CITY OF KEY WEST
OFFICE OF THE CITY MANAGER
525 ANGELA STREET
KEY WEST, FLORIDA 33040
October 1, 2001
Mayor and City Commission
Key West, Florida,
The Adopted Fiscal Year 2001-2002 Annual Budget for the City of Key West is transmitted herewith. This budget reflects a strong commitment on the part of City Staff and Management to the continued development of a service oriented City government that is efficient, responsive to the needs of the public and improves service levels. It is presented to the citizens, Mayor, Commissioners and all interested parties in the spirit of service and open communications.
The Mission of Key West City Government is to maximize services to its customers, Key West‘s citizens and visitors, in the most cost effective way. This will be accomplished through teamwork, high employee morale, sufficient staffing and quality training. Establishing a partnership and safeguarding the, health, safety and welfare of the customer.
Key West, a tropical paradise, envisions itself to be a role model city known for the respect of our diverse people and our environment. We will strive to be a role model city, establishing an atmosphere of trust and confidence by providing quality services. We are a city that cares.
Safety is our primary consideration in all our actions.
Act with integrity for the sake of the reputation of your organization and yourself.
We will recognize everyone as a customer and treat him or her with consideration and respect.
We will be accountable for our actions.
We will accomplish our mission and vision through teamwork.
The FY 01-02 Budget was developed against the backdrop of the strategic objectives of the City and was influenced by significant immediate issues as discussed in additional detail below.
Strategic Issues and Objectives
Since the 1930’s, the economy of the City of Key West has been dependent upon tourism. Most of the employment base, commercial base and a large part of the tax base are dependent on tourism for continued success. Balancing the necessity to sustain and nourish this industry against the need to preserve the City as an attractive location for residents as well as tourists becomes an important obligation of City government.
As Key West has become desirable tourist destination, it is also become a desirable living location. Key West is an island with limited physical growth potential due the lack of land and Rate of Growth Ordinances. Therefore, the cost of housing, following the immutable laws of economics, has steadily increased for many years. This is a contributing factor in increasing to an already high cost of living. The City as well as local business has experienced difficulty in attracting and retaining staff to provide services. In addition, due in part to its favorable climate, the City has become a desirable location for a homeless population. The need for social services has increased.
Resident and visitor populations both on the island and in the near shore waters have created pressures upon the environment as evidenced by beach closures due to the presence of human coliform bacteria in near shore waters. The City responded by investing more than 67 million dollars in the upgrade of its sewer infrastructure and this year has initiated a storm water utility to address this contributor to pollution.
The continued reduction in the presence of the US Navy has created an opportunity by means of the Base Realignment and Closure (BRAC) Program. Under this program significant Navy parcels have been or will be transferred to the City. Already, the Poinciana Naval Housing complex has been converted to an affordable center and location for many human service organizations. The transfer of the Truman Annex Waterfront properties is expected in FY 01-02. Infrastructure improvements and property operation will be a major responsibility.
Due to low tourist volumes and resultant revenue declines during FY 00-01, the State of Florida reduced or discontinued the funding of certain critical programs such as social services and homeless services. Service needs continue. Thus, the responsibility for their funding has devolved in part to the City.
Given the above, City government, as a primary provider of services, assumes two fundamental responsibilities to the public:
These two obligations translate into a series of strategic priorities that have guided the City in recent years, guided the preparation of this budget and will continue to guide actions in the future. The strategic priorities are:
Impact on the Taxpayer
Budget preparation this year was extremely challenging. State funding of important programs was curtailed forcing the City to meet shortfalls. Community groups requested significant funding for a community center and funding for homeless assistance programs. Additional public safety officers were deemed necessary to assure a safe and healthy environment. Environmental quality improvement with its concurrent funding requirement continued as a high priority. The imminent assumption of Navy property included significant needs for infrastructure improvements. These issues translated into the need to locate additional funding.
The need for additional funds had to be viewed against the realities of the Key West economy. The City’s basic industry, tourism, is very volatile and price sensitive. Income to City government is, generated by tourists, residents, (many of whom are employed in the tourism industry) and tourist driven business. In addition, a possible national economic slowdown could have a negative effect the local economy.
One category of income consists of tourist driven sales and gas taxes and charges for services including parking meters. These were budgeted at the maximum reasonable amount based on experience. Cruise ship passenger charges were budgeted at 95% of the anticipated arrivals based on the schedule in existence at budget preparation. The total of these revenues were insufficient to provide the additional funds needed to cover new programs. Thus, the property tax became the source.
