Mulling the Millage Rate: Part 3 of 4

Note: Remember all that stuff I said about short posts? Yeah, never mind. This one got away from me. It’s a deep subject. What the hell else can I say at this point?

That said, I figure the length of this post will create a selection effect. If you’re truly interested in this subject, you’ll read it. If not, you won’t. It will be as it should.

Lastly, duty called and so I lost a couple of days thanks to el trabajo. Which means I doubt I’ll get to part four before Thursday’s budget workshop. Nevertheless, part four will address the least critical argument. It’s more political than anything. It will fit in just fine after the workshop, which I’ll have to write about anyway.

So, dig in. Or don’t. I appreciate you guys either way.

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The third argument against reducing the millage rate, the one I’ve dubbed “too ineffectual,” aims squarely at the proposal’s benefits. It’s undoubtedly the most effective weapon in KFC’s arsenal. It’s so straightforward that even Dr. Castro, or whoever does her thinking for her, was able to articulate it adequately in her most recent e-blast. Although, I must say, I’m not sure the good doctor’s ghostwriter had to invent a completely new statistical measure, “median average,” to make their point. Who knew one could combine illiteracy and innumeracy in one faux pas?

The proposed reduction will save the median average homesteaded property owner approximately $61.23 per year, or just $1.18 per week (according to the latest Budget Workshop). Essentially, this amount won't even cover a cup of coffee or a pack of gum each week. While savings are always welcome, it’s crucial to consider what we might lose in exchange for such a nominal amount.

The truth is, these savings come at a significant cost. Essential services in our community will be cut to accommodate this reduction. It is vital for you to understand which services will be affected and how the departments in our city will be impacted.

I’ve limited my description to effective because in order for it to be compelling, it would have to be paired with a valid cost argument. Costs and benefits, as you know, are complementary aspects of a single analytical process. Like two sides of a coin or two parts of a single equation, they must be evaluated together to arrive at a meaningful conclusion. As I argued in part two of this series, KFC’s cost-oriented claim, i.e. that “essential services will be cut,” is a bald-faced lie. You’ll still get all the police and fire employees you’ve been asking for. Moreover, and drawing from what I’ve already propounded, I submit to you that the cost of the proposed rate cut is the main benefit (a point I’ll come back to later).

Nevertheless, despite being incomplete in itself and all but negated when costs are considered, the “too ineffectual” argument has a certain naked appeal. The prospect of $61 in annual savings hardly whets the appetite of most residents, and so it’s only natural to question whether this tax cut is even worth all the attendant teeth-gnashing and political infighting, let alone any potential budget implications.

We’ll explore that question in a moment. But first, an admittedly political observation: Dr. Castro’s recent e-blast (sent on July 29) contains KFC’s first and only mention of the “median average property owner” statistic, which is clearly the most relevant metric for this subject. If you want to gauge how a policy proposal will affect the greatest number of people, then “median” is usually the measure you’re looking for. “Average” isn’t bad, but it tends to be right-tailed, i.e. disproportionately skewed by the highest values. You might wonder, therefore, why it took almost three weeks for KFC to mention it.

The reason lies in the numbers they were much more eager to share—numbers associated with each extreme of the benefits spectrum. Ariel was quick to tell us exactly how much the largest property owner, Agave, stood to gain from a tax cut: $37,000. I hate to break it to you, but that amounts to a rounding error for them. Agave, which is owned by literal billionaires, gives that kind of money about as much thought as you and I give the loose pennies we vacuum up from our floorboards when we’re at El Car Wash. But that’s a point best saved for part four.

Ariel was just as quick to mention the mere nickels and dimes that the smallest property owners would save on their end. He did this because it isn’t enough for you to conclude that the tax cut isn’t worth it. He needs you to believe that it’s a thinly veiled yet utterly sinister attempt to reward bad people, aka rich people, aka developers. Bad policy isn’t enough to excite KFC’s base, you see, it has to be evil policy.

Here’s Ariel portraying Lago as our very own Prince John, robbing from the poor to give to the rich. Note the mere pennies The Residents Who Need It Most™ would save:

Three cents! Four cents! Five cents! Seven cents! Those are some rather alarming numbers. And here I was thinking Coral Gables boasts one of the most expensive housing markets in the country. Who knew there were so many dirt-cheap properties scattered throughout the city? Come to think of it, let’s take a gander at one of the properties Ariel was referring to:

Ah, yes! The undeveloped and mostly submerged plot of land with no address that is typical of so many homes throughout the Gables. Good work, Ariel. It’s so nice to see you’ve broadened the definition of The Residents Who Need It Most™ to include sea sponges.

