest 3% increase for its 449 employees. The city is even hiring 100 employees for the city’s water plant, which it recently took over from Jacobs. The $600,000 penalty fee for ending its contract with Jacobs to run the water department is already included in the city budget.

Scott credits the “financially sound” directives from the mayor and commission for the city not being in financial straits this fiscal year. However, Janette Smith, chief financial officer for the city, cautioned it might be a full two years before the full economic impact caused by COVID-19 is felt.

Nero said that’s why cities should hold off on capital improvement plans and enlarge their budget reserves in anticipation of major economic disruptions.

“If there’s a second wave here, well, then, Katie – bar the door,” he said.