FPL Franchise Fee Reboot. Once again, first attempt rendered invalid. Will a 5 year phase out become a 30 new encumbrance?

Most residents fail to realize that this current Palmetto Bay Village Council enacted its own tax upon our power bills. Note that this tax replaces a County (unincorporated Miami-Dade County) tax that was approved by the voters in 1992. Why is it that we could vote on a 30 year tax when we were unincorporated, but this current Village Council felt entitled to place a 30 year encumbrance upon our power bills by thir own unilateral action?  Final action was taken on June 17, 2019, at a special council meeting that few knew was being held, even fewer were able to attend. See the screen shot of the Manger report, photo right).

This is why I requested a meaningful town hall meeting. The current Village Council voted on an agreement that they obviously did not understand, and obviously failed to properly negotiate or even fully notify FPL as the power company rejected this franchise fee as 'passed' by this village council by a 3-2 vote (and how was there no representation by FPL at the first and Second reading to voice any objections?).

Once again, a swing and a miss that will cost anyone within Palmetto Bay who pays a FPL bill.

And, it is important to note, the $0.68 figure is misleading in my opinion, it is an “adjustment” figure, not the overall, actual cost, to each and every FPL account holder. That amount was not included in the memo.

VIEW THE ACTUAL FPL TAX INFORMATION: You won’t find the details online from Palmetto Bay, but you can CLICK HERE to view all 18 pages, the actual staff report and the long-franchise fee (another term for “TAX”) that I have placed on a google drive.

PLEASE CLICK HERE to read detailed information posted on my blog (much more complete than any information provided by the current Mayor, Manager or council member of this FPL Franchise fee issue).

FPL Franchise Fee defined - info from FPL.com explaining your electric bill charges

This is your money funding FPL property taxes and various other charges - eventually 6% added to each and every electric bill until the year 2050, from which FPL will use to pay some of its obligations to Palmetto Bay before turning over the remainder of your money to the Village. 

No amount of political spin can change the facts. This is an agreement between FPL and the local government - in this case Palmetto Bay. FPL does NOT pay anything for the "right to serve electric customers". No, FPL collects the money from We, the people, who actually pay for this 30 year exclusive agreement that will run from 2020 to 2050.

Information below taken verbatim from FPL.com:  https://www.fpl.com/rates/pdf/residential-explanation.pdf

Storm charge*: Used to repay the bonds issued during the 2004 and 2005 hurricane restoration efforts and to partially replenish the storm damage reserve fund for future storms.

Gross receipts tax*: A tax of about 2.56 percent on a customer’s electric bill that is paid to the State of Florida.

Other taxes and fees: Vary by area, as established by local governing bodies. FPL collects these costs for distribution to the appropriate entities.

» Franchise charge*: FPL competes with municipalities and county governments for the right to serve electric customers. If a local government chooses, it can enter into a contract with FPL that enables the government to charge residents a contractual amount, the franchise fee, in exchange for its agreement to not form an electric utility for the term of the franchise.
 » Utility/municipal tax*: A tax imposed by a municipality or county government on the sale of electricity. 

NOTE: The term “base rate” refers to the total of the customer charge and base energy charge. It is not a separate item on the bill.

FPL franchise fees - Part Three – Local Taxes. Who wins, who loses if Palmetto Bay does not reach agreement and received FPL Franchise Fees? Would Palmetto Bay residents and businesses be better served by not reaching agreement with FPL on a Franchise Fee agreement.

This is Part III of a continuing Palmetto Bay educational series. Part I provided the initial background, clarifying that Palmetto Bay runs on much more than just the annual property tax/ Part I focused on one of the additional sources of revenue: FPL's franchise fees.  Part II evaluated the cost of the tax and impact upon having to compensation for the loss, should that occur.  Palmetto Bay has significant capacity to adjust the municipal property tax millage rate to compensate. 2.2387! A cessation of collecting the FPL franchise fee (tax) paid by electrical service consumers hits governments hardest that are near or at their maximum millage allowable (the 10 mill cap).

So now, here in Part III, I am simply going to discuss who is better or worse off if Palmetto Bay does not enter into a Franchise Fee agreement with FPL. Note there are many ways to view the impacts to many different categories of property owners/taxpayers. I offer a few examples that immediately came to mind.

Note: You may agree or disagree in all or part of my assessments.

Winners:

BIG, BIG winners: Tax exempt properties: Any and all property owners who are exempt from payment of property taxes such as schools, hospitals, Houses of Worship, Charity owned properties. They may not d\pay property taxes directly, but they do pay franchise fees through their electric bills which may be substantial in comparison to average homeowners.  These tax exempt properties get closer to being truly “tax exempt” as they presently do pay taxes to the local government(s) in the form of “FPL Franchise Fee.” This is the one classification of property owners who do NOT realize a shifting of tax burden from their electric bill to the property tax roll.

