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Business Observer Friday, May 13, 2011 9 years ago

Muddy Waters

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The Southwest Florida Water Management District accumulated piles of cash the past few years, which raised questions about its management. The state has stepped in by limiting its ability to raise property tax revenue going forward.
by: Jay Brady Government Editor

REVIEW SUMMARY:
What. Swiftmud's cash balance
Issue. Fixes may be late, but are they enough?
Impact. Taxpayers get a break next year, but no refunds.

In a time when most organizations experienced a boom in revenue followed by a tightening of capital, the Southwest Florida Water Management District has steadily accumulated cash — and lots of it.

During the past nine years, the state agency known as Swiftmud, funded mostly from property tax revenues, has increased its cash balance more than two-and-a-half times — from $268 million in 2001 to $674 million in 2010. The district saw increases in each of those years, including the past three when property values decreased with the recession.

Now, after nearly two years of questioning by a new district board member, the Legislature and Gov. Rick Scott aim to rein in four of the five districts with property tax cuts totaling $210.5 million. That's 30% of their combined property tax revenues for fiscal year 2011, and more than Scott originally targeted.

“We were on a pathway to address it ourselves,” says Dave Moore, executive director of Swiftmud.

But its slow pace in dealing with its cash is now raising questions about management of the agency charged with water supply planning and environmental permitting functions across 16 counties and roughly 10,000 square miles of west central Florida. The district extends from Levy to Charlotte counties and inland to adjacent counties.

“As needs reduced for permits, the district did not seek to match service needs with our staffing levels,” says district governing board member Carlos Beruff, president of Medallion Home, a Manatee County homebuilder.

Total permit applications — for things like well construction, water use and projects affecting surface waters — dropped from 21,242 in fiscal year 2006 to roughly 9,500 last year, a 55% slide. “We should have been seeing it in '09 and '08,” says Beruff about the decrease in permitting.

Meanwhile, regular full-time equivalent staff numbers have remained constant at 736 since at least 2003. But when temporary and contracted employees are added in, the number of workers rose to a peak of 897 in 2009 before dropping off to 850 this year because of a cutback in outsourced workers.

In addition to total staffing levels that grew while permit applications fell, Swiftmud grew its cash and investments balance from 2007 to 2010, from $550 million to $674 million. In 2001, the balance was just $268 million, so it's grown 251% in nine years, or nearly 27% a year on average. (See chart on page 21A.)

During that period the district-wide millage rate — equal to $1 of property tax per $1,000 of assessed value — barely inched downward. In fact, the rate stayed at .4220 from 1994 to 2007. In 2007, it dropped 8.4% to .3866 to comply with tax reform legislation that year. It was next lowered this year, to .3770, a 2.5% cut.

It's a “perfect storm” scenario according to Beruff, who joined the board in August 2009 and has been trying to get staff and other board members to see the link between the cash balances, reduced permitting levels and the millage rates.

Beruff says, “It's not all the district's fault.” That's because another part of the problem stems from local governments canceling cooperative funding projects, which contributed to the rise in cash that had nowhere to go.

“We put away our money with anticipation of these projects, and now with the downturn in the economy, the municipalities don't have their matching funds,” explains Beruff. Those projects are funded half with local money and half from the district.

The numbers bear him out: In the last three years, including so far this year, $64 million in cooperative funding projects have been canceled. Beruff says there are more not yet accounted for. In the previous seven years, less than $21 million in projects were canceled.

And for every matching local dollar from projects canceled, that results in an additional dollar added to the cash balance, according to Moore.

The biggest cancellations are the Tampa reclaimed water expansion (STAR), a $9.9 million project, and the $8.5 million Tampa Dale Mabry best management practices project. Those cancellations contributed to the reduction of the 2011 millage rate for the Hillsborough River Basin.

The district has seven river basins that assess an additional millage for projects in their area. After recent reductions, those rates now range from .1481 to .2600.

Other projects canceled across the Gulf Coast include those planned for Pasco County, Pinellas County, Safety Harbor, Clearwater and Sarasota.

The Legislature intervenes
On May 5, legislative leaders approved a revised deal cutting the budget and resulting property taxes for four of the five water management districts by $210.5 million. That measure, Senate Bill 2142, passed May 7, the last day of the session.

