Sales tax information to clear up confusion
As August 29 nears – the day that Martin County registered voters decide on a sales tax referendum – both anti-and pro-sales tax rhetoric is escalating from a trickle to a torrent.
The county’s administrative staff and county commissioners have made themselves available to answer questions comprehensively wherever they’ve been invited, from chamber and HOA meetings to local Neighborhood Advisory Committee meetings.
At the same time, however, a flurry of anti-sales tax emails and public comments during organizational and governmental meetings are making the rounds, some even making uninvited presentations.
Those anti-tax messages paint a picture of an irresponsible government lying to its citizens at its worst, or being fiscally irresponsible at its best, creating a climate of indecision and frustration among citizens who are seeking just the facts.
“We are aware that there’s a lot of misinformation going around the county right now,” said George Stokus, assistant county administrator, during a recent Hobe Sound NAC meeting, “and I am not here to advocate the sales tax. I am here to provide you with information and answer your questions. Our only objective is to educate, to have informed citizens. Then however you decide is up to you.”
WHAT WILL IT COST ME?
The Board of County Commissioners approved putting the question before Martin County’s registered voters in June as to whether or not they would approve an additional one-cent (1%) local sales tax on taxable items over the next 10 years. Why 10 years? That would be the minimum time needed to collect sufficient funds to address the most urgent needs.
The average length of a sales tax referendum statewide is 22 years, with some counties adopting no ending date, according to state records.
The revenue raised from the sales tax surcharge is limited by Martin County ordinance to be spent only on water quality projects, existing roads, public safety – including a police and fire training facility – and public works. Up to 35 percent of the funds collected will be used for water quality projects. Funds cannot – by law – be diverted to other projects.
Martin County is one of only five of the state’s 67 counties that does not fund projects through a sales tax surcharge levied in addition to the state’s 6 percent sales tax.
Currently, only half of one percent of the state’s six-percent sales tax is returned to the county, as part of the state’s revenue-sharing program, and that revenue can be spent only on operating expenses – not on capital projects. The opposite is true for the county’s sales tax – none of which can be spent on operating expenses, due to state law.
The sales tax would go into effect on Jan. 1, 2018, if approved, and the county’s estimate of how much revenue will be raised through the sales tax surcharge is $23 million annually, according to County Administrator Taryn Kryzda.
The bottom line to taxpayers is this: According to the national Institute on Taxation and Economic Policy, the average family spends half of its income on taxable goods; however, food and prescription medicines are exempt in Florida. (Be cautious, though. Fast food, such as frozen pizza or deli chicken and over-the-counter drugs are taxable.)
The median income in Martin County is about $52,000 annually, thus a one percent increase in the sales tax would cost taxpayers at that income level an estimated $22 a month. That amount will be reduced further, however, because the FPL franchise fee on electric bills will be cut should the sales tax measure be approved.
The current FPL franchise fee of six percent levied on monthly electric bills of $200 is $12 per month; thus, if the sales tax is approved, the average additional direct cost to middle-income residents will be reduced to around $10 – $11 per month by cutting the franchise fee.
Households with either high or low incomes spend proportionately less or more on taxable goods. Low incomes tend to spend about three-fourths of their monthly income on taxable goods and high incomes typically spend about one-quarter of their income on taxable goods, according to the tax institute.
The county’s sales tax surcharge will be capped on major purchases of $5,000 or more; therefore the additional one percent sales tax levied on purchases of cars or boats will be capped at an additional $50 per purchase.
HIDDEN COSTS AND BENEFITS
Should the sales tax be approved, the near-elimination of the FPL franchise fee – none of which goes to FPL – will be a major boon to the school board and to Martin County manufacturing firms, which consume large amounts of electricity.
The Martin County school board revealed that the franchise fee increased their annual electric bills by $500,000, which could result in higher school board taxes, although the school board has not announced as such.
Martin County’s small manufacturing firms also have been subjected to significant increases in electricity costs. One firm, Triumph Inc. of Stuart, reported an increase of $250,000 annually. These types of unplanned expenditures usually result in cutting back on a business’s non-fixed expenses such as payroll and/or hiring new employees, according to business consultants, in order to compensate for the increased cost of operations.
