Property values are up 4 percent in Miami Beach — but the city still faces budget cuts

The years after the recession were good for Miami Beach's bank account.

With property values on the rise and new buildings going up, money was streaming into city coffers. Miami Beach was able to hire new employees, create new programs and offer raises.

But now the growth appears to be slowing.

A lack of new development saw the taxable value of new construction plummet from nearly $859 million last year to $186 million this year — down from more than $1.1 billion in 2016.

"We went through a good amount of development over the last few years and that's diminished somewhat so there's not a whole lot of new development coming online," said Mayor Dan Gelber.

And it's not just a lack of new construction. The overall taxable value of the island's property increased by double digits in 2015 and 2016, but this year the growth slowed to 4 percent, according to figures the county property appraiser released last week. That's compared to 6.5 percent growth countywide, although in other pricey coastal areas, including Sunny Isles and Bal Harbour, the real estate market also appears to be cooling off.

In Miami Beach, the city's projected spending exceeds the increase in property values, so officials must trim $5.5 million from the budget for the next fiscal year, which begins in October. Although the city still expects to see $6.8 million more in property tax revenue than last year, that's not enough to maintain the current level of services.

"These have been gravy years for Miami Beach. Property values have gone up. The budget has been healthy," said Commissioner Michael Góngora. "But I think we're all going to have to tighten our belts and realize if the money's not there we can't continue this practice."

Miami Beach's City Hall building.
Miami Herald archives

Although the city also gets money from resort taxes, which are levied on hotel stays and restaurant tabs, these funds are volatile and can only be used for tourism-related expenses. Property taxes contribute more than half of the money the city uses to pay for services like the police and fire departments, emergency management and park maintenance.

Cutting $5.5 million isn't an insurmountable problem in the city's primary operating budget of $330 million. But the plateauing property values come as the city faces rising security costs, including roughly $1 million to place Miami Beach police officers at local schools. The city has also seen a growing number of crowded tourist weekends, which can be expensive to police.

Miami Beach also hopes to create an inspector general's office, subject to voter approval in November, which would cost the city $484,000 during its first partial year of operation. Miami Beach may add a surcharge to contracts to help cover the costs, but it would likely be several years before the surcharge paid for the new office, said John Woodruff, the city's chief finance officer.

All of this is bad news for City Hall employees, whose raises are now on the chopping block. The increased costs in next year's projected budget largely come from personnel costs. That's where the city will likely have to start making cuts, Woodruff said.

The budget shortfall could also affect residents and people who do business in Miami Beach. Although Woodruff said the city doesn't anticipate having to cut programs to balance the budget, officials are looking at how they can increase the city's revenue, which includes fees for services such as building permits and business licenses.

In addition, the city will look at eliminating unfilled positions, rather than searching for new candidates, Woodruff said.

"All of this works this year. That works once," he said. But if expenses continue to outpace the rise in property values, "Then the next year you've got to make real, potentially meaningful reductions to programs and services," he said.

A slow year or a trend?

City officials are hoping 2018 has just been a slow year.

"We're not troubled by a single year projection because we'll just do an expense haircut and make modest cuts like not fill positions," Gelber said. "We have to be thoughtful about our budget. We can't be spendthrifts."

But, he added, "We are going to look at whether this is part of a longer trendline going forward." Projections from the city's budget office show the taxable value of the island's real estate plateauing over the coming years.

Philip Freedman, managing director of Compass Development in Florida, has a more optimistic outlook. Numerous buildings currently in the works will be completed in the near future, he said, and he expects property values to grow at a higher rate in the next few years.

High real estate prices also contributed to the slower growth of property values this year, he said. The value of a home is reassessed when it's purchased by a new owner, which can boost taxable property values. "Because Miami Beach is a little more expensive than the rest of the Miami area, it's slower for people to turn around" properties, Freedman said. "There's a lot of inventory."

Commissioner Ricky Arriola said there are steps Miami Beach could take to boost property tax revenue. He blamed the city's requirements to secure approval for new developments and renovations, which he described as lengthy and expensive, for the lack of new construction.

"We make it incredibly hard to develop any property whether it's the renovation and restoration of an existing single-family home or any new development," he said.

"This affects the quality of service," Arriola added. "This affects projects that the community wants because we just don’t have the revenue growth we need in order to meet the needs of the community."

A view of South Beach at night. Real estate in Miami Beach is more expensive than in many other parts of the county.
Carl Juste

Arriola said he wants the city to "streamline" the approval process without relaxing its standards.

In the meantime, city officials will look at possible cuts during upcoming meetings as they shape next year's budget.

Even if Miami Beach has to largely scrap pay increases for its employees, however, a few people at City Hall might still get a raise.

Last month, commissioners voted to ask residents to increase their annual compensation from $6,000 to $45,000 in an Aug. 28 special election. Commission salaries were set at $6,000 in 1966 and haven't been raised since, although elected officials do get other perks including a $6,000 a year car allowance and $2,250 a month for other expenses.

Góngora, who proposed the raises, said he thinks a higher salary would enable more Miami Beach residents to run for public office.

But in a year in which city employees may not get a salary bump, commissioners could have a hard time convincing voters to raise their pay.

Miami Herald staff writer Douglas Hanks contributed to this report.