Question: What revenue options are being considered? Answer: A public service tax, a fire services assessment and property taxes.

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1 REVENUE OPTIONS FOR ECONOMIC SUSTAINABILITY Updated (New Information in Green) Question: Why is the City going to be out of money? Answer: The City needs more revenue to maintain services and begin restoring our failing capital/infrastructure program. For the past several years, the City budget was balanced by ignoring capital needs. This is not considered a best practice for municipalities and is a recipe for blight. Question: Why can t the City be a better steward of our tax dollars and put dollars into savings? Answer: The City has increased operating reserves from 0.8 months in FY 2009 to 2.0 months in FY However, these reserves will be depleted in two years without revenue changes. Question: How much will this cost me? Answer: While the true revenue cost for economic sustainability is $250 per year, the City has been able to reduce the cost to the average homeowner to about $150 per year through organizational efficiencies and best practices. Question: Will the average cost always remain at $150 every year? Answer: We cannot say that the average cost will remain the same because the cost of goods/services does not remain the same year after year. Operational costs can increase (insurance, fuel, etc.). Our intent would be to keep the average amount low but some small percent adjustment is possible. Question: What revenue options are being considered? Answer: A public service tax, a fire services assessment and property taxes. Question: What is a public service tax? Answer: The public service tax is tax that can be applied to utilities including electric, water, gas and fuel. Question: Is a public service tax something new? Answer: No. The public service tax has been used by Florida cities dating back to In fact, 83 percent of Florida cities have a public service tax to help stabilize their City revenues. The City of Cape Coral is the only Florida city with a population more than 100,000 that does not have a public service tax. Question: Is Cape Coral going to apply the public service tax to all utilities? Answer: No. The City only intends to apply the public service tax to electric use. Question: Does LCEC have to approve of the public service tax? Answer: No. State law provides for cities to impose the tax and requires the provider of the service to collect the tax.

2 Question: City management indicated that the annual cost of the public service tax would be about $90 for the average homeowner in Cape Coral. Has that amount changed? Answer: No. The amount absolutely will be about $90 for the year for the average homeowner. The details of how the tax will be applied on electric use to maintain the $90 average are being finalized and will be presented to City Council on April 22 for their consideration. Question: The City attempted to put a public service tax in place in 2008 but City Council decided it was not needed. What is different now? Answer: At that time, the City was trying to position itself better financially knowing that a significant drop in real estate values was on the horizon. This fall in values was going to have a major impact on City revenues, once again, due to the City s continued overreliance on property taxes to fund the general operations. City Council opted not to implement the tax and diversify the general fund revenues. Rather, Council directed City staff to cut services/personnel/costs/capital/payroll/benefits, which is what happened the past several years. These decisions mortgaged the City s future, and that future is now our present. Additional revenue is needed to maintain and further our city as a place to which people aspire to live. Question: Isn t the public service tax unfair to all of the full-time residents? Answer: Full-time residents are year-round consumers of City services. Also, nonhomestead properties do not have the same level of protection from Save Our Homes as homesteaded properties. This means, part-time residents pay a higher amount of property taxes than full-time residents. In Cape Coral, there are 75,263 developed, residential properties, and they account for 82.6 percent of the City s total taxable value. About 53 percent of these residential homes are homesteaded (39,893). Yet, homesteaded properties represent just 35 percent of the total taxable value. Non-homesteaded properties (35,370) account for almost 48 percent of the City s taxable value. This means part-time residents carry a greater portion of the City s property tax burden than full-time residents. Question: Is the Fire Assessment something new? Answer: No. Some of the Florida cities that have a fire assessment are: Ft Lauderdale, Tallahassee, Pembroke Pines, Hollywood, Coral Springs and Miramar. Also, other residential areas in Lee County are serviced by fire districts, which are special taxing units that place a levy on the property tax bill for their services. This includes Lehigh Acres, Bonita Springs, Fort Myers Beach, Sanibel, South Trail, etc. Question: Can a Fire Services Assessment be used for services other than Fire? Answer: No. Question: Is a Fire Services Assessment tax-deductible?

