With Or Without Courthouse, Miami-Dade’s Debt Tax Set To Soar

Miami-Dade’s debt tax will soar in the coming years, even if voters reject a $390 million borrowing plan for a new courthouse, according to county forecasts.

Without a dollar of new debt for the judiciary, county forecasts show the special property tax that pays for the county’s debt is set to jump by about 50 percent in 2016. That’s thanks to the arrival of new debt that voters already approved for the county-owned Jackson hospital system, as well as rapidly increasing borrowing costs tied to a nearly $3 billion bond program that voters approved in 2004. “I can’t borrow money without having an impact on taxes,” said Ed Marquez, deputy county mayor for finance. “There is no free lunch.”

Currently costing $45 for every $100,000 of a property’s value, the debt tax funds borrowing approved by Miami-Dade voters and generates the revenue behind a wide portfolio of construction projects.  This year it is backing about $1.4 billion in borrowed funds used to create the new Pérez Art Museum Miami, expand county park facilities, build the Miami-Dade police headquarters, dig a tunnel to PortMiami and back hundreds of other projects. It also would allow Miami-Dade to borrow $75 million for an economic-development grant program that Mayor Carlos Gimenez wants to use to provide $9 million for the SkyRise Miami project.

MiamiDadeDebtTaxEven with property values rising more than 5 percent annually, a county forecast shows the debt load will get expensive enough that the tax will need to grow next year to $69 per $100,000 of value. That’s about a 50 percent increase. By 2020, it would cost $84 per $100,000 — about 85 percent higher than it is today. Like all property taxes, the debt tax is technically levied in “mills” per $1 of taxable assessed property value. One mill is one-tenth of a cent. The current debt-tax rate is 0.45 mills, which amounts to 45 cents for every $1,000 of value, or $45 per $100,000.

In an interview, Gimenez said the county’s conservative real-estate forecasts could mean the debt tax won’t have to go up as much as forecast. “Hopefully that tax rate can go down in the future,” he said. “I would like to keep it as low as possible. But it’s how much we borrowed versus what the tax base is.”

Even with the forecast increase, the debt tax would remain a sliver of the average tax bill. The current debt tax rate is one-tenth the size of the general property tax rate of $466 per $100,000, which funds police, parks, social services and other core county services. “It’s kind of a footnote on the tax bill,” said Terry Murphy, a former County Commission staffer now working as a consultant for unions and other groups. “I don’t think anyone pays any attention to it.”

Still, the debt tax is already far larger than the county’s library tax, which is $28 per $100,000 of taxable assessed value. The debt tax also played a role almost five years ago in propelling Gimenez into the mayor’s office.

In 2011, then-Mayor Carlos Alvarez’s budget boosted the debt tax more than 50 percent — from 0.29 mills to 0.45 — in order to combat the sharp drop in revenue brought on by the collapse of South Florida’s real estate market. The move violated a pledge county leaders made in 2004 to keep the rate below 0.40 while campaigning for the $2.9 billion Building Better Communities program. The BBC initiative, passed handily by voters, still accounts for the vast majority of borrowing costs funded by the debt tax.

Gimenez, at the time a county commissioner, joined a minority opposing the debt-tax hike. “It’s important to keep your word,” Gimenez said of the 2004 pledge. When he won election after voters recalled Alvarez in 2011, Gimenez rolled back his predecessor’s tax increases, including a reset of the debt tax to the prior year’s level.

The debt-tax relief didn’t last long. Last year, Gimenez proposed a hike to 0.42 mills as part of a larger tax increase to boost spending on fire, libraries and animal services. Facing a political firestorm, the mayor backed off on the tax-hike push for services, but the debt-tax increase survived. With little fuss, it increased a tiny bit again in the 2015 budget year, which began October 1.

