Chairman Eric Eisnaugle, Orange County Tax Collector Feasibility Tax Force Orange County Tax Collector Feasibility Tax Force Members

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1 FISCAL & BUSINESS SERVICES DIVISION FRED WINTERKAMP, Manager 201 South Rosalind Street, 3rd Floor Reply To: Post Office Box 1393 Orlando, Florida (407) FAX (407) March 5, 2013 TO: FROM: SUBJECT: Chairman Eric Eisnaugle, Orange County Tax Collector Feasibility Tax Force Orange County Tax Collector Feasibility Tax Force Members Fred Winterkamp, Manager, Fiscal and Business Services Requested support staff analysis following February 14, 2013 meeting This memo provides staff analysis requested by the Orange County Tax Collector Feasibility Tax Force (TCTF or Members) following the presentation from the Orange County Tax Collector s Office (TCO) at the February 14, 2013 meeting (February Presentation). As was mentioned at the February TCTF meeting, support staff tries to remain neutral and does not promote a specific outcome, but rather seeks to provide the TCTF with an unbiased access to fair analysis and the entirety of the information regarding the topics discussed by the TCTF. At points throughout the TCTF process, information presented has advocated for a specific desired outcome, and representatives of professional organizations have advocated solely for a specific outcome. Such advocacy does not always result in full disclosure and sometimes provides incomplete information to the TCTF. This fails to provide the public benefit of allowing the TCTF to fulfill its mission from the Mayor and Board of County Commissioners to perform a thorough and in depth review of the complete body of information. County staff supporting the TCTF is attempting to fill in the gaps and provide the entirety of the information so that the TCTF can fulfill its mission on behalf of the citizens of Orange County to study all of the information before providing an advisory report for consideration by the Orange County Mayor and the Board of County Commissioners acting in their elected capacity for the benefit of all County residents. Therefore, the following information is provided in response to the TCTF request following the February Presentation for an analysis of certain issues. County support staff seeks to balance the public record with some supplementary information to expand upon the material already presented to the TCTF. Hopefully, this will assist the Members to fulfill their appointed service to the community to use their legal, financial, technical and operational expertise to evaluate all of the information for the benefit of the citizens of Orange County. Legal Issue One: Section 322 of Florida Statutes Various advocates for an elected Constitutional Officer TCO governance model have on several occasions shared with the TCTF only certain elements of Chapter 322 that are taken out of context and seem to support their preferred governance model. These advocates have quoted only portions of statutory language to imply that Orange County residents will be unable after 2015 to receive certain Department of Motor Vehicle (DMV) services under any form of governance other than the model of an elected Constitutional Officer. This involves the evolving procedures to carry out an ongoing legislatively mandated process to transition certain DMV services to County Tax Collectors. The advocates argue that any change to the elected Constitutional Officer governance of the TCO will result in the loss of DMV services within Orange County and a corresponding significant inconvenience to County residents. The Orange County Attorney s Office (CAO) has performed a legal analysis on this issue that is attached hereto in a CAO memo dated February 19, 2013 about Requested Analysis Following February 14, 2013 Meeting. Legal Issue Two: Non-specific Constitutional Prohibitions Recently, in relation to the possible expanded functions of the Orange County Comptroller s Office (Comptroller), the TCTF has been advised that The Florida Constitution prohibits placing pieces of a

2 03/05/13 2 of 7 TCTF February Presentation Follow-up constitutional office under another office. It requires that ALL the duties be placed under that office. Further there is an assertion that having auditing and collection duties in the same office is not a good practice. This is found on Chart 34 of the February Presentation. In this case, the TCTF is faced with incomplete information since there is no citation provided as to which article of the Florida Constitution contains this prohibition. The CAO has also performed a legal analysis on this issue that is attached hereto in a CAO memo dated February 28, 2013 regarding Transfer of Functions to Comptroller s Office. As the CAO memo indicates, the Florida Constitution provides that auditing and custody of funds are often included in the same office by design. The CAO memo also discusses the legal issues involved with the ability to transfer duties from one office to another. In light of the CAO memo, it seems a matter for TCTF legal review to discuss whether there is a Constitutional prohibition against moving certain duties to the Comptroller. Since the Comptroller currently collects the Tourist Development Tax and Public Service Tax under their Financial function while conducting a separate Audit function as the website screen shot below indicates, it is therefore likewise a matter for TCTF financial review whether tax collection and auditing functions can be properly housed under the office of a single public official. Financial Issue One: Miscalculations and Misleading Comparisons This discussion will deal with TCO Charts 12 and 13 from the February Presentation shown on the following page:

