BY MARK SCHUMANN
City Manager Jim O’Connor and Finance Director Cindy Lawson met with the Finance Commission today seeking direction on options for closing a looming budget gap of more than $2 million. Listening to O’Connor, Lawson and members of the Finance Commission spend two hours kicking around cost cutting measures that merely scratch at the surface of the problem, it seems clear city leaders are a long way from acknowledging the inevitability of tax increases.
The inconvenient truth is that 80 percent of the city’s general fund spending is going to pay salaries and benefits. Quite simply, the level of cuts contemplated cannot be made without significantly diminishing the quality of city services. There just aren’t enough savings to be had by shaving a little here and trimming a little there. Even if the city never buys another staple or paperclip, the fact is that without tax increases there will be drastic cuts in city staffing and services.
Now that proponents of the sale of the electric system have secured voter approval, they can stop pretending the promised savings in electric rates will not come at the cost of at least some increase in city property taxes.
To put city taxes in perspective, perhaps it is helpful to keep in mind that Vero Beach’s property tax rate of approximately $2 per $1,000 in assessed value is less than half that of many Florida cities of similar size. While there would be no justification for allowing the city to maintain a bloated payroll simply to boost local employment, it seems equally foolish to drastically reduce the level and quality of the very services that contribute to making Vero Beach the gem of the Treasure Coast. Such draconian budget cutting, all in the name of austerity, would be penny wise and pound stupid.
Clearly, one of the biggest debates to be had in the coming budget negotiations will be over how much to count on the city’s remaining enterprise funds to at least partially make up for the loss of electric utility revenue. To be sure, after the sale of the electric system, the water and sewer department could help close the expected shortfall. A proposed restructuring of the pension funds and anticipated savings in electric costs should easily enable the city’s water and sewer utility to double its contribution to the general fund, from $1 million to $2 million – and without increasing rates.
However, some city leaders, including Councilwoman Pilar Turner and Utility Commission Chairman Scott Stradley, are fundamentally opposed to the city remaining in the utility business. Turner and Stradley argue that reliance on utility revenues only leads government to become bloated and inefficient. That argument, though, seems more relevant to another place and time, for the current choice isn’t between excess vs. moderation, but between emaciating city services, raising taxes, and/or increasing transfers from the city’s other enterprise funds.
At one point in today’s discussion, Finance Commission member Kathryn Barton said, ““We certainly seem averse to raising taxes.”
Commissioner Ken Freeman responded with a quote from former President Ronald Reagan. “The problem isn’t that we are taxed too little, but that we are spending too much.”
Well, that could be, but I wonder if Freemen is aware of just how much the marginal federal tax rate has come down since the early 1980s, and I wonder if he understands that the city’s low tax rate has been made possible by its ownership of Vero Electric. When Reagan took office, the top tax rate on salaries and wages was 50 percent; it is now 35 percent. In 1981, dividends and interest were taxed at 70 percent. Last year the tax rate on unearned income was 15 percent. Since 1980, the maximum tax rate on income from capital gains has come down from 28 percent to 15 percent. Like Turner and Stradley, Freeman is offering an argument more relevant to another place and time.
City leaders can dance around the budget dilemma all they want, but the simple fact is that revenues from the electric system have helped to keep taxes artificially low. With the city’s cash cow now to be sold to Florida Power & Light, the choices going forward are either to do a reality check on the city’s tax rate, or to take an axe to city services.
Indian River Guardian 
This is not necessarily an issue of increase in taxes or reduction in services. There are other variables that need to be considered:
1) The reduction in paying less for electric service will go a long way in making the burden of minimial property tax increases less of a burden on homeowners who have for decades enjoyed artifically low property taxes.
2) The long term reduction in electric costs for public libraries, public schools, government offices and the hospital should be able to reduce the portion of the tax bills that goes to paying for those services.
3) There are always common sense reductions in a budget that can be implemented. The post from earlier in the week about the health care costs paid to Craig Fletcher and Pilar Turner are perfect examples of potential savings.
4) City needs can be met by revenue from other sources. For example, the Federal government can provide more funding for some city needs.
5) The either/or proposition implies a status quo in the economy. It is entirely feasible that the economy will grow and more people will be moving into the city and add to the revenue stream. It is also possible that revenue from tourist taxes will grow.