In a recent interview, Gimenez said the real estate crisis and voters’ desire for the BBC projects left Miami-Dade with no choice but to move past the ceiling mapped out during the housing boom. “I’m a low-tax, no-increase kind of guy,” he said. “But I do believe in infrastructure. [It’s] one of the things that separates us from the Third World.”

One reason the debt tax tends to avoid the firestorm that follows even tiny increases in other property taxes is the fact that it pays off debt previously endorsed by voters. And while the county mayor and commissioners decide every 12 months when to borrow the money and where to set the tax, the actual rate is driven by debt incurred in prior years.

On Nov. 4, voters may authorize borrowing up to $393 for a new courthouse. But it would not be until 2021 that commissioners would need to increase taxes by a noticeable amount to pay back the money, according to the forecast prepared by the county budget office.

The $393 million sought for replacing Miami-Dade’s moldy and cramped 1928 civil courthouse with a new facility in downtown Miami is equal to about 25 percent of the tax’s current debt load.

With the forecast debt-tax rates, new courthouse borrowing would, on average, push up the tax an additional 8 percent during the next 20 years — about $5.50 for every $100,000 in value, according to county projections. (Over 30 years, the courthouse bonds would cost an average of $7 for every $100,000 in value, according to the forecasts.) “When you look at the average value of a house, it’s so tiny,” said Katy Sorenson, a former county commissioner now running a Miami-Dade panel overseeing spending on the BBC program. “It’s an investment in the future. It’s for future generations.”

The entire courthouse debt would cost Miami-Dade an average of about $24 million a year to pay back through 2045, according to the forecasts. In all, the payments, with interest, would total $733 million over 30 years.

Ballot items allowing Miami-Dade to incur debt for projects are typically called bond programs, since governments borrow money by selling bonds on Wall Street. Investors make a profit on the interest payments that governments pay bond holders, and those payments come from the debt tax.

Bond payments for Jackson account for about 35 percent of the debt-tax increase in 2016. The rest comes from increased borrowing costs tied to the $2.9 billion BBC program. Without a larger tax roll, Miami-Dade can control the tax only by delaying existing payments or scrapping future borrowing.

Esteban “Steve” Bovo, one of two county commissioners to vote against the courthouse plan, said Miami-Dade shouldn’t minimize the impact of a debt-tax increase. “There’s a reality that the number many of us think is insignificant is significant to others,” he said.

Advocates of the courthouse plan say Miami-Dade’s justice system desperately needs the money to replace the existing facility, which has half the courtrooms needed for all 40 judges and leaks to the point that some areas are closed because of mold contamination. “This is a crisis situation,” said Commissioner Sally Heyman, who joined the majority of the 13-member commission last month to send the courthouse item to voters. “It’s become a situation of: Do we invest in ourselves?”

Of the $393 million sought from voters, about $25 million is slated for repairs to the existing building so it can last the five years needed to build a replacement. Opponents of the courthouse plan say Miami-Dade already has about $78 million available for repairs, and argue the delay should be used to craft a more thoughtful strategy for replacing the current facility.

The $78 million would also come from the debt tax, since the money was earmarked in the original 2004 BBC plan for court facilities. Borrowing it would also contribute to a tax increase, though the extra debt is wrapped into the current county forecasts. “Something has to be done,” said Joseph Serota, a Miami lawyer helping the new-courthouse campaign. “The longer we put it off, the more expensive it is.”

Scattered polling shows the courthouse issue faces an uphill climb with voters, and one challenge is the unusually blunt language that county commissioners inserted into the ballot item. It states that issuing the courthouse bonds means “potentially increasing property taxes.”

The phrase “property taxes” did not appear in the other major bond items passed by voters during the past 10 years. Neither did the concept of any tax actually “increasing.”

The 2004 BBC ballot questions talked of “bonds … payable from ad valorem taxes.” A $1.2 billion borrowing plan for the county school system, which has its own debt tax, asked voters in 2012 to approve bonds “secured by the full faith and credit and ad-valorem taxing power of the district.” The Jackson question last year wanted permission to issue bonds “payable from ad valorem taxes collected in Miami-Dade County.”

