Tourist Development Tax Analysis October 28, 2011 Report No. 12-02 Evan A. Lukic, CPA County Auditor
Table of Contents Topic Page Executive Summary... 1 Purpose and Scope... 1 Methodology... 1 Background... 2 Analysis... 4 Conclusion... 5 Appendix I... 6 Appendix II... 7
Compliance Review Executive Summary On October 4, 2011, the Performing Arts Center Authority (PACA) submitted a capital funding request to the Board of County Commissioners (Board) along with an analysis demonstrating the amount of County Tourist Development Tax (TDT) funds available to meet the request. The analysis was based upon an original analysis, TDT Multi- Year Analysis prepared by the Office of Management and Budget (OMB) and dated August 29, 2011 (TDT Multi-Year Analysis) (See Appendix I on Page 6). The purpose of this review is to evaluate the accuracy of the TDT Multi-Year Analysis dated August 29, 2011 and identify available TDT funds. In completing our evaluation of the TDT Multi-Year Analysis we applied adjustments to forecasted increases in revenues and expenditures and added rollovers of prior year unexpended funds(see Appendix II on Page 7). We then prepared a summary of revenues, expenditures and fund balances for all TDT Funds for fiscal years 2011 through 2016 to reflect adjustments for the above items (see Figure #2 on page 4). Based on our review, 1. The total ending fund balance of the TDT funds is $57.3 million as of September 30, 2011. 2. $54.8 million of the $57.3 million may be prioritized or reprioritized for permitted legal uses of TDT funds at the sole discretion of the Board. 3. As currently budgeted and forecasted, revenues and expenditures (inclusive of capital expenditures) will reduce the TDT fund balances to $27.7 million as of September 30, 2016. Purpose and Scope The purpose of this review is to evaluate the accuracy of the TDT Multi-Year Analysis dated August 29, 2011 and identify available TDT funds. Methodology To accomplish our objective, we: Verified the mathematical accuracy of the Tourist Development Tax (TDT) Multi-Year Analysis dated August 29, 2011, Reviewed the reasonableness of the assumptions underlying the projected revenues, expenses and fund balance included in the TDT Multi-Year Analysis, Verified the accuracy of the selected revenues and expenses by comparison to supporting documentation, as applicable, Interviewed staff from the County s Office of Management and Budget, Natural Resources Planning and Management Division of the County s 1
Compliance Review Environmental Protection and Growth Management Department, the County Attorney Office and the Convention and Visitors Bureau (CVB), Prepared a summary of revenues, expenditures and fund balances for all TDT Funds for fiscal years 2011 through 2016 including: o Adjustments of forecasted revenues and expenses and o Rollover of prior year unexpended funds, Reviewed Broward County Code of Ordinances, Part II, Chapter 31½, Taxation, Article II Tourist Development Tax, and Reviewed Florida Statute 125.0104 Tourist Development Tax; procedure for levying; authorized uses; referendum and enforcement. Background Tourist Development Tax (TDT) Section 125.0104, Florida Statutes ( Local Option Tourist Development Act ) permits counties to levy taxes for tourism promotion. The tax is levied on every person who rents, leases or lets for consideration any living quarters or accommodations in any hotel, motel, apartment, rooming house, mobile home park, recreation vehicle park, tourist or trailer camp, or condominium for a term of six (6) months or less. The tax must be charged and collected by the person (tax dealer) receiving the consideration. The statute requires the County to adopt an ordinance containing the tourist development plan which lists, in order of priority, the proposed used of the tax revenue. On September 8, 1980, the Board of County Commissioners (Board) adopted Ordinance No. 80-70 for the collection of a Tourist Development Tax on rental accommodations, which was codified as Chapter 31½ Article II in Broward County s Code of Ordinances. Initially, the Tourist Development Tax was remitted by the tax dealers to the State of Florida. On February 22, 1994, the Board adopted Ordinance No. 94-6, amending Broward County s Code of Ordinances to provide for the local collection and enforcement of the tax effective March 1, 1994. The tourist development tax was initially established at 3% with the proceeds designated to fund the Broward County Tourist Development Plan (TDP). The TDP includes using the revenues to pay for Convention Center debt, tourism marketing programs, TDT administrative expenses, tourism related to cultural activities, and then for any other lawful purpose pursuant to 125.0104(5), F.S 1. On July 1, 1996 the Board authorized an additional 2% TDT increase to cover debt service on Arena Bonds issued to finance the construction of the Broward County 1 includes (a)(1) to acquire, construct, extend, enlarge, remodel, repair, improve, maintain, operate, or promote one or more publicly owned and operated convention centers, sports stadiums, sports arenas, coliseums, or auditoriums, or museums that are publicly owned and operated or owned and operated by not-for-profit organizations and open to the public and (a)(4) to finance beach park facilities or beach improvement, maintenance, renourishment, restoration, and erosion control. 2
