Closing the Budget Gap through Tax Base Appreciation.

• Author: Finz, Samuel A.
• Position: In Hollywood, Florida - Statistical Data Included

This article describes how the City of Hollywood, Florida, is closing its annual budget gap through an innovative program designed to create tax base appreciation through public capital investment.

Every year, local governments throughout the nation face the difficult challenge of balancing their budgets while simultaneously holding the line on taxes and user fees. Public demand for more and better services must be weighed against citizen opposition to the tax and fee increases necessary to pay for enhanced services. Meanwhile, a growing segment of the population is living on fixed incomes, limiting their ability to absorb increased tax rates and user fees.

In response to these challenges, public administrators typically revert to traditional budget approaches aimed at reducing costs, maintaining service levels, and, to the extent possible, containing tax rates and user fees. Cost reductions can be strategically implemented to reduce expenses, but only to the extent that services are not adversely impacted. As a result, such measures often fail to provide sufficient solutions, leaving public administrators with the unpalatable alternative of recommending tax increases to pay for new programs or to enhance existing ones.

Built-out communities, where virtually all parcels of land have been developed, must confront even greater budgetary challenges. Limited growth in the tax bases of these communities places additional constraints on their ability to maintain service levels. At the same time, the costs associated with providing services continue to rise. This article describes how one such community is meeting this challenge through an innovative program designed to create tax base appreciation through public capital investment.

Widening Budget Gaps

With a population of 139,357, the City of Hollywood, Florida, is the second largest municipality in Broward County. The community is located on the state's east coast, approximately 40 miles north of Miami, and encompasses an estimated 28.5 square miles. As a relatively older, built-out jurisdiction, buildings and properties have taken on an overall appearance of general aging and moderate disrepair. A shortage of development opportunities is underscored by the fact that developers are forced to assemble multiple properties to create developable parcels.

For years, the city has had to cope with limited revenue growth attributable in large part to diminished expansion of its tax base. Over the last five years, revenues have grown 2 to 3 percent per year. The city's primary source of general revenue is ad valorem taxes--taxes imposed at a rate percent of value such as the property tax. These taxes account for more than one-third of all general fund revenues. Other sources of general revenue include user fees, permit fees, licenses, state-shared revenue (sales tax), and various franchise fees. These revenues have remained relatively constant because of political pressure against increasing fees. Any increases in revenue associated with these fees are usually offset by commensurate increases in service-related expenditures.

While revenue growth has been limited, expenditures have increased substantially. From 1997 to 2001, for example, expenditures increased from $87 million to $104 million. The city's expenditure growth has very closely paralleled that of the region at large, evidence that the growth has been the result of higher costs as opposed to new or enhanced services. Regionally, the costs of labor, services, products, and materials have increased by approximately 5 percent a year for the last five years. During the same period...