Mulling the Millage Rate: Part 1 of 4

I promised a somewhat substantive analysis of the commission’s first budget workshop, aka “The Budget Brawl,” so here it is. But first, a preface:

You guys clearly like shorter posts. I know this because, as Shakira would say, the clicks don’t lie. And, of course, I’m happy to oblige. But that means I’ve had to turn this piece into a four-part series in order to keep each installment even remotely pithy. This, for me, is kind of annoying from a rhythm and flow perspective—just saying. I hope you remember all the nice things I do for you.

Also, I wanted desperately to avoid some of the standard themes here. Fiscal policy is a relatively dry subject, and so I’d hoped heading into this exercise that policy would overshadow personality and allow me to pen a thoroughly anodyne think-piece sans any jabs at the usual suspects. But alas, while hope is a good breakfast, it is a bad supper. We are dealing with KFC’s commission, after all, a commission for whom tasks as benign as ordering coffee are destined to devolve into tribal warfare. Everything has to be petty, political, and personal with these people. This can’t be overlooked.

Nevertheless, I will ignore (for now) the meeting’s most explosive moments, from Kirk at one point sounding as though he was literally choking on his own rage, to Ariel “Mr. Civility” Fernandez screaming “you should resign!” at Lago from across the room as he (Ariel) stomped out the door—there must be a special carveout for that kind of behavior in Robert’s Rules of Order.

Side note: Isn't it interesting how when the commission finally encounters an item that KFC can't monopolize with a simple 3/5 vote (millage rate adoption requires a super-majority), their meeting suddenly turns into a Jerry Springer episode?

Anyway, fun though it would be to fully deconstruct KFC’s increasingly absurd antics, doing so would only distract from what I wish to accomplish here.

Thesis and anti-thesis

Though billed as a comprehensive budget workshop, the millage rate discussion consumed the entire meeting. That’s because Lago, who last year proposed a last minute menu of potential rate reductions (stretching as high as 7.5%), returned this year with a narrower and much less aggressive proposal: a simple 2% reduction. Only this time he did so much earlier in the budgetary planning process and with Anderson’s support.

The rate-reduction thesis is relatively intuitive: The city’s millage rate has remained unchanged since 2016, while median home values have more than doubled in the past five years alone. Per its proponents, a 2% rate cut would help offset what is essentially an ever-increasing tax burden, even if only modestly. Furthermore, both the Miami-Dade property appraiser and several state legislators have called upon local governments to lower their millage rates—many municipalities have already heeded the call. The classical-liberal spirit underlying all of this, though, is that maybe it wouldn’t kill our local governments to allow us citizens to keep a little more of our own hard-earned money for the very first time in a decade.

The entire thesis goes much further than this, naturally. However, for the sake of efficiency, I will focus on KFC’s (mainly Ariel’s) anti-thesis, which as I understand it, consists primarily of four arguments:

1. Too soon: It’s too early in the budgetary planning process to agree on any specific reduction.

2. Too costly: A 2% rate reduction is bound to negatively affect municipal services.

3. Too ineffectual: A 2% rate reduction will fail to provide meaningful relief—in some cases mere pennies—to those who need it most, i.e. smaller and less affluent property owners.

4. Too regressive: A 2% rate reduction will disproportionally benefit those who need it least, i.e. larger and more affluent property owners.

Throughout this series, I’ll briefly examine each argument, beginning today with the "too soon" claim.

Too soon

This wins the award for “most paradoxical argument,” as it’s somehow reasonable and audacious all at once. It’s reasonable because it is July, which means the commission has the rest of the month, all of August, and part of September to lower the millage rate. There is no exigency here, no proverbial gun held to the city’s head. Had Ariel just left it at that, had he simply said, “I’m not ready to commit to anything today but I’m happy to revisit this in August,” and then not said another word, I’d be writing a much different post right now. I’d have to…*shudders at the thought*…agree with Ariel.

It’s audacious because much of the opposition to last year’s proposed reductions lay in the fact that Lago announced them much too late in the year. The “budget was set,” and so slashing revenue at the last minute meant “pulling the rug out from underneath the budget.” One shouldn’t, the opposition claimed, disrupt a revenue stream upon which a vast and complex expenditure framework is based. This, of course, implies that expenditures are largely dependent on expected revenue. How logical.

Unfortunately, the argument now runs in precisely the opposite direction. There are too many undetermined budgetary variables, too many “balls in the air,” to set any kind of ceiling on the millage rate. Per Ariel, the commission should seek further clarity on pending homestead legislation and ongoing Teamsters union negotiations.

Heads I win, tails you lose.

Either that or there really is some kind of magical budgetary Goldilocks zone, an extremely narrow window in which it’s not too soon, not too late, but just the right time to set a millage rate. If so, it would have been nice if someone had mentioned this 11 months ago.

The weakest link in the argument, however, is Ariel’s newfound conviction that a municipal revenue stream cannot be limited until the full expenditure picture—including employee union contracts—is resolved. This is how bureaucrats think, which is why virtually every bureaucracy on earth suffers from bloated budgets, runaway spending, and an inherent tendency toward fiscal irresponsibility. It should not be how our elected officials think.

Moreover, I cannot stress enough how foolish this idea is from a strategic negotiations perspective, and how clearly it betrays Ariel’s lack of useful life experience. It doesn’t take John Nash to see that, from a basic game theoretical perspective, capping municipal revenue at a lower number before finalizing union negotiations is strategically optimal for the city. By lowering the millage rate and limiting revenue first, the city creates a credible commitment to a budget constraint. This, mind you, is not merely a negotiation tactic, but a tangible limitation that the union must accept as reality. It transforms the negotiation landscape from one of potential resources to one of actual, limited resources.

To put it more plainly, you can’t negotiate with money you don’t have. And believe me, the employee unions understand this, which is why they call a code red virtually every time the city wants to spend money on anything that isn’t them.

Furthermore, signaling to employee unions that you're willing to adjust your revenue stream to meet their desires, rather than the other way around, is likely to result in a collective bargaining agreement that benefits employees more than residents.

“Too soon” is a bad argument.

We’ll look at the “too costly” argument in Part 2…