Not only does the new legislation reduce the tax collection by water management districts by 30%, it also gives the Legislature the power to set the districts' revenue annually.

It also changes the oversight of the districts giving more authority to the Legislature. The key provisions:

• Requires the Legislature to annually review the preliminary budget for each water management district and set the maximum amount of revenue a district may raise through its ad valorem tax.

• Provides that, if the annual maximum amount of property tax revenue is not set by the Legislature on or before July 1 of each year, the maximum property tax revenue that may be raised reverts to the amount authorized in the prior year.

• Requires each water management district to provide a monthly financial statement to its governing board and make such information available to the public through the district's website.

• Revises provisions allowing the governor's office and the Legislative Budget Commission to disapprove, in whole or in part, the budget of each water management district.

In the past, the Legislature set the maximum millage rates for the districts and the governor approved the districts' budgets. Gov. Rick Scott proposed a $177.8 million cut in his budget plan, so legislators saw an even greater need to rein in the districts.

Swiftmud got a $60 million haircut to the property tax portion of its budget, 36% of its property taxes levied this year. That's the highest percentage reduction of the four districts faced with cutbacks.

The South Florida Water Management District, the largest of the five, had its property tax dollars sliced by $120 million to $405 million, a 30% cut matching the overall percentage cut for all the districts.

Beruff says that district has 1,500 employees and “could probably do with 1,100 without suffering.” He notes it has 47 staff attorneys on its payroll. “You should be able to do that district with 10 attorneys,” he argues. That's because, he says, attorneys are attending application meetings instead of focusing on litigation.

Refunds not legal?
Swiftmud's budget is the most dependent on property taxes of the five districts. In fiscal year 2010, nearly 63% of its budget came from property taxes. After this year's small cut in the millage rate, that percentage fell to 57.5%.

The bottom line: Swiftmud will have a maximum of $107.8 million in property tax revenue to work with in 2012 compared to the $167.8 million it has this year.

Moore says he's now looking at a $160 million budget next year, down from $280 million this year. “This adjustment is fundamentally related to the economic cycle,” he says. “We went up a lot in collections during that 2000 to 2008 period. Then we came down drastically like we've never come down before.”

According to Beruff and Moore, the district recognized the surplus revenue issue a year ago, but was told by legal staff that the district does not have the authority to return unused property tax proceeds to taxpayers. “Carrying such unused money forward would appear to be an appropriate mechanism for accounting for this revenue,” a legal Swiftmud memo notes.

Now, Moore will be discussing cuts with the governing board this month. “At the end of the day, we want to reduce all of our major expenditure categories,” he says.

With the $60 million cut to the district, Moore says he thinks the district's combined millage rate for next year could come down to as low as .42. That means if basin rates remain unchanged, it would lower the combined district-wide and basin rates to a range of .420 to .532. That represents a cut of as much as 20%.

But with a long-term plan to implement, Moore doesn't want to lose focus on funding capital improvement projects that will be needed. “The real challenge is to do the appropriate adjustment that solves the problem in the near term that doesn't handicap you in the long term,” he says. “That's the real trick.”

Beruff sees the funding problem a little differently, though he appreciates that Moore sees the need to adjust the business plan. “The great thing about this district is it has no leverage,” he says. “It has no debt. It's extremely fiscally conservative, but unfortunately with the taxpayers' money.”

The Scope of Swiftmud

The Southwest Florida Water Management District encompasses all or part of 16 counties along Florida's central west coast. About 17% of the state's total area or 10,000 square miles, and almost 25% of the state's population, approximately 4.7 million people are contained within the district. The district stretches from Levy County in the north to Charlotte County in the south and inland as far as Polk and Highlands counties. The region also contains the Green Swamp, and headwaters for the Peace, Hillsborough, Withlacoochee and Oklawaha rivers.

Water management districts derive their revenues from seven major sources. These include state revenues, local revenues, federal revenues, ad valorem revenues, certificates of participation, miscellaneous revenues and permit fees. The districts' primary revenue sources are from ad valorem taxes and state appropriations.

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