INCORPORATION: Costs in a new city

The question of finances is perhaps the most contentious part of the debate over Lakewood Ranch becoming a city.

Would there be more or less money for city services? Would taxes go up, down or neither?

The Lakewood Ranch Incorporation Study Group hired Orlando-based Fishkind & Associates in 2009 to study the financial feasibility of the Ranch becoming a city. Fishkind is one of the most renowned economic groups in Florida and has done other studies on the financial feasibility of communities incorporating.

The goal was to obtain a professional, objective take on financing. Although the results have been criticized by opponents of incorporation, who also have criticized the proponents of incorporation and the East County Observer’s coverage of the issue, the Fishkind study remains the primary source of data for evaluating where Lakewood Ranch becoming a city makes financial sense.

The bottom-line results of the study state: “Lakewood Ranch has the capability to produce a financially viable community and establish an appropriate level of reserves.”

First, the study showed what common sense suggested: Lakewood Ranch is a major donor community to Manatee County — it gives more than it gets.

From all tax and fee sources in 2009, the Ranch paid $31.74 million to Manatee County and $1.78 million to Sarasota County, a total of $33.52 million. On the expenditures side, Lakewood Ranch in Manatee County received $22.42 million in services while the Ranch in Sarasota County received about $742,000, for a total of $23.16 million.

So in 2009, Lakewood Ranch sent out $10.36 million more in taxes and fees to the two counties than it received in services, according to calculations taken from the Fishkind report. The community received back about 68% of what it paid in. This is a common situation for any unincorporated community that is wealthier than the county in which it is located.

ASSUMPTIONS
As with any analysis of possible futures, assumptions play a large role. And the Fishkind report is no exception, proving the reputed Yogi Berra comment that “it is difficult to make predictions, especially about the future.”

For revenues, the study assumed continuing most taxes and fees currently being levied by the county, plus getting a city share of what is currently all going to Manatee County from the state. These rely on the assumption that a city of Lakewood Ranch would qualify for the state money and that most revenues would increase at 3% per year.

The following are the revenue sources that Fishkind determined were likely to be available to a new city:

• A property tax rate of 0.6109 mills, the same rate being applied to Lakewood Ranch property tax bills by Manatee County as part of being in the unincorporated county — what’s known as the Municipal Services Taxing Unit, or MSTU;

• CDD assessments on all properties within each district would flow to the new city;

• A city share of the local government half-cent sales tax, for which the study assumed the city would qualify;

• A communications services tax, which the county now collects, would be spent within the city;

• Local option fuel tax revenues that go to all cities would be available;

• A share of the municipal revenue sharing program that comes from the state sales tax and is redistributed to local governments;

• Building permit fees, fines and forfeitures and service charges.

From these revenue sources, the Fishkind report projects 2012 revenues would be $15.98 million and that amount would climb to $32.89 million in 2020, based on regular increases in revenues, plus assumptions on population and employment growth.

But the study was done in 2009, and the further out projections are made, the more inaccurate they can become.

On the expense side, it costs local governments to provide services to residents, visitors and workers that come into the local jurisdiction for their jobs. The study employs a weighting procedure that calculates the time each category of person is in the county, and therefore how much that person will cost in services.

Using that formula, total expenditures projected for 2012 would be $14.45 million and climb to $31.34 million in 2020, running a surplus each year and reaching nearly $10 million after 10 years. Again, that relies on a range of assumptions, which could be off in either direction.

OBJECTIONS
Opponents of incorporation take exception with some of these assumptions. But they raise broader concerns about the Fishkind report, which they label “seriously flawed.”

One objection is that the report is light on projected expenses. Three pages are committed to expenses out of the 44-page report. Further, the expense projections are based on a comparison to Bradenton and Palmetto, which opponents say are so demographically different from Lakewood Ranch, they should not have been used.

Both of those cities have a more challenging demographic than Lakewood Ranch, and providing services there could be more expensive than in a new city with the Ranch’s more favorable demographics.

But perhaps the largest issue opponents have with the study is that they argue it does not meet the statutory requirements for incorporation. They believe the backers of incorporation will need more data after the straw poll to submit to the Legislature to meet the law. If so, that still falls before the official June vote by the community and could be taken into account by voters.

Opponents also point out there is no mention of liability issues for a new city and should be a part of the expense structure.

The study also does not include any impact fees for the new city, which likely would be exempted from paying Manatee County impact fees. Such fees would not be paid by existing residents but would add to the city’s coffers. But they are left out of revenue projections.

Other possible taxes assumed not to be levied include occupational licenses, franchise fees, public service taxes and others. The Fishkind study assumes they will not be levied and no revenue is included from them.

CHAPIN’S ASSESSMENT
In response to criticisms of the Fishkind report, the proponents hired Tim Chapin, with Florida State University’s Department of Urban and Regional Planning, to assess the methodology.

Chapin wrote: “As a whole, then, I would characterize the overall quality of this work as very good. The consultant accurately and appropriately responded to the direction of Florida statutes. The data employed appear to be the best available, derived using appropriate, professionally accepted methodologies. The presentation of the results is clear, and generally transparent as to the data used and the methods employed.”

Chapin concluded: “The report’s finding that the proposed incorporation of Lakewood Ranch is financially feasible appears to be based upon solid empirical evidence. I believe this work to be of a high professional quality … ”
 

PROJECTIONS
Projected revenues and expenses for a city of Lakewood Ranch over 10 years.

Total Revenues: $135,629,159
Total Expenditures: $126,350,773
Net Fiscal Impact: $9,278,386

CHANGES
What would change financially for Lakewood Ranch residents and businesses.

• Residents. Residents would initially see no change in their taxes. The current line item on a Lakewood Ranch homeowner’s property tax bill for being in the unincorporated county falls under what is called an MSTU, or Municipal Services Taxing Unit. The current rate of 0.6109 mills is proposed to remain the same. The elected City Council could increase or decrease it at any point thereafter as is the case with any city, or with Manatee County.

• Businesses. Businesses in Manatee County would see no change in their tax bill, either, having the same MSTU line item as a resident. However, businesses in Sarasota County, including all those in the Lakewood Ranch Corporate Park on the south side of University Parkway, would see a tax increase because Sarasota County does not charge an MSTU. So that 0.6109-mill tax would be new. Backers of incorporation hope to negotiate some sort of tax credit with Sarasota County to offset that, but there is no guarantee that will be the case.

• CDDs. The CDDs would become “dependent districts,” meaning the City Council would represent them, the same as has been done in several other recent incorporations in Florida. The CDD structure stays in place, but not an individual set of supervisors for each CDD.

Click here to see financial feasibility data.