The property tax had to be viewed in light of other cost increases facing residents and businesses. Increases in Florida windstorm insurance premiums were producing an additional cost burden. Employers providing health benefits or employees paying for their health plans were facing large increases in costs. Increasing property taxes would have a negative impact upon employers and property owners. Of note is the fact that the largest property taxpayers in the City are tourist dependent hotels.
Other components the Monroe County General Government, the Sheriffs Office and the Monroe County School Board anticipated property tax increases. These increases were in contrast to reductions in the prior fiscal year. Past reductions were in response to requests to more equitably balance the cost of County services between unincorporated and incorporated constituencies. It is very important to note that the total property tax bill of a City resident consists of not only the City of Key West. The following lists all components and their status as finally approved:
Note: Rollback is the rate that has been decreased from the prior year rate to neutralize the effect of increases in property values.
The City of Key West is only 25% of the total bill.
The general fund budget progressed as follows:
· The FY 00-01 budget totaled $27,608,086. It included $10,327,940 in ad valorem taxes at 3.6246 mills.
· The initial FY 01-02 submission totaled $27,561,878. It included $10,487,246 in ad valorem taxes at the rollback millage rate of 3.2952.
· The FY 01-02 budget approved at the public workshops totaled $28,609,432. It included $11,534,800 in ad valorem taxes at the maintenance millage rate of 3.6246. $1,047,554 in new positions and additional wage increases were added to the initial submission at the workshops.
· The FY 01-02 budget adopted at the first public hearing totaled $28,393,058. It included $11,318,426 in ad valorem taxes at a millage rate of 3.5566. This rate was 7.9% above rollback. $184,044 was deleted from the capital equipment budget and $32,330 was deleted from the records retention project at the hearing to provide a total reduction of $216,374. This budget was advertised on Sunday, September 16, 2001.
· The FY 01-02 budget presented on September 18, totaled $28,225,029 or 2.4% above the FY 00-01 budget. The latest CPI is 2.8%. It consists of $10,956,897 in ad valorem taxes at 3.4098 mills or 3.48% above rollback. This budget consisted of a series of revenue increases and expense decreases summarized as follows:
o Ad valorem taxes were budgeted at a 96% collection level rather than the historic 95%.
o Other revenues were increased by $193,500 based on more current experience.
o Expense increases, deletions and reductions producing a reduction of $168,029 were included.
In summary $1,047,554 was added to the initial rollback budget. The increased budget was changed to accommodate much of the addition. Those changes produced a budget with little margin for unforeseen circumstances. The budget contained a $300,000 contingency reserve or 1% of the total budget.
Budget Implementation in Light of the Attack upon the United States
The implementation of all of the FY 01-02 budgets will take place at perhaps the most unusual time in the history of the City in recent memory.
The General Fund receives 37% of total revenues from tourist dependent taxes and fees. The Infrastructure (Sales Surtax and the Internal Improvements (Gas Surtax) Fund are totally dependent on these taxes or fees. These taxes and fees are significantly dependent on tourism. All other funds are to a degree directly or indirectly dependent upon tourism.
Two issues have and will have significant impact on the City given its dependence on tourism.
Given the above, the confidence with which tourist revenues are budgeted is less than in previous years and is at a cautionary level. In addition, the final impact of wage increases and insurance cost increases cannot be determined pending completion of negotiations and insurance solicitations. The City can rely on reserves to sustain operations during periods of revenue shortfall but such reliance cannot last indefinitely. General Fund reserves are projected at the 90-day working level. The Sales and Gas surtax funds have small reserves that are insufficient to sustain all of the projects and activities of those funds. Other funds have varying levels of reserves.
In light of the above, with the approval of the Mayor and Commission all FY 01-02 budgets will be implemented in the following manner:
1. All new positions, new programs, and projects will be placed on hold pending a review of the national situation, local tourism and revenues to be conducted on a monthly basis.
2. All discretionary spending will be curtailed.
3. If at the end of the first quarter, revenues are satisfactory and a state of war does not exist, certain positions, programs and or projects will be activated. The specific list will be recommended to the Commission by the City Manager. The same will occur on a quarterly basis throughout the year.
4. Currently budgeted positions will be filled on an as needed basis. If revenues drop and the hold of new positions, programs and projects are insufficient to maintain the safety of City finances, a hiring freeze will be implemented.
5. Suspension of the initiation of the Stormwater Utility charge and program to provide a degree of financial relief to local businesses, property owners and tenants.
Implementation of the above is deemed necessary in light of management’s obligation to assure the financial viability of the City.
The need to provide public services at costs that will not engender economic hardship to local businesses and residents has influenced the preparation of the budget that follows. City staff associates and management are committed to the Vision, Mission and Core Values of the City and service improvement. This budget reflects and supports that commitment even at this most trying time.
Julio Avael Roger D. Wittenberg
City Manager Director of Finance