PB: Avoid the Tipping Point

by SDM

The village council adopted its budget last week and, with only a few exceptions, it follows Village Manager Ron Williams’ plan for Palmetto Bay. SDM is not convinced his plan will work and we should demand that its underlying principle be reconsidered.

If SDM is understanding the budget presentation correctly, Mr. Williams appears to be incorporating what can only be described as a worthwhile but risky economic development strategy into his long-term budget plan.

The general idea is to invest in Palmetto Bay’s least developed commercial area known as the Franjo Triangle. The theory goes that investing in the commercial area will result in more economic and construction activity, which will cause growth in village revenues. As SDM has stated in these pages, ad valorem tax and other revenues tend to grow more quickly in commercial areas, which is why most communities spend so much time, money and energy on the general concept of “economic  development.”

To understand why the village is so focused on developing the Triangle, tune-in to the Final Budget Hearing and fast forward to 27:44.  You will see a slide titled “Village Snapshot.” If SDM is understanding the chart, it appears the village’s expenditures will exceed its revenues in six – eight years. At that “tipping point,” the village will be required to dip into reserves to pay for current expenditures or raise millage rates.

Before we get to the problems we have with the foundation of Mr. Williams’ budget theory, let us be clear on one thing: the village must, must spend some money on the Franjo Triangle so that investors will be attracted to it. Our little village is competing with lots of other areas and taking a wait and see posture seems like municipal malpractice to SDM. Mr. Williams and his staff – and all the volunteers working on the downtown task force, especially – are to be congratulated for being bold.

But…(you knew it was coming, because we told you so)…SDM disagrees with linking development in the Triangle to the village’s budgetary future. Here is why the village must decouple the issues:

  1. The Franjo Triangle was once part of the Town of Perrine. Yes, there was a real, incorporated town there once. For whatever reason, Perrine failed as a municipality and the Triangle has been an economic desert ever since. That’s not to say that its current business activity should be disregarded; it is merely to say that the area is under performing compared to other commercial areas that abut high-income areas like Palmetto Bay. The point is that we as residents should not be counting on a reversal of fortune in the Triangle as part of a budget strategy because we don’t know when the area will redevelop, if at all.
  2. Our little village is dysfunctional when it comes to permitting investors to maximize the value of their property. Sometimes we impose restrictions because we want to “protect” somebody, but often our officials are reacting in knee-jerk style whenever two or three homeowners squawk at a meeting. Since we can’t predict the village council’s behavior toward investors, we really shouldn’t be banking on their decisions.
  3. The term economic development can be defined in so many non-economic ways that we should be intensely wary from the start. For example, at the county, economic development is often confused with providing affordable housing. While adding residential units to the Triangle will bring life, it also will bring more squawking homeowners. So when some entrepreneur wants to open a Greek restaurant with dancing at midnight, nearby neighbors will be the first ones to scamper over to the council and complain. Closing restaurants when their best paying customers want to come out and play is a recipe for closed businesses and no tax money.
  4. Sidewalks and road improvements do not guarantee economic activity will follow. There are legions of examples of “infrastructure” failing to create economic activity. Downtown Miami worked on economic development intensively for 30 years before the market finally delivered a living downtown. Had the city included future economic development revenue in their long range projections in 1980, they would be in even rougher shape financially.

So what should the village do? Press forward with planning, marketing and thinking about the Triangle. Spend money sparingly – at least big money – until somebody shows some interest. Let the world know that the village will not dismiss any idea until it is heard. Be prepared to invest in public works projects as a sweetener to a deal but don’t assume that a desirable public works project will have any benefit to an investor.

Continue to work with the current property owners so that the village leadership understands exactly what is standing in the path to economic development. It used to be that water and sewer availability was impeding development. Well, the water and sewer is now available so why – assuming we are not seeing the economic activity we want – aren’t investors lining up?

Most investors in SDM’s world see development through the prism of financial opportunity. They want a return on their investment and they want it right away. Long delays kill deals faster than any other culprit. Take a look at South Motors experience and ask yourself whether you would put your own money into a project that takes two to three years before you can turn over a shovel full of dirt.

And ask yourself whether the village treated the developer of the five acres next to the park fairly. Should investors be forced to file a lawsuit whenever they want to maximize what the law allows?

Palmetto Bay’s budget program for the next several years should be one that emphasizes efficiency, careful spending and husbanding of resources. That means that if the projections show the budget will bust in six to eight years, then we should be demanding less spending starting now.

Mr. Williams – through his staff – shows a budget with perpetually increasing expenses heading out into the future. SDM thinks we should be reining in those expenses instead of trying to pay for them through a worthwhile, but risky, economic development plan.

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