Latin for “to the value,” ad valorem is essentially the legalese equivalent of property taxes. All three ballot questions passed easily.

Jorge Luis Lopez, a County Hall lobbyist and a lawyer helping run the courthouse campaign, said the tradition of leaving “property tax” out of past ballot questions made them less challenging to pass. “We’re the first,” he said. “We may have to pay a price for that.”

 

Source: Miami Herald

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How Climate Change Is Fueling the Miami Real Estate Boom

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As a city sitting virtually at sea level, Miami has been called ground zero for the problems posed by climate change, a place where rising sea levels threaten its future existence.

The latest forecast of sea level rise from the Intergovernmental Panel on Climate Change, for example, predicts that by later this century, global sea levels will be two feet higher than they are today, quite possibly higher. Under that scenario, the nuisance flooding in Miami that periodically comes with high tides will be a daily affair, the storm surge impact of hurricanes will be amplified, and lower-lying areas of the city will be uninhabitable. That’s actually not the worst of it: Under higher sea levels, the Biscayne Aquifer—where southeast Florida draws its drinking water—will increasingly suffer from saltwater intrusion, a problem for which there is no foreseen solution other than the investment of billions of dollars in water treatment facilities.

As bleak as this future would seem to be, few with real skin in the game in Miami—residents, real estate investors, and companies—are backing away from long-term investment. Exhibit A: Miami has been undergoing a nearly unprecedented surge in real estate construction, with planning discussions centering less on who will leave first and more on how high new projects can be built. Among the projects under way, for example, is an 80-plus-story behemoth in Brickell Center, the city’s urban core. If Miami is on the verge of being a modern-day Atlantis, those who would have the most to lose are apparently not buying it.

Why this apparent deafness to the dire warnings? Well, here’s a paradox. If one talks to developers and city commissioners in the area, it’s hard to find evidence of overt denial of current and future risk; Miami was a city, after all, almost completely destroyed by a hurricane in 1926, and most concede that a recurrence is a matter of when, not whether. Likewise, few deny that the city’s unique geography makes it vulnerable to the effects of rising sea levels. It’s a long-term problem that the planning commissions of Miami and Miami Beach acknowledge exists and threatens to get worse.

Where locals disagree with outsiders, however, is about how best to deal with the problem. Rather than sounding alarms and cutting back on development, there’s an implicit sense that the best approach may be, ironically, to do the opposite. And while a strong case can be made that this behavior has no rational basis, it may represent Miami’s best long-term hope for dealing with the threats posed by climate change, one that other cities might be advised to mimic: The best strategy, in fact, may be to foster a collective belief that there’s no threat—or at least not one serious enough to lose sleep over.

Before an explanation why, let’s first address the two standard explanations for the building boom, explanations that are indeed part of the puzzle. The first is that real estate developers, by their nature, are gamblers with short planning horizons. In the late 2000s, the real estate and equities crash quickly wiped out many builders. One might assume that would have made them skittish. To the contrary, the quick recovery that followed taught most that big risks are worth taking, and are survivable. While developers today may concede that sea levels are rising, it’s a risk that lies well beyond their investment horizons, and in any case is dwarfed by the more immediate risk of a returning recession.

The second explanation is that many of the buyers for all the new condo units are cash investors from Latin America, and the risks of Miami real estate—overdevelopment, speculation, environmental unsustainability—remain small relative to similar investments back home. No one is saying that real estate isn’t risky in Miami, or that sea level rise is fiction. What they are saying is that all investment carries risk, and development there is a bet they’re prepared to take.