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4 03/05/13 4 of 7 TCTF February Presentation Follow-up There are mathematical errors and misleading comparisons made in Charts 12 and 13 of the February Presentation used in an attempt to make financial comparisons between the TCO and the County. It is boldly (and erroneously) displayed on these TCO charts that the County budget grew by 60.32% from 2002 to 2012, and this TCO assertion is even contradicted by the actual numbers presented in the graph on TCO Chart 13. The 60.32% growth rate apparently comes from the sum of (simple addition) the County data points graphed on Chart 12 as follows: Year Growth % % 2005 (-2.64%) % % % 2009 (-0.83%) 2010 (-5.63%) 2011 (-1.13%) % SUM 60.3% Unfortunately, it is improper math to add annual growth rates in this fashion because it does not account for compounding of future annual growth on previous growth, and the negative growth amounts will also skew the calculation. While TCO Chart 13 is still a misleading comparison (even without the mathematical errors) as will be discussed below, Chart 13 at least clearly points out the mathematical fallacy on TCO Chart 12. TCO Chart 13 presents the same graphical information as TCO Chart 12 (note the 60.32% for the County again), only Chart 13 has the actual amount of the County budget as opposed to growth rates in the County budget presented on Chart 12. As the TCO plainly presents on Chart 13, the County budget is shown growing from $2 billion in 2002 to a 2012 amount of about $3.5 billion (the same 10 growth periods presented on Chart 12). However, simple math provides that growth from $2 billion to $3.5 billion is a 75% increase and not the 60.32% increase erroneously calculated on the TCO Charts 12 and 13. Therefore, from the simplest mathematical approach, the comparison presented on TCO Charts 12 and 13 is erroneous and misleading. In addition to the mathematical errors, the comparison on TCO Charts 12 and 13 is misleading because it attempts to compare the growth in the budget for the annually recurring services of the TCO to the multi-purpose County budget. The County budget includes Orange County Utilities (OCU) which is a water and sewer utility serving about 200,000 accounts, the Orange County Convention Center (OCCC) that serves millions of visitors, a large correctional facility, fire rescue services, and a parks department. The County budget also includes the health insurance program and the self-insurance funds covering the County and also including the TCO, yet the reserves for both of these fast growing functions appear only in the County budget. Therefore, for example in 2002 to 2004, while the TCO performed their typical duties each year, the greater growth rate in the County budget was due in part to the opening of Phase V of the OCCC which doubled the size of the facility, the expansion of the correctional facility, and the service to the community through three hurricanes. It is therefore misleading to equate changes in the County budget to changes in the TCO budget. A more suitable comparison might be to analyze the County General Fund budget and the TCO Budget. This would compare the TCO budget that funds their activities to the County General Fund that funds County operating activities but excludes the operations of the enterprise funds for stand-

5 03/05/13 5 of 7 TCTF February Presentation Follow-up alone functions like OCU and the OCCC. The chart below presents a comparison of the last six years of the County General Fund budget and the TCO Budget: Budget Comparison: County General Fund (BCC Adopted) and TCO (DOR Final Approved) (budgets in millions) OC General Fund $ $ $ $ $ $ Pct Growth YoY 2.9% (-3.3%) (-4.6%) (-0.8%) 1.8% TCO $ $ $ $ $ $ Pct Growth YoY (-0.7%) 1.4% (-4.1%) (-0.7%) 2.5% In the more appropriate comparison presented above between the County General Fund and the TCO budget, there are no dramatic growth rate differences once the inequalities of the budgets for the stand-alone enterprise funds like OCU and the OCCC are removed from the overall County budget. In fact, both budgets reflect the realities of the difficult economy during the time displayed. So, while using the overall County budget allows for a dramatic presentation for the sake of pure advocacy, a more appropriate comparison using the County General Fund and the TCO budget does not result in any dramatic growth trend differences to sensationalize. Financial Issue Two: Municipal Tax Collection Fees At the February Presentation there was some discussion regarding the fact that fees are not being charged for some services like the collection of municipal property taxes. The County Office of Management and Budget (OMB) has researched this issue and provided the attached OMB memo dated March 1, The OMB memo indicates the process for determining tax collection commissions is found in F.S. and there is no provision for commissions from municipal collections. This may be because every municipal resident is also a County resident and will already be receiving a tax bill for County taxes, and only one commission seems necessary since the County and municipal taxes are on the same tax bill. Operational Issue One: TCO Office Leases The TCO office space documents for leases and acquisition (TCO Real Estate Information) are discussed in a previous County support staff memo to the TCTF dated February 7, 2013 regarding Requested Information from the Tax Collector s Office (February Staff Memo) that introduced and presented some analysis in connection with the distribution of the information requested by the TCTF from the TCO prior to the February TCTF meeting. County staff requested information from the TCO on behalf of the TCTF on December 26, 2012 and the TCO Real Estate Information was requested at that time along with a list of other TCTF requests. As was mentioned in the February Staff Memo, the TCO had not been able to provide the TCO Real Estate Information at that time even though the TCO had provided much of the other information requested. According to County staff, the TCO has not yet provided complete and current TCO Real Estate Information as of the beginning of March. For example, the exchange that follows discusses the TCO Real Estate Information related to the West Colonial Tag Office. The TCO provided to the County an agreement that County Facilities examined and determined to have expired in While the TCO is currently occupying the West Colonial Tag Office, the TCO seemingly has no documentation to memorialize the ongoing terms of the lease after the apparent 2009 expiration of the fourth amendment.