But leave it to Ariel to snatch deception from the jaws of honesty by undermining an otherwise sound argument with deliberate misinformation. All he had to do was focus on the relatively modest savings in store for the median property owner—the most broadly representative statistic by definition. This approach would have created a nearly unassailable benefit-oriented argument and given Ariel an opportunity to be both effective and honest at the same time. Yet he chose duplicity instead.

And in the event you’re inclined to believe that Ariel’s highly divisive class-warfare spin on a universally applied tax cut is anything other than cynicism steeped in bad faith, I would encourage you to read what he had to say about the millage rate in Gables Insider just two short years ago. As usual, it’s a case of Ariel vs Ariel (emphasis mine):

While its a great public relations play to say that the millage rate will remain the same, the fact is that your taxes have continued to rise year after year. As property values have risen, so have taxes. The average home’s City taxes in Coral Gables has risen from $3,288 in 2016 to a proposed $4,123 in 2023. That is an increase of 3% for next year and a 25.39% in the past seven years.

…Over the last few weeks, residents been have reaching out to Gables Insider about this increase. The largest concern is the fact that numerous other municipalities in Miami-Dade County, as well as the County itself, are reducing their millage rates and offering their residents a relief in the midst of growing inflation.

…The City is not without increased revenue. Over the last few years, it has benefited from increased revenue from several large residential and mixed-use projects. This year will not be different, as the City will see its first revenue from the Life Time building, which we recently reported has sold for $430 million.

…Previous projects have come online with their added revenue, in addition to the increased taxes on residents in residential properties.

…However, there has not been an increase in services, rather we continue to hear that there is no money even for basic needs. So where has the money gone?

…That is the question many are left pondering. The rate of growth and development in the City has only grown during these seven years and residents have yet to see a tax break.

Who knew the merits of a tax cut were determined by the virtue of its proponents?

Me, Myself, and I

Every data point has a blind spot, and “median property owner” is no exception. Median property tax savings naturally is a function of median taxable property value, which in Coral Gables is $546,000. Note how this is nearly a million dollars lower than the city’s median market home value of approximately $1.5 million. This reveals the incredibly heavy hand of certain tax exemptions, primarily the Save our Homes Assessment Cap (SOH). SOH limits the annual increase in the assessed value of homesteaded properties to 3% or the change in the National Consumer Price Index (CPI), whichever is less. What’s more, it’s a portable exemption, meaning you can carry a portion of it (up to $500,000) from your previous home to the next. In short, SOH is why so many Coral Gables residents pay taxes on less than half or even a third of their home’s market value.

The downside to SOH is that it doesn’t apply to first-time homebuyers, as these folks don’t have an exemption to carry over. Therefore, first-time buyers get hit with a taxable value that is roughly equal to their new home’s market value, minus any homestead exemption. With that in mind, let’s look at two hypothetical Gables homeowners, Ken and Karen vs John and Jessica:

• Ken and Karen bought their first home in Coral Gables in 1998 at the entry-level price of $200,000. Thanks to a hot housing market, their home is valued at $1.25 million today, an increase of 525%. However, thanks to SOH and homestead, the taxable value of their home is only $373,000. Thus, their municipal tax bill is $2,073.50, to which a 2% cut would yield an annual savings of $41.47, which is less than what Karen and Ken spend each week on Fancy Feast for their six cats.

• John and Jessica just bought their first home in Coral Gables at the entry-level price of $1.25 million. Because it was their first home, they had no SOH to carry over, however they did receive the regular homestead exemption, which puts the taxable value of their home at $1.2 million. Thus, their municipal tax bill currently stands at $6,670.80, to which a 2% cut would yield an annual savings of $133. But that’s not all, because the only Coral Gables home John and Jessica could afford was a two-bedroom cottage in the North Gables, and seeing as though they want to put down roots and grow a family, they have no choice but to build an addition. This will mean an additional investment of $200,000 plus interest just to make their home livable for a family of three. Thanks to current market conditions, their home addition will increase the property's market value by $300,000, all of which will fall outside the SOH cap. Therefore, their new taxable value will increase to $1.55 million, which will raise their tax bill to $8,616.45, to which a 2% cut would yield an annual savings of $172. That’s roughly equal to three months of diapers. It’s also more than half the recent and highly touted garbage fee reduction.

So you can see how the “but-it's-just-a-few-dollars” claim doesn’t quite resonate with every resident. You can also see, at least I hope, how it’s just a tad selfish to flippantly dismiss the potential tax savings as being trivial to everyone just because it is trivial to you and your median property owner friends. You can see how your newer and younger neighbors might view your categorical opposition to tax cuts as your way of pulling up the ladder behind you.