3 Answer: IRS Publication 17, Chapter 22 under "Real Estate-Related Items You Cannot Deduct" in the "Exception" section indicates that this assessment is deductible. We encourage our citizens to contact their tax attorney/accountant for confirmation. Question: Can the property tax rate be reduced if these new fees are adopted? Answer: City Council has the option of changing the property tax rate and still providing the needed revenue to restore our city on a path to economic sustainability. Question: Why doesn t the City just raise the millage rate to the maximum 10 mil level instead of creating new revenue sources? Answer: There are many concerns with a city raising its millage to the maximum allowed by state statute. First, it does not solve Cape Coral s problem with relying too much on one revenue source to fund general operations. Second, it places Cape Coral in a negative financial position with bond markets. Third, it is a detriment to attracting new business or residents to our city when the property tax rate is at the highest possible level. Question: If you increased the millage, the vacant properties would have to pay rather than get a free ride. Would that not be more equitable than using the public service tax, which only developed properties would have to pay? Answer: The millage is applied to the taxable value of the property. Let s compare a typical, two-lot vacant parcel with City utilities to the average homeowner. The vacant parcel currently has a taxable value of about $6,000 with the average homeowner at $100,000 taxable value. If you take the millage to the max of 10 mils, it would be about a 2 mil increase. The formula is simple: Millage rate x taxable value/1,000 = Property tax. Let s just use the 2 mil increase to compare the additional cost each property would pay: Vacant parcel: 2 x $6,000/1,000 = $12 Average home: 2 x $100,000/1,000 = $200 Question: Why not sell all those properties the City purchased for more than $13 million last year and put that money in the General Fund? Answer: Those properties were purchased primarily for future infrastructure and utility use (stormwater projects, pump stations, lift stations, etc) using money from these specific dedicated revenue funds. About $1.3 million came from the General Fund for the purchase of 13 of the properties (out of 491). Only the sale proceeds from these 13 properties could be deposited in the General Fund. Question: Why not sell the municipally owned Sun Splash Waterpark and Coral Oaks Golf Course since they are losing money? Answer: Coral Oaks Golf Course is operating in the black and is not losing money. Sun Splash currently requires a subsidy for debt service obligations associated with building the facility and adding amenities. Both of these facilities are considered enterprise funds, and they are required to reimburse the General Fund for administrative services provided. If these two facilities were closed/sold, the General Fund would lose about $500,000.

4 Question: Why doesn t the City just charge a $100-$150 flat tax on every parcel of property? Answer: There are no legal means to impose a flat tax on every property in the city. Question: Why not implement a one-cent sales tax to collect additional revenues? Answer: Municipalities are not permitted to implement sales taxes specifically for their area. A sales tax would have to be approved by Lee County s Board of Commissioners and taken to the voters for approval. Question: Can the City implement a head tax collected for each resident? Answer: A head tax is not legal in the state of Florida. Question: How about getting a 1 ½ percent transfer tax on sales of properties over $10,000? Answer: This would require an action by the Florida Legislature. Question: Why doesn t the City withdraw from the Conservation 20/20 Program and get back the millions of dollars Cape residents have contributed to the fund? Answer: Currently, the 20/20 funds are collected through Lee County s General Fund millage rate for property taxes. Cape Coral has no legal means to withdraw from this fund or demand any refund of dollars. Question: Can the City take over EMS transport from Lee County and bring in $16 million in revenue over expenditures? Answer: No. In fact, the City would lose money on this operation. Here is why. EMS transport operations currently are provided by Lee County. The budget for Lee County EMS service is $34 million for the entire county. The EMS service generates only $20.3 million in revenues from all Lee County residents. This means the balance of $13.7 million in operational costs is subsidized by property taxes. For Cape Coral to achieve $16 million in revenue, a City-operated EMS transport service would have to generate almost 80 percent of the current total revenue Lee County collects countywide. The $16 million also would have to assume there would be no cost to provide the service, which obviously is impracticable. The City would incur the costs of procuring the capital (at least six ambulances), supplying and stocking the ambulances and hiring a significant number of trained staff to man the ambulances. Could Cape Coral generate $16 million in revenue through EMS transport? According to Lee County, Cape Coral residents represent 22 percent of their EMS calls for service. Using that percentage to make a rough estimate, Cape Coral generates only about $4.5 million of Lee County s $20.3 million in revenue. In addition, the City s portion of the County s $13.7 million property tax subsidy (using 7.1 percent) is $2.3 million. If the same percentage is used to calculate potential costs for service and level of subsidization in Cape Coral, then providing EMS transport service in our city could cost about $7.5 million. If we collect the same $4.5 million in revenues, then $3 million in ad valorem taxes would be required to subsidize EMS service in Cape Coral. Only through

5 magical thinking could Cape Coral achieve $16 million in revenues by providing EMS transport.