Homeowners: A franchise fee is not deductible from Federal Taxes, but municipal property taxes are. So, by moving the tax from their electric bill back to the homeowner's municipal property tax bill, they gain the deduction while “lowering” the cost of their monthly electric bill (not the cost of electricity, but losing a 3-6% “fee”).

Seniors: Those who are on fixed income save the franchise fees off their electric bills while having greater protections from rising property tax burdens through property tax exemptions.

Losers:

Owners of taxable properties, commercial or residential, including Homeowners: A greater local tax burden is shifted onto them as 501(c)3's that are exempt no longer pay their municipal tax through the franchise fee, therefore the pool of tax payers shouldering the tax burden is reduced – increasing the burden on those left to cover the revenue/expense needs of the local government.

Homeowners: Who use the Standard Deduction on their Federal Income Tax, not filing an itemized return - they cannot deduct the increase in the property taxes, but then again, they did not deduct prior taxes either and could not deduct the franchise fee.

Users of alternative energy: Property owners, residential or commercial, who have reduced their electric bills due to investing in solar or other means of increasing energy efficiency will lose the savings of a reduced franchise fee cost formerly realized through a reduced electric bill due to the shifting of the increased burden over to their property tax bill.

Investors in alternative energy: Loss of incentive of savings. 3 - 6% is, after all, 3 – 6%. This may represent a ‘tipping point’ in deciding whether to invest in alternative energy.

Unknown: 

Commercial property owners: The electric service bill (including the franchise fee) is deductible to the extent allowed by law – as are the property taxes paid.

Renters: would they save more in reduced electric bills over the increased cost of rents that may occur if the local government increases the property tax millage rate, which is also passed on to the renters?

Other interesting points (or not):

Conservation: you can control your electric useage through smart innovations or simply frugal living. This provides some control over the 3-6% by electric services users. This is lost should the tax be shifted to property tax bills.

DISCLAIMER: This information is provided in order to debate an important policy issue – a tax collected by FPL through electric service bills.  No blog post, including this series, should be construed as providing tax or legal advice. You should consult your own licensed attorney or accountant on any legal or tax issue.

FPL franchise fees - Part TWO – Local Taxes. Will this government pass through tax collected by FPL end for Palmetto Bay? Unincorporated Miami-Dade County Budget is “threatened” with the loss of Background provided in a Miami Herald article of December 2018

Part II of a continuing Palmetto Bay educational series. Part I provided the initial background, clarifying that Palmetto Bay runs on much more than just the annual property tax/ Part I focused on one of the additional sources of revenue: FPL's franchise fees.  This is not a fee paid by FPL, to the contrary, it is a customer paid tax, a subtle pass through tax consisting of 3-6% of your electric service charges that FPL merely collects through your electric bill. Please see my Part I of this series: December 26, 2018, Local Taxes. FPL franchise fees - Part I - what are they? Background provided in a Miami Herald article from July 2017 as well as Palmetto Bay's budget

There is more going on here than a simple stealth tax. Palmetto Bay has significant capacity to adjust the municipal property tax millage rate to compensate. 2.2387!  I remain proud of leading the Palmetto Bay village council to REDUCE the property tax millage rate to an all-time low of 2.2387. See where I led Palmetto Bay to reaffirm fiscal responsibility & government lite. Palmetto Bay is protected from adverse results if FPL should no longer collect and remit the franchise fee.  A cessation of collecting the FPL franchise fee (tax) paid by electrical service consumers hits governments hardest that are near or at their maximum millage allowable.

So Palmetto Bay is really not at risk should Florida Power and Light follow through on its threat to Miami-Dade County, in stating (or posturing) that it no longer wants to collect a 3 percent tax from its customers outside city limits in Miami-Dade, effectively ending renewal talks with the county. FPL has NOT – I repeat, has NOT, made a similar statement to Palmetto Bay, at least during my term of office.

But for background on the comments and concerns relating to Unincorporated Miami-Dade County, See Miami Herald online - a good background read: FPL talks break down, and Miami-Dade loses nearly $30 million a year for suburbs, by Douglas Hanks, December 19, 2018

As reported in the Herald:

“As you know, franchise agreements have no impact on a regulated utility’s responsibility to serve every home and business in its service area,” wrote White, head of external relations in Miami-Dade. “FPL has proudly provided electric service across most of Miami-Dade for the last 90 years, and we look forward to continuing to serve our customers well into the future.”

The county’s loss would be suburban rate payers’ gains once the current agreement expires in 2020. The franchise fee in unincorporated Miami-Dade is set at 6 percent, but credits allowed for property tax bills that FPL pays typically result in a monthly fee of between 3 percent and 4 percent, according to the county.