And just remember, the fact that residents like you and me outnumber those younger and newer residents, the ones who on average offer the city much more long-term revenue potential, carries no moral weight. What was it that some of you said about maintaining April elections? Oh, that’s right, “quality trumps quantity.”

The cost is the benefit

Back to a point I made earlier, one that is sure to raise some hackles: the cost of the tax cut, specifically the $2.6 million that would come off the proposed budget, is, in fact, its greatest benefit. It’s more important than any sum of money that could end up in any resident’s pocket.

Indeed, if you told me that instead of returning the money to the residents as tax relief, the city was going to take that $2.6 million and donate it to St. Jude or the Make a Wish Foundation, I’d be just as supportive of the proposal—maybe more so. In fact, if you told me the city’s plan was to take the $2.6 million, put it into a large pile, and set it on fire, I’d say ‘here’s a match.’

That's because I'm old enough to know that there isn't a magical municipal-services vending machine tucked away inside city hall's basement—one where you feed dollars into one slot and a municipal service comes out the other. The quality and efficacy of one’s government is not a direct function of its budget. From what I've experienced over the years, established institutions tend to become less efficient as they accumulate more resources, as they tend to prioritize budget growth over efficiency.

I’ve dealt with the VA, IRS, HUD, TSA, and the Department of Education. Each is a case study in declining efficacy despite endlessly growing budgets. On the other end of the spectrum, I’m aware of triumphs ranging from NASA’s famous “Faster, Better, Cheaper” approach to the Department of Defense’s "Revolution in Military Affairs” strategy to New Zealand’s public sector reform—all of which saw dramatically improved efficiency and efficacy not through budget increases but through budget cuts.

I’m also aware of my own municipal government and the practically geometric revenue increases it has enjoyed over the past decade. I’m aware that the city has collected almost $60 million in additional property tax revenue since 2016, with $23.8 million of that hitting the books just last year. I’m aware that the city is set to receive an additional $10 million next year, creating a total tax revenue increase of nearly $70 million in less than a decade—an amount that’s more than a quarter of the city’s total budget.

And I’m aware that many of you complained about municipal services that entire time. You were most definitely complaining about them in 2022-2023, back when Ariel was telling you virtually every week how broken the city was…and how you so richly deserved a tax cut nonetheless.

You complained about everything from public safety to garbage collection to parks to public works. You absolutely eviscerated the building department, whose deficiencies, oddly enough, you attributed not to budget constraints but to leadership and culture. You didn’t think twice when you were told that the brilliant solution to all the building department’s woes wasn’t more money, but more Dr. Castro.

Well, they were half right, at least.

You say you take your municipal services seriously yet you allowed every last one of those services to be placed in the hands of a 70-year-old retiree with literally no municipal experience. You essentially dissolved the office of city manager by installing a mere figurehead that answers to only one member of the commission and who allows—and needs—his department directors to run the city for him. You allowed your city government to operate as a type of consortium, a loosely connected cluster of fiefdoms.

But sure, let’s give it more money. That’ll fix everything!

Our government has enjoyed nothing but tailwinds for over a decade, including increased tax revenues thanks to skyrocketing property values, strong equity markets that have fueled public pension accounts, and the absence of major hurricanes that could have inflicted tens of millions of dollars in damage to the city. It’s been a smooth ride, yet so many of you act like we sit on the brink of disaster, as if our city having to work with $68 million additional dollars instead of $70 million additional dollars will be enough to push it over the edge.

Breaking the cycle

This tax cut isn't just about dollars and cents; it's about breaking this cycle of entitlement and restoring a sense of fiscal sanity within our government. It's about teaching a lesson that more money doesn't automatically equate to better services or more efficient operations.

It’s about refuting a self contradictory, “too-much-squeeze-and-not-enough-juice” argument against a 2% millage rate reduction that, if taken seriously, means that the millage rate cannot be reduced ever again. On one hand, we’re told a 2% tax cut is too costly from a budgetary perspective; it takes too much money away from a city that is, by far, more well-off than ever. On the other hand, we’re told that a 2% tax cut produces negligible savings for the typical resident; the benefit is simply too small. Therefore, if the current proposal of 2% is both too costly and too ineffectual, then the following must be true for any future tax cut:

• If X < 2%, the benefit is too small.

• If X > 2%, the cost is too high.

• Ergo, no tax cuts for you. Ever.

In the end, this isn't just about $2.6 million. It's about setting a new course, one where our government has to do more with more, just not quite as much more. Where efficiency and innovation are prized over ever-expanding budgets. It's about rekindling the spirit of accountable, responsive local government that serves the people, not itself.

And that, my fellow residents, is a benefit that far outweighs any amount of money we could put back in our pockets.