6 03/05/13 6 of 7 TCTF February Presentation Follow-up From: Carl Johnson [mailto:crj@octaxcol.com] Sent: Friday, March 01, :18 AM To: Lyle, Robert Cc: Terwilliger, John; Hurt, William; Caswell, Ann Subject: RE: TCTF info Bob, Sorry to say I currently have none of the highlighted information you requested. As to Amendment Four of the West Colonial property it should suffice to say the option was exercised, you have the rent schedule and we are currently in occupancy. Also there is no over base allocation for that lease. You are looking for something that does not exist. I hope this information allows you to complete your analysis. Thank you, Carl From: Robert.Lyle@ocfl.net [mailto:robert.lyle@ocfl.net] Sent: Friday, March 01, :30 AM To: Carl Johnson Cc: John.Terwilliger@ocfl.net; William.Hurt@ocfl.net; Ann.Caswell@ocfl.net Subject: FW: TCTF info Carl, just a follow up to see if you have had a chance to get any of the Reconciliation information or TC/operation expenses for the leased sites. Also in the below, I forgot to ask if you have a current renewal agreement for the West Colonial Tag Office. The fourth amendment you sent over sets out the rental payments for the renewal terms, but it expired in Do you have the documentation for the current renewal? During the February Presentation, the TCTF was presented a brief comparison of the County and TCO leasing processes on TCO Chart 36. TCO Chart 36 is shown below. The TCO comments regarding Orange County appear in the left column. The TCO comments regarding TCO leasing practices appear in the right column. TCO Chart 36 seems to indicate that the County leasing processes are more comprehensive and contain more oversight than the TCO leasing process which is handled by a few staff working directly with property owners. Given the apparently more casual nature of the TCO leasing relationships as evidenced by the West Colonial renewal discussed above, it may be a matter for TCTF operational review to determine whether there is a value to the citizens to consider a more formalized approach or whether the TCO process reduces costs without adding any risks. Regarding further County support staff analysis on the TCO Real Estate Information, it will be difficult to perform additional analysis without current leasing documentation (including terms and conditions) which has not yet been completely provided and may not be available apparently due in part to an intentionally streamlined TCO leasing process.

7 03/05/13 TCTF February Presentation Follow-up 7 of 7 ALL THE DANGERS WITH NO BENEFITS Leasing/Operations Costs Orange County Tax Collector Space Review Involves multiple departments of budgeting, construction approval, planning and oversight, as well as lease compliance oversight. OCTC has streamlined who oversees and approves all planning, acquisition and occupancy with logistics carried out by fewer than three staff members. RESULT: Additional staff and multiple department involvement. Smaller staff with single department involvement. Funding BCC approval of funding for Tenant Improvements. Elected OCTC strategically approves planning, leasing and any tenant improvements. RESULT: Potential delay and slow process to get on agenda. Politics become Only one person with less political maneuvering for involved. single member districts getting funding. Property Works through a Leasing Realtor Service. Searches Independence of office allow direct contact with property owners. RESULT Orange County does not pay the LRS a direct commission, but the ultimate Landlord certainly does and it is assumed those costs are incorporated in the Tenant's lease rate. Savings on commissions, fees and markups on service rendered by Landlord. Timing Multiple steps, departments and layers to finalize lease. Fewer steps to finalize lease. RESULT Multiple steps extend time and market conditions may change. OCTC can react quickly on any opportunity to maximize rent cost savings or customer service improvements. INDEPENDENTLY ELECTED TO SERVE ONLY YOU 36 County support staff hopes the information in this memo helps to fill some gaps in the information provided and balance the record on a number of topics discussed with the TCTF. As requested, this memo is very specific regarding clarification on a few limited matters, while the February Memo was more general and covered more information. As is apparent in the February Memo, the County support staff and the TCO agree on many aspects of the information presented to the TCTF such as the Department of Revenue s high ranking of the per capita cost efficiency of the TCO relative to their peers, and the high transactional volumes successfully processed as the TCO serves to facilitate tax collections and DMV transactions. Members can bring questions or comments regarding the information in either this memo or the February Memo to the upcoming TCTF sub-committee meetings or you can call my office to seek additional information. Attachments (3)

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