The county commissioners debated during their June meetings as to whether or not the franchise fee helps the economy or hurts it. Commissioner Ed Fielding argued that the addition to electric bills is a “progressive tax, because it takes from those who can most afford to pay it,” as compared to a regressive tax, such as a sales tax, because those with low incomes pay a greater percentage of their incomes in tax than those with high incomes.
Fielding was the lone vote to keep the franchise fee in place, and he was the lone commissioner voting against the sales tax referendum.
Sales tax proponents argue also that residents will contribute only a portion of the sales tax revenue, which benefits from the shopping habits of visitors and tourists.
“They come into Martin County on our roads,” said Commissioner Ed Ciampi, during a recent Chamber event, “to shop at the Treasure Coast mall or at other shops, and they come here to enjoy our natural areas, our beaches and boat ramps, yet they contribute nothing to build or maintain them.
“Yet, if we go to St. Lucie, or Palm Beach, or Indian River counties, which all have their own sales tax surcharges,” he added, “we help them. We pay their sales tax. We just need Martin County to be on a par with our neighbors.”
Indian River and Palm Beach counties both have a one-percent surcharge on top of the state’s six percent sales tax rate; St. Lucie County has a half-cent surcharge.
“No one likes taxes,” Ciampi added, “but they’re necessary in order for government to accomplish what we expect … and in my opinion, a sales tax is the most fair, because we’re spreading it around. We’re not expecting just our residents to shoulder the burden.”
An often-neglected aspect of collecting sales tax is the county’s ability to leverage that revenue into greater spending power though matching grants and interest. The last sales tax surcharge, initiated in 2007 – half a cent for five years – brought $5 million in additional funds to the county through grants and interest in addition to the approximately $54 million it generated as tax revenue.
Currently, more than $250,000 in interest remains in the account tagged for park expenditures, according to county records.
PREVIOUS SALES TAX REVENUE MISSPENT?
One of the most frequent criticisms of this sales tax initiative is that the county’s previous sales tax revenues were misspent; however, a close scrutiny of county records reveals that all the revenues and expenses were carefully tagged and appropriately spent as represented in the ballot language.
The total amount raised over five years was approximately $54 million, with half spent on the purchase of conservation lands – including Pal-Mar, Haney Creek, Harmony Ranch, Williams, River Cove, among others – and the other half went to parks, including the Citrus Park and Lance Cpl. Justin Wilson Park ball fields in Palm City; however, the major criticism among some residents is the construction of the Sailfish Splash Water Park.
“I’m very proud of that park,” Ciampi said. “I was on the commission that approved that, and I can tell you that it was profitable from the day it opened, and it’s overwhelmingly popular with our residents who use it.”
County residents were polled at the time as to how they wanted the tax revenue spent, and a competitive swimming pool was the highest-rated request, Ciampi said. After studies were conducted, the commission majority at the time concluded that a competitive pool would be a drain on the county budget; however, if water slides and other amenities were added, there was a possibility that the cost to the county would decrease over time.
Parks and Recreation Director Kevin Abbate reported to commissioners after comparing the plans to other counties, projected that the pool would lose money for the first two to three years; however, the pool made a profit the first year.
The most outspoken critic of Sailfish Splash is Commissioner Sarah Heard, who voted consistently against what she called “a theme park, not a pool.” A search of county records reveals that $9.8 million of the $10 million allowed on one project was spent to construct the water park.
“The additional money (above the cost of the pool alone) spent on the water park,” Ciampi said, “was a fiscally sound decision to ensure that we got a return on our investment … that it would be sustainable, and it is. The pool has reached the point now that the “newness” of it has worn off a bit, so we need to look at upgrading it at some point.”
Any upgrades, such as adding a new slide or a deep diving well to attract more swim competitions will not come this sales tax initiative, however. None of the sales tax revenues will go to parks.
SO WHERE WILL THE MONEY GO?
Funding for water quality, for rehabilitation of roads, bridges, and drainage, for septic-to-sewer conversion in targeted, high-priority areas, to construct a public safety training facility, and reconstruct targeted county facilities that have reached the end of their useful life.
All expenditures of sales tax proceeds must be approved by a majority of the Board of County Commissioners at an advertised public hearing, and the public will have an opportunity to provide comment at these meetings or via email to the county administrator and and/or county commissioners.