Miami-Dade released updated budget forecasts Wednesday showing the lost franchise revenue dramatically increasing deficits for county operations in the Unincorporated Municipal Services Area (sometimes called UMSA). The deficits arrive in 2020, and hit $84 million worth of red ink by 2025. That’s far worse than the earlier forecast with millions of franchise-fee dollars, when the deficit only hit $58 million.

For even more information, Also see Seen this charge on your FPL bill?, Help Me Howard on WSVN, October 3, 2018,

This is more food for thought, a small bite, and additional background on this developing potential issue. This is a mere set up to Part III when I will post who this really impacts, what groups really benefit and where the costs of government are shifted to should the FPL Franchise gravy train ends for local government.

Stay tuned. 

Eugene Flinn

Local Taxes. FPL franchise fees - Part I - what are they? Background provided in a Miami Herald article from July 2017 as well as Palmetto Bay's budget

Palmetto Bay runs on much more than property tax. This blog looks at one such additional source of revenue, FPL's franchise fees - a subtle pass through tax consisting of 3-6% of your electric service charges that is collected through your electric bill. What is it and where does it go?

Florida Power & Light collects a “franchise fee” for cities and counties across the state, and the for-profit utility turns over the money to local governments as a pass-through tax. The money generally goes into the general coffers of local governments, paying for police, parks and other core services. While all of FPL’s other franchise agreements in Florida can be approved by city councils and county commissions, Miami-Dade’s charter contains a unique rule: Voters must approve the agreement by referendum.

The above is an excerpt from Miami Herald online, July 31, 2017: Only in Miami-Dade do voters have the power to lower FPL bills. But will they? by Douglas Hanks. A good read both describing the tax and the political issues surrounding it.

By agreement, Palmetto Bay receives its share of this franchise fee, its proportional share collected from Miami-Dade County.

Source - FPL site: https://www.fpl.com/rates/sample-bill.html

View the FPL created sample bill (posted right) - the sample municipal tax for that month is $30.24 on a total electric service bill of $484.64. That means this (fictional/sample) account payor would pay $362.88 to the municipality annually based upon electric usage if this sample bill was an average of the entire 12 month service activity.

And posted immediately below is FPL's explanation of these other charges (taxes) that it collects and forwards on to local governments (CLICK HERE to view the FPL explanation online):

Other taxes and fees: Vary by area, as established by local governing bodies. FPL collects these costs for distribution to the appropriate entities.
» Franchise charge*: FPL competes with municipalities and county governments for the right to serve electric customers. If a local government chooses, it can enter into a contract with FPL that enables the government to charge residents a contractual amount, the franchise fee, in exchange for its agreement to not form an electric utility for the term of the franchise.
» Utility/municipal tax*: A tax imposed by a municipality or county government on the sale of electricity

It is now time for Palmetto Bay to negotiate its own franchise fee agreement with Miami-Dade County.

There are two main issues -
First, will Palmetto Bay negotiate a 3 or a 6% tax collected by FPL on the electric service bills and turned over to Palmetto Bay.
Second, will there be a franchise fee at all? This franchise fee is estimated to result in $800,000.00 tax revenue to the village in this current 2018-2019 municipal budget.

see page 63 of the actual budget, page 65 of the online .PDF

Note discussion of "Other General Fund Revenues, (page 14-15 of the budget - pages 16-17 of the online version)

Other General Fund Revenues

Besides ad-valorem taxes, projected revenues for the remaining budget include $4,100,000 in utility taxes and franchise fees, $2,362,076 in inter-governmental revenues, $1,316,463 in licenses, charges and permits,  and $258,980 for other miscellaneous revenue services.

Franchise Fees: Franchise Fees are charged to service providers for an exclusive or non-exclusive right to operate within the municipal boundaries of the Village. The charge is levied on a percentage of gross receipts basis.

Electric Franchise Fees: The largest of the franchise fees is the electric franchise fee collected from Florida Power & Light. The Village is eligible to receive electric franchise fees under the County's franchise agreement, through a separately negotiated InterLocal Agreement (between Miami-Dade County and various municipalities including Palmetto Bay): CLICK HERE to view sample. The revenue is collected by FPL from the electric accounts, passed to the County and ultimately remitted to the Village once a year in September. The budget is based on the estimated amount collected for the prior year.

Page 68 of budget, 70 of online document

FUTURE POSTS ON TOPIC:

I will post Part II, possibly more, within the next few days covering issues that include:
Will Palmetto Bay negotiate its own franchise fee agreement with FPL,
Will Palmetto Bay even have an opportunity.
What happens if it fails to negotiate this agreement?
If successfully negotiated, will Palmetto Bay collect 6% of the electric bills, 3% or less?