PILOT Absconds With Marina Profits
by Carl Wagenfohr
CLEARWATER - The City of Clearwater's Municipal Marina, a crown jewel in the city's tourism industry, is losing money. That's the message that city staff delivered to the City Council during meetings on October 15th and 17th in an effort to obtain approval for a business plan that would raise slip rental rates and fuel prices for the next five years.
How did the marina, located in one of the most desirable boating areas of Florida's west coast, slip from a profitable enterprise fund into a money loser? The answer is PILOT - not an aviator, but an acronym that stands for Payment In Lieu Of Taxes.
Clearwater's PILOT initiative was intended to provide taxpayers with a return on the investments that were made in the city's for-profit businesses, and to level the playing field with commercial enterprises competing for the same business.
PILOT was approved by the then City Commission and began in 2001. Each of the city's enterprise funds, including Solid Waste, Recycling, Clearwater Gas, the Airpark and Marina, were charged a 4.5-percent "tax" on gross revenues that was paid into the city's general fund. In 2006, the PILOT rate was increased to 5.5-percent.
According to Bill Morris, Clearwater's Director of Marine and Aviation, PILOT was established after the Marina's last business plan was approved, and the tax was not a forecasted expense. The marina paid a PILOT of $100,800 in 2001, $116,000 in 2002, $126,590 in 2003, $123,600 in 2004, $134,690 in 2005, $171,110 in 2006, $208,350 in 2007 and a forecast $228,480 in 2008.
Wonder where the profit went? The Marina will have paid a total of $1,209,620 of unbudgeted taxes from 2001 through 2008. And for 2007 the difference between profitability and a forecast $175,000 deficit is a PILOT payment of $208,350.
Morris tried to right the ship in 2004 by proposing a mid-plan upward adjustment to Marina rates that would have compensated for the unbudgeted PILOT. But faced with objections from the Marina's commercial tenants, the Council rejected Morris' proposal and told him to incorporate the new rate structure in his next business plan.
That next business plan is now being considered and the Marina's commercial tenants will be hit even harder by the proposed increases in slip rents and fuel costs. Why? Because of the decline in the Clearwater tourism industry caused by Beach Walk construction and the loss of beach hotel rooms. The city's charterboat operators have formed the Clearwater Commercial Marine Association (CCMA) to fight the proposed increases.
In its written response to the proposed Marina business plan, the CCMA wrote, "Fuel is one of our highest operating expenses, of which only a small amount can be passed on to our customers." They asked that their current 27-cent per gallon commercial discount on fuel purchases be retained.
But margins on the Marina's fuel sales are thin, and PILOT can turn a small profit into a loss. After deducting a 27-cent commercial discount from a 40-cent markup on diesel, the Marina is left with only a 13-cent per gallon gross margin. But paying a 5.5-percent PILOT on a $2.63 selling price per gallon turns that 13-cent profit into a 1.5-cent loss on every gallon sold even before paying the salaries and benefits of the Marina's fuel dock employees.
While much of the CCMA's angst over the proposed rate increases has been directed at Harbormaster Bill Morris, the fundamental issue affecting Marina profitability is the PILOT tax that the Council itself imposes. Ground the PILOT that's been flying away with the Marina's profits since 2001 and the proposed rate increases for commercial tenants would be unnecessary.
The City Council will resume its debate over the Marina's proposed 5-year business plan at its October 29th worksession and November 1st public meeting.
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