If the second budget workshop was good for anything, it showcased what I would call the Inverse Law of KFC Politics. This law posits that, in KFC’s Coral Gables, the probability of a particular political outcome coming to fruition is inversely proportional to its reasonableness. In other words, the more sense something makes, the less likely it is to happen and vice versa. See November elections, commission raises, and the Iglesias/Rojas swap-out for further evidence in support of this concept.
Indeed, this is more observation than jest. If you’re still following the millage rate story—and that’s an understandably big if—you’ll know that despite Lago offering the compromise that KFC had claimed they were hoping for (he proposed a 1% rate reduction vs his original 2%) and Anderson’s master class on how to expose the intellectual bankruptcy of one’s adversaries, the troika dug in and got the higher millage rate that they so desperately wanted.
I could write a standalone series on the gamesmanship that led to this outcome and how KFC managed to get an opponent to fold a winning hand. And believe me, I’m tempted to. But I made a promise to analyze sometime in your lifetime the "too regressive" argument identified in part one of Mulling the Millage Rate. So, I'll stick to the itinerary and get to that in my next and final post on the subject.
Today’s post, however, will explore a rather simple idea that I believe could yield significant benefits moving forward. I hope, at a minimum, you find it worth considering.
Baseless Baselines
A few weeks ago, I mentioned the rather unfortunate framing of the millage rate debate, specifically, the portrayal of $10 million in increased revenue as a baseline, which then frames any reduction of this additional amount as a “budget cut.” This is a lot like assuming your boss is going to give you a 10% raise next year only to turn around and accuse him of “cutting” your salary when he decides he can’t give you that raise.
At any rate, I suspect I haven't fully conveyed how systemic and deliberate this framing is. It's not just a semantic trick or mere wordplay; it's an inescapable result of our city's budgetary process.
From what I’ve seen throughout the years, Coral Gables, like many cities, likes to base its proposed budget for the upcoming fiscal year—the one it proudly presents to the public at the first budget workshop of the season—on the then-current year’s millage rate. This means that as property values go up year-over-year, so do tax revenues, as the variable (property values) increases while the coefficient (millage rate) remains the same. Quite the racket when you consider the trajectory of home values over the past 30+ years:
But here's the rub: there's no legal basis for automatically carrying over one year's millage rate to the next. If there were, we could expect a city's current rate to be the official default for the following year. This default rate would then automatically remain in effect unless actively changed through legislation—much like how federal income tax rates operate.
However, that's not how it works at all. The annual requirement to set the millage rate anew clearly indicates that it's not meant to be lazily (and opportunistically) carried over year after year. Instead, it's designed to be routinely calibrated against the continuously shifting backdrop of property values.
That said, there is a default rate available: it’s called the “rollback rate,” a concept which despite its ubiquity surprisingly few residents seem to fully grasp. Contrary to how it is portrayed, the rollback rate isn’t some kind of diabolically punitive measure designed to penalize governments that can’t reach a consensus. Rather, it’s a statutorily prescribed rate that is calculated to generate the same amount of tax revenue as the previous year. In other words, the only millage rate that can be automatically adopted, i.e. the actual default rate, is revenue neutral by design.
But note the role that the rollback rate usually plays in the perennial melodrama that is our city’s budget season. It’s always the nuclear option. The unspeakable, unthinkable last resort that if triggered would set financial ruin upon the city. It’s the rate the staff never wants to plan for or feature in their proposed budget other than as a grim footnote; the proverbial Sword of Damocles dangling precariously over our delicate heads.
In reality, however, it's the product of a state law nearly half a century old (with similar laws existing in many other states). It’s a codified nod to fiscal transparency and responsibility. It is the state’s way of saying that revenue neutrality, not revenue maximization, should be the driver of tax policy. And even if you don’t buy all that conservative mumbo jumbo, it’s undeniably the one and only default rate there is. Not only is it a rate that a simple majority can adopt, it is the precise rate that would automatically be adopted if the entire commission were to perish in a freak accident before it could set one of its own. It’s therefore the most logical frame of reference for budgetary planning.
Yet here we are, apprehensively debating the merits of “cutting” a proposed budget based on an almost 10-year-old millage rate that will generate so much additional revenue that state law requires a supermajority to adopt it. Here we are, more than two months and two meetings into budget season, with no clue as to what a rollback rate budget would look like. All we know is that it’s supposedly unspeakably bad.
Well, guess what. As terrifying as the rollback rate might be to some, we were a hair’s breadth away from having to live with it next year. Had the commission’s little game of fiscal chicken gone south, there’s a very good chance we’d be looking at a budget that’s $10M leaner than the one we’re about to have. We’d have to scrape by with, I tremble at the thought, the same budget as last year!
Revenue-Neutral Baseline Budgeting
In light of the foregoing, the commission should pass legislation requiring staff to fully develop and present a Revenue-Neutral Baseline Budget—aka a Rollback-Rate Budget—at the year's first budget workshop. This budget, not the city’s Veruca-Salt-inspired, I-Want-The-World budget, should be the designated starting point for all subsequent discussions. The benefits of this approach would be, at a minimum, threefold:
Better Planning: In this increasingly turbulent political climate, bitter division is the new normal. The city simply cannot afford to put all its budgetary eggs in a basket that requires supermajority approval. By creating a soup-to-nuts budget based on the rollback rate, the city would be prepared for the possibility that a supermajority cannot be reached for a higher millage rate. This approach would help end the bizarre annual ritual in which city staff acts as though it can't fathom operating under a revenue-neutral budget—despite the fact that our current era is practically defined by the kind of political deadlocks that can trigger revenue-neutral rollback rates.
