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City Manager Roger Hernstadt on His ‘Debt Free’ Budget

By Noelle H. Lowery
noelle@coastalbreezenews.com

Marco Island City Manager Roger Hernstadt has been on the job now for 100 days, and he already is making a major impact on city operations. From restructuring the Community Affairs, Building Services and Planning and Zoning departments to professionalizing and streamlining communications between city staff, City Council and Marco residents, Hernstadt’s strong management and leadership skills are driving the city of Marco Island towards its next stage.

Now, Hernstadt has turned his attention to the city’s 2015 budget. During the City Council’s budget kick-off workshop last month, Hernstadt unveiled an aggressive five-year plan to streamline Marco Island’s general fund finances and get the city out of debt.

To recap, while the city’s overall financial outlook is healthy — $11 million in reserves and $4.3 million set aside for emergencies — it is struggling with how to pay $5.7 million in unfunded pension liabilities and is facing major capital improvement and infrastructure projects over the next five years totaling more than $31.9 million. Hernstadt’s plan considers all of these needs and unfunded liabilities and makes them disappear in the same five-year window while also helping city officials plans and save for the future.

The crux of the plan: A 10 percent millage rate increase based on the city’s rollback rate and a conservatively projected 2 percent increase in Marco Island property values.

This month, Hernstadt took his “debt free” proposal on the road, presenting it to local business and civic organizations. Coastal Breeze News sat down with Hernstadt to dissect his proposal.

Hernstadt on the current state of Marco Island’s finances…Marco Island has made enormous progress since its incorporation. However, one area that recently we may have been lacking is putting in place a self-sustaining funding source for renewal and replacement expenses — a basic need for Marco Island so our property owners investment in our community and our quality of life are protected. In advance of the budget finalization process, the department directors have identified their ongoing capital improvement project and purchase needs. The city will be facing three alternatives: allow the city’s infrastructure to deteriorate, borrow money at the prevailing interest rates or accumulate the money to have it on hand as these known predictive maintenance and replacement needs arise.

Hernstadt on how his plan works…As you may be aware, the city departments have already started preparing their fiscal year 2015 budgets. The budget will be considered and approved at two public hearings in late August or early September. As you may recall, for the current fiscal year on a homesteaded property valued at $500,000, a Marco Island property owner paid $934 in municipal taxes for a homesteaded property valued at $500,000. This typical property tax bill also included an additional $3,373 for Collier County, School Board, Water Management and Mosquito Control for a grand total of $5,307.

Unfortunately, we cannot predict the cost of future borrowing or spiraling deterioration. However, we can determine with a high degree of certainty what the accumulation method of providing for all of the city’s general operational needs (everything but the Utility) will be. Based on our research, if the property tax values average an increase by 5 percent per year for the next several years, a slight millage increase generating $53 additional dollars per year on a homesteaded property valued at $500,000 can fund an extensive list of unavoidable renewal and replacement items and pay off the currently unfunded pension liability of $5.7 million. It will cost the homeowner of a typical property valued at $500,000 an additional $5 per month, or $60 per year. So we will be facing a decision: sacrifice a bag of chips, a package of cookies or a large cup of designer coffee each month to fund the city’s future road, bridge, drainage, building and fleet maintenance needs, including the Mackle Park expansion or refurbishment, the firehouse environmental remediation and the other bridge refurbishment other than the eminent Smokehouse Bay Bridge replacement where the City may incur almost $1.9 million in interest expenses on a $6 million project over its 15-year financing term.

Hernstadt on the importance of planning for the future…Many residents may participate in a homeowners association, condominium board or country club. If the leadership in these organizations collect in advance for future anticipated maintenance needs to avoid large special assessments, why wouldn’t a municipal government? Please keep an open mind as additional information and facts are distributed on this plan to get Marco Island off the spinning debt wheel of fortune where something deteriorates to the point of crisis mode, we have not accumulated adequate funds and the city faces no alternative but to borrow. A detailed list of the aforementioned capital needs will be published as a hand-out and posted on the city’s web site www.cityofmarcoisland.com next week. Members of the community should review the list carefully to better understand that the list is comprised of needs — not a wish list, wants or “toys, bells or whistles.” While the media will undoubtedly report the $60 additional cost of the program as a percentage increase in taxes, percentages can be very misleading. After all, $1.10 is 10 percent more than $1, so when each property owner evaluates the cost of the initiative, I hope they will not get distracted by the percentage and remember that $5 per month, or $60 per year, will stabilize the city’s general fund finances as we move into the future.


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