Friday, September 2, 2011

Is Palm Bay Scaring Away Businesses and Jobs?

When President John F. Kennedy was elected, he was faced with a dilemma: a declining national economy, rising unemployment rates, and budget deficits. So what did he do? He dropped the top marginal tax rate by 22% and deregulated industries. The result was phenomenal, as not only did government revenue grew by over 62%, but unemployment shrank as the private sector grew.

In President Kennedy's own words:

"... an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now."

History repeated itself, once again, when President Ronald Reagan also inherited an economic nightmare, as well. Again, the action taken was even more sweeping tax rate cuts which increased total tax revenue by 99% in the first year of his administration, and income tax revenue, alone, increased by 54% by the end of his term.

How can these lessons from the past, help us in Palm Bay? One issue that our city suffers from is a dismal commercial base in comparison to our neighbors (e.g. Melbourne) and lack of a thriving downtown. The results are less commercial ad-valorem tax base and the majority of the tax burden laid on the shoulders of residents to provide most of the revenue.

So, how do we attract more businesses to Palm Bay? While I agree that reducing the property tax rate is a great way to attract more home buyers and businesses, alike; I think we also have to look at the message we're sending to businesses, with the fees we expect them to pay on their way into our city.

Look at Ordinance 110.44 Receipt Tax Schedule, for example. Here you see the bigger a business' commercial building, the more money that business has to pay to our municipal government. But it doesn't stop there, the more employees a business takes on, the more it also has to pay in fees. The message is quite simple: If you move your business to Palm Bay, expand your operation, and provide more jobs, we'll take more money from your pockets.

Also, take a look at Ordinance 171 Fair Share Impact Fees, as another example. While the intent of Florida Statute 163.3161 “Local Government Comprehensive Planning and Land Development Regulation Act,” says it is "necessary so that local governments can preserve and enhance present advantages; encourage the most appropriate use of land, water, and resources, consistent with the public interest; overcome present handicaps; and deal effectively with future problems that may result from the use and development of land within their jurisdictions." 

The three Impact Fees (i.e. Park Police, and Fire Impact Fees; Transportation Facilities Impact Fees; and Water, Waste Water, and Water Impact Fees) of our municipal ordinance meets these objectives by "... requiring all new impact generating land development activity to contribute its proportionate share of the funds, land, or public facilities/equipment necessary to accommodate any impacts on public park, police and fire facilities/equipment having a rational nexus to the proposed land development for which the need is reasonably attributable to the proposed development." These impact fees can be as high as $957 for a single family unit. No where in the Florida Statute do I see fees as a necessity to "encourage the most appropriate use of land, water, and resources, consistent with the public interest," as stated in the Statute.

After all, if new edifices are to be constructed in our city, the property taxes incurred by businesses and home owners on the land purchased and their improvements, as well as the new business activities that will come as a result of those new constructions will most certainly pay off in the long run - increasing the long-term revenue stream of our local government. A subtle but long-term revenue increase will allow the City of Palm Bay local government to grow in proportion to the growth of population and revenue in a more steady pace while stabilizing or reducing local property taxes, rather than growing exponentially off the explosive revenue from fees that may last a year or two but wain over the next decade, or so. We've seen this happen from the year 2005 to 2007, where new departments were created, more employees were hired, bigger salaries given, and luxurious pensions were handed out - all at our expense - in the hopes that the same level of growth is maintained. However, when the market tanked, it's a lot harder to take the toy away from the child than it is to give it away.

If Palm Bay were to eliminate these fees, we wouldn't be the first to extend a helping hand to new comers and developers. Wakulla County is eliminating impact fees, all together. The reason, as some of the commissioners stated, " the amount of money a large commercial business would have to pay is reason enough not to come to that place... I want to remove every obstacle there is for commercial growth. I want to see commercial growth in this county, whatever it takes to get them here." The article goes on to say, "Those in favor of eliminating the impact fees argued that growth pays for itself in the form of other taxes."

In Texas, The City of Bullard, is also eliminating impact fees, as well. As one council member said, "Bullard is considered a hot spot for development, but he believes the fees associated with building cause development to go around the city instead of inside it."     

At a time of high unemployment (and foreclosures as a result), it is imperative to find new ways to encourage new market activities in our city, get people back to work, reduce spending and tax rates, and prioritize revenue towards infrastructure. Raising taxes and inventing new fees will only chase away both businesses, and along with them, jobs.

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