Last week, ESP started charging more for its natural gas — a 10% hike for residential customers and 6.9% for commercial customers.
The increase was part of Mayor Ashton Hayward’s budget for the 2012 fiscal year, and it was a sticking point for several members of the City Council that nearly derailed the entire budget at one point. Part of the issue was that, back in July, Mayor Hayward pushed through a millage rate decrease, fulfilling a campaign promise that city government would learn to “do more with less,” but then in August unveiled a budget even bigger than last year’s — over $1 million increase to the general fund alone, with the lion’s share of that going to the mayor’s office.
It’s fair criticism. The office of the mayor gave itself an operating budget of $1,527,600 this year, almost double the $792,100 budgeted last year. That includes salaries and benefits for eleven people (up from six last year): the mayor, three (!) executive assistants for the mayor, a city administrator, a chief of staff, a chief of economic opportunities and sustainability, a chief of neighborhoods, and three more (!) executive assistants. By comparison, the City of Hialeah, another “strong mayor” city that served as a model for our new charter, has a mayoral budget of only $475,539. That’s less than a third of ours, even though Hialeah has roughly six times our population. It’s a startling contrast.
Strictly speaking, the ESP rate increase isn’t funding this larger budget, or balancing out the lost revenue from the millage rate reduction; the transfer to the general fund is the same $8 million it’s been since FY 2009. (Before that it was $7.5 million, and a few years earlier only $6.5 million.) But the current budget is definitely dependent on that $8 million from ESP (not to mention a hefty $2.7 million in non-recurring revenue), and if ESP revenue declines, that $8 million transfer is unsustainable.
City financial policy says that ESP’s transfer to the general fund should be no more than 15% of the utility’s revenues. In other words, to sustain an annual transfer of $8,000,000 to the general fund, ESP must make at least $53,333,333 in sales. Even with the rate increase, which is projected to generate an extra $2.8 million, the expected revenue for FY 2012 is only $54.6 million, which means projected revenue without the rate increase was only $51.9 million.
And the city’s projections on ESP revenue the last few years have been, shall we say, optimistic. Back in FY 2009, the first year of the $8 million transfer, the budget showed an estimated $54,951,700 in ESP revenue. When actual numbers came in, however, that revenue was only $48,619,905. In FY 2010, the budget anticipated $53,210,100 in ESP revenue. When the actual numbers came in, it was only $46,209,499. That means that, as a percentage of ESP revenues, the $8 million transfer was actually 16.45% and 17.31% for those years. The budgeted revenue for FY 2011 went up to $54,549,200 — are you seeing a trend here? — and while we won’t know the actual numbers until next year, I’m willing to bet they will again fall short. Anyone want to take me up on that?
Ask the average person where city government gets its money, and they’ll probably tell you property taxes. This is a misconception. Ad valorum revenues account for only 23.96% of the general fund budget for FY 2012, the lowest it’s been in at least ten years, probably ever. Meanwhile the ESP transfer has become increasingly necessary to balance the general fund.
This is a disturbing trend for several reasons. For one thing, it’s regressive taxation. Thanks to Florida’s generous homestead exemption, property taxes are a fairly progressive way of funding city government, because the bulk of the burden is carried by people who can afford it. People with low-valued homes pay very little in property taxes to begin with, so that millage rate reduction barely helped them at all; the $1 million or so in lost ad valorum revenue was basically a gift to the rich. Escambia is one of the poorest counties in Florida, and our 1.5% additional sales tax already disproportionately affects the poor. By shifting the cost of government from property taxes to user fees, we’re just squeezing the disadvantaged more and more.
It’s also bad business. When your product is losing popularity, raising the price can give you short-term burst of cash flow, but will hurt you in the long run. ESP customers are being milked for profit, and they know it. Anecdotal evidence (i.e., comments on PNJ.com) suggests that this rate hike is enough to make many gas customers go electric. If even a small percentage of ESP’s customers drop their service, it could make revenue drop below that magic $53.3 million line needed to sustain the $8 million transfer. Eventually, even the most optimistic revenue projections would have to face reality.
I could be wrong. Gulf Power is raising their rates too, so maybe the electric exodus will never occur. However, in light of the Gulf Power rate increase, a smarter move might have been to maintain the current rates and aggressively market ESP natural gas service to electric customers.
City Hall was supposed to tighten its belt this year, and it chose not to. Next year there may not be a choice.