But there’s another rational reason why even risk-averse residents in South Florida might, paradoxically, hope that buyers and sellers remain collectively naïve, or at least act as if they are, about the risks of sea level rise. South Florida relies almost exclusively on real estate taxes to fund public infrastructure. If the threat (or reality) of sea level rise suppresses property valuations, there will be less public money to address the risk. As an illustration, the head of public works for Miami Beach recently argued that the city would be wise to accelerate its investments in storm water drainage improvements ($100 million now and $400 million planned) simply because the city has the tax base to afford it—something it could not necessarily count on in the future.

Because buyers and sellers in Miami Beach have yet to connect the dots between nuisance flood events and the future consequences of sea level rise, property buyers continue to be drawn to the area, and development projects continue unabated—both of which are essential for a continued healthy tax base. If and when buyers and sellers do connect the dots, everything changes: Doing so could spark a rapid downward wealth spiral that, once initiated, would be difficult to reverse. Lowering property valuations would reduce the city’s tax revenue which, in turn, would leave it with less money to shore up the city against sea level rise. The city would then be forced to choose between two losing remedies: increase taxes on those who choose to stay, or decline to make the needed improvements. Both, of course, would only exacerbate the problem. Miami’s best move at that point would be to go hat in hand to the state and federal government for a bailout, but that seems unlikely. Quite aside from the “I-told-you-so” reactions that such pleas might evoke, almost all coastal communities would be facing similar problems and asking for commensurate help. Miami Beach as we know it now could cease to exist long before the Atlantic reclaims Collins Avenue.

Given this, South Florida’s best shot at coping with the long-term environmental threat may be a strategy that no doubt seems perverse to environmentalists: aggressively foster a collective belief that sea level rise is not something we urgently need to worry about. South Florida is potentially facing a huge adaptation bill down the road, and paying for it will require a healthy tax base. Keeping that tax base flush depends on a cooperative equilibrium where buyers and sellers maintain an optimistic view that it’s tomorrow’s problem, one that will be easily tackled when the time comes. This keeps the coffers filled and provides the resources needed to pay for the engineering adaptations required to keep the game going.

In this light, Miami’s construction cranes aren’t monuments to climate change denial.  Quite to the contrary—they’re the instruments that may, indirectly, allow the city to survive global warming. Controlled ignorance, in some cases, can be a good thing.

 

Source: Bloomberg Businessweek

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New Renderings For Park Grove Are Out

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ParkGrove2The latest renderings are out for Park Grove, a luxury condo project in Coconut Grove designed by starchitect Rem Koolhaas.

 The towers’ shapes were inspired by Biscayne Bay’s islands, according to Curbed.

ParkGrove3The development is a joint venture between Terra Group and The Related Group and plans call for two 20-story, 72-unit condo towers and a third 20-story building with 140 units.

 

Source: Real Deal

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Renaissance in the Grove: The Coconut Grove Neighborhood Evolves And Re-Emerges

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Miami-Dade has long been a place of varied styles, each city within the County bringing its own special flare to the mélange.

The different neighborhoods have experienced their own evolutions since Miami’s inception in 1896. Coconut Grove has had its own unique evolution.

ULI SE Florida/Caribbean will be hosting an event focusing on the latest transformation of one of Miami’s most storied neighborhoods with its residents, architects, investors, developers, and historians.

On Tuesday, November 4, 2014, from 5:30 PM – 8:30 PM, panelists will discuss how it will continue to remain ahead of the curve. A new standard has been applied to the quality of housing and retail uses in The Grove.

The event will take place at Park Grove, located at 2701 South Bayshore Drive.

Confirmed speakers include:

  • Bernardo Fort-Brescia, Principal, Arquitectonica
  • Ezra Katz, Chairman/CEO, Aztec Group, Inc.
  • Justin Kennedy, Co-CEO, Grass River Property
  • David Martin, President, Terra Group
  • Commissioner Marc Sarnoff, City of Miami
  • Moderator: Dr. Paul George, Ph.D., Professor, Miami Dade College

Additional panelists to be announced.

CLICK HERE FOR MORE INFORMATION AND TO REGISTER

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