AVON PARK - In 2011, the Avon Park City Council approved the use of an accounting practice that City Manager Julian Deleon says is common among municipalities.
It allowed city staff to calculate a "return on investment" on utility services' assets and set aside the money into the general fund, which pays to run services such as police and fire.
The "fund transfer" practice has allowed city staff to transfer $900,000 into next fiscal year's proposed general fund budget, making it one of the ways to make possible a "massive" property tax rate reduction, which would make Avon Park's tax rate one of the lowest in the state if approved.
At Monday's meeting, the council approved the preliminary proposed tax rate of 0.3 mils for every $1,000 of assessed value, the first step in possibly adopting the proposed millage rate. If approved, a home valued at $70,000 would be assessed $21 in city ad valorem taxes.
The current rate is 3.6 mils. "Relative to the 2013 budget cycle, administration is proposing a 92 percent property tax rate reduction for the corporate limits of Avon Park," wrote Deleon in an email last week.
In the 2012-13 budget, the city budgeted $770,000 in ad-valorem revenue. If the proposed rate is approved, the city is budgeting only $64,000 for property tax revenue, Deleon said.
The utility fund's "return on investment" basically allows the city to estimate the market value of the utility services' assets - from water pipes to the wastewater plant - and put a certain percentage of the value into the general fund, Deleon explained.
This fiscal year, which was the first time the city used the fund transfer mechanism, allowed the city to put $500,000 in the city's general fund.
Since he took over as city manager, Avon Park has purchased three private utilities, expanded its customer base, modernized its utilities and is operating in the black, Deleon explained. They have not raised utility rates and have dropped sewer rates.
"Since (it was) implemented, the assets have appraised from the acquisition of three private systems. I estimate the utility assets to be worth $22 million," Deleon said.
This fund transfer mechanism has been supplemented by a decrease in expenses, Deleon added.
The city staff roster has been streamlined by half and subcontracting law enforcement services to the Highlands County Sheriff's Office has helped.
"On its second year, the contract with the sheriff is saving an estimated $525,000 in fiscal year 2014," he wrote in an agenda item summary for the council.
If the city staff's draft budget is approved in its present form, the city also will be relying much less on property tax revenues, which comprised about one-sixth of the general fund budget in 2011 and could go down to almost one-eight.
Deleon said Avon Park is gearing to expand its tax base through annexations and is diversifying its sources of revenue.
He hopes a steep drop in property tax rates will lure people to move into the city or provide property owners the incentive to be annexed into the city fold.
While Avon Park property owners will save on property taxes, slashing it also means the city's three Community Redevelopment Agencies, which get their funding from a portion of city and county tax revenues, will see a drop in their budget.