Compliance Review Civic (Arena). Funds not used for payment of Arena debt service may be used to assist in the payment of debt service on bonds and/or notes issued to finance construction, reconstruction, or renovation of the Broward County Convention Center. TDT Funds The TDT Multi-Year Analysis (Appendix I, Page 6) reflects the combination of the following seven different county funds: Tourist Development Tax Fund Greater Fort Lauderdale Convention & Visitors Bureau (CVB) -- Used to account for the expenditures of the CVB which are funded in part by the 3% TDT revenues. Convention Center Operations Fund (CC) Used to account for the expenditures of the Convention Center which are funded by 3% TDT revenues and fees generated from rental 2 of the Convention Center. Civic Arena Tax Revenue Fund (Arena) Used to account for the Sales Tax Rebate revenue of $2 million annually and 2% TDT revenues. Ten million dollars is transferred to the Arena Refunding Bonds Fund (Arena Debt Service) annually. 2006 Arena Refunding Bonds Fund (Arena Debt Service) Used to accumulate monies to pay the Arena Debt Service costs when due. Ten million dollars is transferred from the Civic Arena Tax Revenue Fund annually, which together with amounts paid by Arena Operating Company, are used to make the annual Arena Debt Payment. 2004 Convention Center Refunding Bonds Fund (CC Debt Service) Used to accumulate 3% and 2% TDT revenues to pay the debt service bonds that were issued for the construction of the convention center. The 2004 Bonds will be fully paid off on October 1, 2013. Beach Renourishment Capital Outlay (Beach Capital) Used to accumulate monies for restoration of eroded beaches. Transfers received from the Tourist Development Tax and the TDT Convention Center Refund Bonds funds Convention Center Capital Projects (CC Capital) Used to accumulate monies for capital projects relating to the Convention Center. Revenues are transferred from the convention center fund. 2 Includes facilities and concession rent and catering fees 3
Analysis Compliance Review The Fund Balances for each of these funds as of the October 1, 2010, (Fiscal Year 2011), are listed on Figure 1: Figure 1: Fund Balances for TDT funds as of 10/01/2010 Fund Name Amount CVB $6,600,000 CC 8,700,000 Arena - Arena Debt Service 2,400,000 CC Debt Service 2,600,000 Beach Renourishment 22,200,000 Convention Center Capital 6,700,000 Total TDT Fund Balances $49,200,000 Source: Advantage Financial System (A102 and A103 reports) as of 10/19/11 A fund balance is the difference between an entity s assets and liabilities where its assets are greater than liabilities. Fund balances increase when revenues exceed expenditures. Conversely, fund balances decrease when expenditures exceed revenues. Maintaining an appropriate fund balance is important because of unforeseen events, cash flow fluctuations, and financing future capital programs. Based on the actual revenues and expenditures for FY 2011 and budgeted and forecasted revenues and expenditures for FY 2012 FY 2016, Figure 2 below shows the beginning and ending fund balances for FY 2011 through FY 2016. Figure 2: Summary of revenues, expenditures and fund balances all TDT Funds for FY 2011 (Actual)*, FY 2012 (Budgeted) and FY 2013-2016 (Forecasted) (in millions) Beginning Fund Balances Add Revenues Less Operating Expenditures Less Debt Service Expenditures Less Capital Expenditures Actual* Budget Forecast Forecast Forecast Forecast FY2011 FY 2012 FY2013 FY2014 FY2015 FY2016 Total $49.2 $57.3 $41.2 $37.4 $22.8 $27.5 51.8 48.4 56.4 57.3 58.6 57.7 $330.2 23.9 26.6 27.5 28.3 29.1 30.0 165.4 16.5 16.5 16.5 16.5 14.0 14.6 94.6 3.3 21.4 16.2 27.1 10.8 12.9 91.7 Ending Fund $57.3 $41.2 $37.4 $22.8 $27.5 $27.7 Balances Source: Advantage Financial System, OMB records, and County Auditor Analysis *FY2011 unaudited from Advantage Financial System 4
Compliance Review It should be noted that capital expenditures in Figure 2 on Page 4 includes all budgeted and forecasted capital project expenditures for Beach Renourishment, Port Sand Bypass, Spangler Road and Convention Center improvements for the years 2012 to 2016 as reported by the OMB. Therefore, the ending fund balances are after these expenditures. Appendix II on Page 7 list the details for revenues and expenditures including applied adjustments and assumptions. Of the $57.3 million in fund balances at the end of FY2011, $2.5 million is legally restricted and reserved for future debt service payments. The remaining $54.8 million is available in that it can be used at the discretion of the Board. OMB has indicated the Board has reserved $11.7 in FY2012 for the purposes indicated in Figure 3 below: Figure 3: FY2012 Reserves Convention Center Capital Reserve 3,312,000 CVB Rev. Stabilization Reserve 3,651,000 Super Bowl 2016 2,000,000 Convention Center Revenue Stabilization & Operations Reserve 2,752,000 11,715,000 Source: OMB In determining potential future uses for TDT monies, it is important to understand the inherent risks of forecasting future financial outcomes. Such risks to consider with regards to the TDT funds and forecasts include: Uncertainty increases as the forecasted period lengthens Uncertainty of future Beach Renourishment Grants/Contributions Inflation Unanticipated future needs Historically, the County has addressed potential risks through conservative budgeting and reservation of fund balances. Conclusions Based on our analysis, 1. The total ending fund balance of the TDT funds is $57.3 million as of September 30, 2011. 2. $54.8 million of the $57.3 million may be prioritized or reprioritized for permitted legal uses of TDT funds at the sole discretion of the Board. 3. As currently budgeted and forecasted, revenues and expenditures (inclusive of capital expenditures) will reduce the TDT fund balances to $27.7 million as of September 30, 2016. 5
Appendix I Compliance Review 6
Appendix II Compliance Review 7