Staff from the Palm Beach County Clerk & Comptroller’s Office reported Tuesday that the county’s “net worth” has declined, largely due to increases in the Palm Beach County Sheriff’s Office budget.
During the office’s annual report to the Palm Beach County Commission, Chief Operating Officer Shannon Ramsey-Chessman said one of the primary components of the county’s financial health is its net position.
“In simplest terms, net position represents the value of what the county owns, minus what the county owes — basically the county’s net worth,” Chessman said. “Just as personal net worth grows, when the value of what we own is more than what we owe, so does the county’s.”
Net worth is one of the most important indicators of the county’s financial health because changes in the county’s net worth over time indicate an improving or weakening financial position or “bottom line.”
“Decisions to issue debt, build a park or to increase or decrease taxes have a direct effect on your bottom line,” she said. “The board, through its policies, directly impacts the county’s financial health, which is critical, especially during uncertain financial times.”
The office of Palm Beach County Clerk & Comptroller Sharon Bock, through its role as the county’s chief financial officer, provides valuable financial information that reveals the effectiveness of county policies, Chessman said.
“In fiscal year 2013, the county’s net worth declined by $41 million,” she said. “It is important to note that this decrease did not come from a reduction in taxes or fees but from an increase in spending.”
By contrast, in fiscal year 2010, the county saw a similar decrease in its net position, but the difference was due to a reduction in tax and fee revenue.
“Everything really starts with income or revenue; therefore, we begin a review of the county’s financial health by looking at components of revenue that have the greatest impact on the funding of county government,” Chessman said. “Real estate has by far the greatest impact on county revenue. Housing is an essential factor as property taxes are the primary source of revenue for funding Palm Beach County government. The local housing market clearly rebounded in 2013. There were more than 15,000 single-family home sales last year — a 14 percent increase from the previous year.”
In 2013, the median sales price of a single-family home was $244,000, up 15 percent from 2012, and 21 percent from the low in 2011. Although condominium and townhome sales were down 4 percent, the median price jumped 27 percent to $112,000.
“Although the millage rate did not change, there was an increase in revenue to the county due to an increase in property tax assessments,” she said. “The increases we saw in property sales and values resulted in an almost $4 million increase in property taxes in fiscal year 2013. This is the first increase since 2010; however, this still represents a $112 million decrease from the peak in fiscal year 2007.”
While property taxes represent about half of the county’s governmental revenue, sales, gas and tourist development taxes also provide significant income. Sales tax increased 5.5 percent for a third consecutive annual increase, although receipts are still down 7.5 percent from 2006. Gas taxes remained flat in 2013, although it still represented $45 million in revenue. Tourist development taxes were a record $30.5 million — a 5.9 percent increase over 2012.
“As the county’s top industry, tourism has shown to be the first to recover from the recent recession,” Chessman said.
However, she pointed out that additional tourist taxes may be on the horizon as the county was certified in March by the Department of Revenue to levy an additional 1 cent tax on hotel and lodging space. “Although well within the board’s authority, this decision must be carefully weighed, as higher hotel bills, especially with conventions, may be a disincentive with tourists who are considering a stay in Palm Beach County.”
Director of Financial Services Darlene Malaney said that while county tax and user fee revenue grew slightly, spending far outpaced the growth.
“The county increased general government spending by $8 million and physical environment spending by $9 million,” Malaney said. “However, the largest spending increase was for public safety, by $26 million or 3.5 percent. In fiscal year 2013, public safety spending reached a near-record high of $786 million, representing 47 percent of the county’s total governmental expenses.”
Malaney said that public safety spending had a direct effect on the bottom line.
“This increased spending, without a corresponding increase in income, has resulted in a weaker financial position for Palm Beach County, and is the main cause for the $41 million decrease in the county’s net position,” she said. “Simply stated, the county is spending more than it receives. This spending has also resulted in a decline in the county’s general operating fund balance.”
The 2013 general fund balance of $178 million was down $70 million, or 28 percent, from its peak in 2007, and nearing 2010’s historic low of $174 million.
“The decline in general operating fund balance and net position may have numerous effects, including a potential downgrading of the county’s coveted AAA bond rating,” Malaney said. “Ensuring spending is in line with revenue collections will remedy these concerns.”
