The infamous “default clock” that was counting down the hours and minutes until the U.S. federal government was facing a default on its sovereign debt recently could also be applied to our local governments that are facing fiscal challenges which, if not addressed, could result, not in their default, but in their bankruptcy. The evidence of this can be found across our country but is especially pronounced in our community.
At present, Miami-Dade County is facing a budget deficit of approximately $400 million, the City of Miami has invoked a “state of financial urgency” in order to address its deficit of $61 million, and even the City of Hialeah, once an example of fiscal prudence has succumbed to the recession’s effect on property values, and is dealing with a projected deficit of approximately $5 million for fiscal year 2011-2012. Those of us in the real estate development and construction industry need to consider what our role is in helping to address this local government fiscal crisis.
Some traditional solutions which may have solved previous fiscal crises will either not solve the current situation or are only temporary stop gap solutions. Aside from being politically untenable, increasing the millage rate or imposing new taxes will only hamper the already weak economic recovery. While no one denies, that local governments need to decrease its spending and the size of its workforce so as to live within their means, there is only so much that can be cut before basic public services which everyone agrees are necessary, such as police, fire, public works, transit, and solid waste, are diminished to an extent that will also hurt any local economic recovery. The only way that we can ensure that our local governments will continue to be solvent and provide the essential government services at a minimally adequate level is to grow our local economy so as to foster job growth, an increased standard of living, and increased property values.
The one constant which South Florida can count on to help fuel economic growth is the growth in our local population. While population growth may have slowed over the last decade, there is no denying that growth will continue into the foreseeable future both through natural population growth and immigration from Latin America primarily. All of these new residents will require housing and the increased economic activity which they will generate will create demand for more offices and retail space and will, hopefully, also generate new industrial activities.
We should not be the only ones that are thankful for this new growth. This new development can and will be the savior of our local government’s budgets. Indeed, as has been repeatedly stated by our own County Property Appraiser, the current fiscal situation would have been much worse if not for the increased property values generated by the development which took place in Miami’s urban core during the building boom. Unfortunately, though, there has been a time lag in the evolution of the relationship between local government and the development industry. There are still too many vestiges of the boom time mentality of local governments having to defend themselves against greedy developers looking to “pave over Paradise” and many in the development industry are still so overwhelmingly suspicious of local government that it has almost resulted in inaction. Both sides need to do their part to create a mutually beneficial situation in which responsible development is properly incentivized so that government revenues increase, not because of increased rates of taxation, but because of overall economic growth and increased property values. The sooner local government realizes that “we are part of the solution”, the sooner we will save Paradise for posterity and be able to put away those countdown clocks.