The county passed an ordinance, which was signed into law, specifying where the sales tax will be spent, specifically:
- At least 35 percent of the total funds will go to improve water quality through planning and constructing stormwater treatment projects and septic-to-sewer projects as identified in Martin County’s Water Quality Needs Assessment to comply with state mandates.
- Reconstructing roads, drainage and bridges to meet current codes and standards countywide.
- Plan, construct, and reconstruct facilities for the sheriff, fire rescue, public works, and public building roof repair to meet current codes and standards, and will include: the Hutchinson Island Fire Station #14, Ridgeway Fire Station #33, as well as, facilities for Sheriff’s Storage and Training, Field Operations, and General Services.
The county administrator will provide monthly reports to the commission regarding collection of sales tax and the expenditures, which will also be available to the public. The maximum to be spent on any one project is capped at $10 million.
Some of the projects are called “neighborhood restoration,” which addresses multiple needs at one time. If one of the 157,000 feet of steel culverts is rusted to the point of collapse, for instance, then the engineering crew will work with public works to replace the steel culvert with a concrete pipe, improve drainage, replace sidewalks and repave the road all at one time, rather than go back multiple times to the same neighborhood.
“We are able to save thousands of dollars this way,” said Deputy County Administrator Don Donaldson, “by avoiding a situation where a crew comes in for a repair, then tears up a road, patches it, only to go back later to tear it up again to do another project. We want to do everything we can at one time.”
A complete list of all projects that could qualify under the county guidelines is posted on the county’s website, www.martin.fl.us and can be accessed by clicking on the One Cent Sales Tax button. The total cost of all projects listed is approximately $437,000,000.
HOW WAS THE BACKLOG CREATED?
Prior to the economic recession in 2008, the repair and maintenance of county roads fell under the discretion of individual commissioners, whose district received funds from ad valorem taxes that were to be spent only within that district; however, the commissioners stopped the practice in 2009-10, ending temporarily all district funding of projects.
The county also cut its budget by $80 million, which included hiring and wage freezes, and deferring all maintenance of roads and county facilities.
The state also cut the counties’ millage rates, limiting their ad valorem tax revenue, and capping how much the rate could be raised. Although property values are beginning to reach their pre-recession values, the tax revenue has yet to catch up due to the state’s rate cap.
The potential of sales tax revenue takes on greater relevance to addressing the county’s infrastructure and water-quality needs in the face of a likely increase in the homestead exemption, from the current $50,000 to $100,000.
A constitutional amendment to that effect will be on the November 2018 ballot, and is expected to pass. The county administrator estimates an anticipated loss in annual ad valorem tax revenue from the higher homestead exemption of around $8 million annually.
With the corresponding loss of revenue from the cut in the FPL franchise fee, coupled with the reduction in revenue from the increase in homestead exemption, the net revenue from the sales tax drops by approximately $16 million, leaving potentially around $7 to $8 million annually.
The challenges of meeting the county’s infrastructure needs likely will remain for some time.
“It’s up to voters,” Stokus said at the conclusion of his remarks in Hobe Sound, as he held up the four-page list of projects. “These needs are real. It’s just a matter of how voters want to pay for them.”
Multiple organizations have endorsed the sales tax referendum, including the Realtors Association, the Economic Council of Martin County, and the government subcommittees of four of the county’s five chambers of commerce.
All of the counties municipalities, the City of Stuart, the Town of Jupiter Island, the Village of Ocean Breeze, and the Town of Sewall’s Point all have endorsed the sales tax. They each will receive a portion of the sales tax as outlined in state law for revenue sharing; however, they are not constrained to the projects as selected by the county.
Opposing the referendum are the Republican Executive Committee of Martin County and the Martin County Taxpayers Association, which first endorsed the referendum if the franchise fee was reduced and a citizen’s committee selected the projects, according to their July press release.
Then MCTA President Tom Kenny announced this week during the county commission meeting that the tax association “would like to endorse” the sales tax referendum, but only if the commissioners did not raise ad valorem taxes during the same 10-year period.
With slightly more than a one-percent increase in the ad valorem millage rate for the 2017-2018 budget year – even anticipating passage of the sales tax referendum – it is unlikely that either condition will be met to earn MCTA’s qualified endorsement.
For more information, go to Martin County’s website, www.martin.fl.us/salestax to read the ordinance, ballot language and frequently asked questions (FAQs) and view a list of potential projects.