Increased Budgetary Discipline: A revenue-neutral baseline budget would compel the city to exercise greater fiscal discipline, as it would need to create a viable, publicly scrutinized plan without relying on increased revenue. We should all know from experience that if you give a government one dollar it will easily find a way to spend two. (I’m reminded of a fantastic line from the film Contact, “The first rule of government spending: why build one when you can have two at twice the price.”) City staff is fond of justifying its “need” for ever-increasing revenue on growing operating costs and capital projects. But notice how these increased cost demands happen to always correspond to the projected increase in revenue. If sticking to the current millage rate yields an extra $4 million dollars one year, then that’s precisely how much the city’s cost demands increase in turn. If in the following year the same millage rate produces $25 million in additional revenue, then wouldn’t you know it, that’ll be exactly how much the city needs to keep the trains running on time that year, but just barely. It’s almost as if operating and capital costs are somehow mysteriously pegged to the housing market—like macroeconomic magic! Perhaps if we forced the city to take a revenue-neutral budget seriously, we could compel it to take fiscal responsibility seriously as well.
More Honest Debate: Adopting a rollback rate as the baseline for budget discussions ensures the city accurately frames any rate increase above the rollback rate as what it truly is—a tax increase that generates additional revenue. This would help prevent the misleading practice of labeling reductions to proposed increases as "cuts" or "slashes" to existing services. Make no mistake, had a revenue-neutral budget rule been in effect this year, the debate over the same math and the same scenarios would have been framed radically differently. Rather than fighting over whether to lower taxes by 2%, 1%, or not at all, and whether to cut $2.6 million or $1.3 million or nothing from the budget, we would have been debating proposals to raise taxes by 6.2%, 7.3%, or 8.4%, and whether to add $7.4, $8.8, or $10.1 million to the budget. Without changing a single figure, the entire discourse would have centered around how much our taxes should be allowed to increase and to what extent our budget should be permitted to grow. It would have been a much more honest discussion about what is really happening.
Bear in mind that this approach would be far from overly burdensome on staff. Thanks to Dr. Castro’s recent town hall, we had the opportunity to hear from our assistant finance director herself and learn about how the city goes about creating a budget. Lo and behold, it begins—and I stress begins—with revenue-neutral baseline budgeting:
I must give credit to Ms. Rodriguez for cleverly allowing the word “automatically” to do all the heavy lifting there. Actually, we don’t “automatically” build in increased revenue. Heavens no. We do that ourselves in step two of the process. LOL.
Nevertheless, as you can see, revenue-neutral baseline budgeting wouldn’t exactly be a radical departure from the existing paradigm. In essence, it would simply put the brakes on the second step outlined in the clip above, the part where the upper management receives a wish list from each department and then allocates additional funds based on “anticipated revenue.”
Under this proposal, this important part of the process would still take place, but rather than allow staff to automatically bake spending increases into the first budget proposal before it ever sees the light of day, increased allocations would have to be contemplated through a series of additional, separate and publicly available budget scenarios, much like the way the staff has to present various revenue reduction scenarios once the proposed budget is presented and elected officials start grumbling about lowering the millage rate. Moreover, the default anticipated revenue figure would be based off the default millage rate, i.e. the rollback rate. Alternative revenue scenarios would be presented as precisely that: alternatives.
Nothing about this proposal would limit the city to a revenue-neutral budget. If additional spending is needed to maintain city services, so be it. However, that need would have to be explained and justified through open and honest discussion. $10 million of additional spending would be understood as just that, additional spending. Higher taxes should be portrayed as higher taxes, regardless of the associated coefficient. Moreover, city staff would not be permitted to strategically ignore the possibility of a rollback rate until it's triggered. This current practice, which one could describe as the “if-you-roll-it-back-now-you’ll-break-it” approach, or better yet the “deterrence-by-neglect” approach, leaves the city with a mere two months to prepare for a potentially dramatic shift in the revenue picture—a self-inflicted crisis born of poor planning.
By requiring early consideration of a revenue-neutral budget, and by ensuring that the city is prepared for a range of fiscal scenarios, especially the one and only automatic one, we would better avoid the kind of last-minute scramble that, in and of itself, serves as a deterrent from even thinking of revenue-neutral tax policy as a viable option, or, at the very least, a logical starting point for more frank and honest policy discussions.
Another fantastic piece of journalism right here.
It's great to have this level of breakdown as to what is actually happening in the city. What I don't yet understand is what exactly have the three commissioners (Ariel, Castro and Menedez) actually done for the city????? Genuine question. They have not achieved a SINGLE thing that helps improve our lives. You know, us residents of Coral Gables....the ones who pay taxes... meaning THEIR SALARIES.
And speaking of salaries, it's not possible to take anything they do or say seriously when they raised their salaries by over 100% without anyone involved. Immediately you could see that these were in fact absolutely DISHONEST politicians. They ran their elections with the false premise "we're for the people" but the only people that have benefited from them working in the city has been them and their families. It's shameful that their record and legacy will forever be "These are the people who brought chaos and incompetence to the city of Coral Gables".
I challenge anyone, anyone at all to tell us what exactly have KFC done for the city? I attended the last 2 meetings and Ariel is not able to talk like an adult. He's a man child who kept interrupting and insulting Mayor Lago like a high school bully. Ariel if you're reading this, this makes you look pathetic. It's not hitting like you think it is. The city of Coral Gables is a pride and your attitude says nothing about Lago and everything about the person you are.
In the meantime, I just remain grateful for 3 things: this blog, and Mayor Lago and Vice Mayor Anderson.
Keep fighting the good fight! We won't be beaten by corruption. United we stand against mediocrity.
Steven
I could not have said it better myself. Argee with what you said.