A revised opinion by the city's bond counsel may mean Cape Coral will need to regroup on its "revenue diversification" initiative, affecting the provision that calls for a reduction in the property tax rate.
City Manager John Szerlag got the information Monday, just before the regular city council meeting. The opinion was then discussed at a budget workshop on Wednesday and is on the agenda as an addendum for more discussion this Monday.
In the 48 hours before council held its budget workshop, Szerlag had to scramble to find a solution that would achieve the stated goal of financial substantiality while also maintaining the increased cost to the average homeowner at $150 per year. The millage reduction was one component of a tax plan that would have reduced the property tax rate while adding two new taxes - a public services tax on electric bills and a fire assessment to help offset some of the costs of department operations. The three-pronged approach has been refered to as a "three-legged stool" by officials who support the plan.
While the end impact on taxpayers should be the same, one council member was not happy about the last minute-curve ball, worried that after promoting the plan for months, the finished product would be anything but.
Szerlag got the call from Bryant Miller Olive, the city's bond counsel, on Monday at 4:15 p.m., saying counsel did not want to identify the proposed millage reduction credit with the fire assessment.
The firm said it thought it would improve the city's chances to obtain bond validation, a step that the city decided to take before imposing the assessment.
That came as a surprise to Szerlag.
"That was the first time I heard that," Szerlag said. "Quite frankly, I think I went through the five stages of grief."
After the denial and anger, there was eventually acceptance, Szerlag said. And it had an impact on the budget presentation Wednesday.
"The ultimate quality of a good manager is to be able to produce in the face of challenges. My job is to produce," Szerlag said. "Job No. 1 is to maintain the public trust, and that's $150."
With that, Szerlag produced two options to council for fiscal year 2014 and the three-year budget promised. One option had no millage reduction (which is currently 7.957 mils or about $7.96 per $1,000 of assessed valuation); and a 29 percent cost recovery for the fire department, or about $9.3 million from the assessment.
That would result in another $65 from the average ratepayer from the public service tax on their electric bills, and $85 for the fire assessment, bringing the tax impact to the goal of no more than $150.
The second option used a .25 mil reduction (to 7.707 mils) with a 37 percent cost recovery from the fire assessment. This brought projected revenue from the still-proposed to $12 million, with the mil reduction combined with the public service tax.
What that would mean is the average homeowner would pay $110 toward the assessment and $40 using the combined millage decrease and PST. Still $150.
The difference could be in the level of capital improvements, namely street paving, would could be severely cut if the second option was used. The planned 80 miles of repaving would become, perhaps, 20, Szerlag said.
The millage in both options would be reduced to 6.957 in fiscal years 2015 and 2016, under this scenario. The first option would leave the city with about $400,000 less. Both would use $5.7 million in reserve funds to balance the budget.
This sudden change did not make Councilmember Derrick Donnell happy. His worry was the perception that city council wasn't being honest with the taxpayers.
"I looked someone in the eye and told about this. He told me this would happen. I was so convinced he was wrong. Now here we are and I can't get his face out of my mind," Donnell said. "I'm livid. This assessment is nothing but a nightmare."
Donnell suggested they do nothing and wait a year. Szerlag responded that doing so would postpone needed projects.
"We can't do streets because there's nothing else to spend. If the air conditioning breaks down, there's nothing to fix it with," Szerlag said.
As far as the perception that people will pay more because the formula has changed, Szerlag said, in the end, it's still $150.
Councilmember Kevin McGrail supported the second option, even though he was resistant to it in the beginning.
"I was not in favor of muddying the waters up front. Ultimately, this is the good- faith promise we told our residents," McGrail said.
Another point was brought forth by Councilmember John Carioscia, who said council should just go ahead with the fire assessment, especially when the validation has been used by other cities and approved.
City Attorney Dolores Menendez, however, cautioned that such a move would be very risky, since each validation stands on its own and while the assessment has been validated, it has never been fought in court.
"This methodology has not been tested through the courts. There's no case law. It's been upheld, but each case is not identical because no communities are," Menendez said.
"I wanted to get it out there. If three other cities have a bond validation, why can't we move forward until ours is validated?" Carioscia said. "She said no, each one stands on its own. The prudent thing is to wait."
The options will be further discussed during the city council meeting set for 4:30 p.m. Monday. The first public hearing is Sept. 5, with a final hearing and the vote on Sept. 19.