The city’s roughly $65 million budget is not one pool of money officials can spend however they choose. Much of it is restricted by state law, tied to specific revenue sources or locked into obligations the city cannot renegotiate from year to year.
- That distinction has become a recurring point of discussion as the city operates under its voter-approved 3% spending cap, which limits annual increases to personnel costs across all city funds and to operating expenses in the General Fund.
In a joint interview, City Manager Jason Davis and Finance Director Nicole Nabors walked through how the city’s budget is structured, where the money comes from and goes, and what the cap means in practice for city operations.
Where the money comes from, and where it can go
Nabors explained that the city’s budget is divided into several distinct fund categories, each with its own revenue source and spending rules.
The General Fund, the largest and the one at the center of the spending cap debate, covers what Nabors described as general operations: finance, human resources, risk management, streets and a significant share of recreation programming. It is funded by property taxes, along with additional sources like the communications service tax, utility taxes, and franchise fees.
Enterprise funds, which cover water and sewer utilities, sanitation, recycling and storm water, operate more like businesses. “Those are run more like businesses,” Nabors said. “It’s user fees that pay for those versus property taxes, which help pay for the General Fund.”
Special revenue funds include tourism development council dollars, the half-cent sales tax, the law enforcement trust fund and the building code fund. Each is tied to a specific revenue stream and can only be spent on its designated purpose.
The Community Redevelopment Agency fund is fully restricted. Money collected within the CRA district can only be spent on projects within that district. “It is a you-have-to-spend-it fund,” Nabors said. “It’s not like a reserve fund. It has to be assigned and you have to spend it.”
Nabors said the city holds about $28 million in total General Fund balance, but only roughly $2.5 million of that is unassigned, meaning money the council can direct to be spent on anything. The rest is committed to specific purposes: an emergency reserve, workforce housing, donations and other restricted categories.
- “We don’t just have $27.8 million sitting there,” Nabors said. “Technically we have the money sitting there, but we can’t spend it. We can only spend that unassigned balance.”
The city maintains a reserve policy of 33% of operating expenditures, which is more restrictive than the Government Finance Officers Association standard of two months of operations.
Budget versus actual spending
Nabors drew a clear line between the city’s adopted budget and what it actually spends.
“When we go in each budget year, we project based on prior years of what we think,” Nabors said. “It’s an educated guess of what we’re going to spend.”
The budget is a ceiling, not a spending target. Nabors said the city typically comes in about $2 million under its adopted budget at year-end.
- “At the end of the year, my fiduciary duty for the citizens as their Finance Director is to spend as little as possible,” she said.
Davis said the gap between budgeted and actual spending is driven in part by personnel. The city budgets for its full complement of positions, but vacancies from attrition, retirements and promotions mean those positions are not always filled.
“So by the end of the year, based on attrition, you have money left over,” Davis said.
That leftover money, Davis said, would typically be directed toward long-term capital needs. “I would love nothing more at the end of the year to put that leftover money into a campus fund. I need a new fire station,” he said. “That’s all just going to come out of loans as opposed to offsets.”
Why the budget looks like it jumped $20 million
Davis addressed a question that has circulated publicly: why the city’s budget appeared to grow from $65 million to $84 million.
The answer, both officials said, is that the increase reflects grants, items previously approved by council in the fiscal year, a $7.5 million loan for a park project and carryover encumbrances, not new tax revenue.
- “It looks like our budget went up $20 million, but it was really just money we received” from grants and similar sources, Davis said. “We didn’t generate more tax revenue.”
Nabors explained that every grant the city receives requires a budget amendment to authorize spending those dollars, which increases the budget total on paper. She said purchase orders and unfinished projects from the prior year also carry over, further inflating the number.
“So we’re not starting fiscal year 2026 with $84 million,” Davis said.
How the cap works in practice
The spending cap, adopted by voters in November 2024, limits annual increases to the lesser of 3% or the Consumer Price Index. The cap applies to personnel services across all city funds combined and to operating expenses in the General Fund. Capital projects are exempt.
Davis said the city is building the fiscal year 2027 budget to a CPI of 2.53%, based on a 12-month rolling average that did not include one month’s data (October) due to a federal government shutdown.
Nabors confirmed what falls inside and outside the cap in simple terms: “Personnel across all funds. And then it’s general fund operating expenses only.”
Davis put the distinction in practical terms.
- “The cap does not cover capital projects. We can do $500 million in capital projects next year,” he said. “I just can’t take care of the property, hire the staff, buy the stuff that’s needed to paint it and upkeep it.”
Budgeted or actual: an unresolved question
One of the most consequential unanswered questions about the cap is whether future budgets should be calculated based on budgeted expenditures or actual expenditures.
Nabors said the charter language specifies actual expenditures, but the city is currently basing its calculations on budgeted figures while awaiting guidance from the state auditor general.
“There is no way that I can base the 2027 budget off of 2026 actuals because we’re only in March of 2026,” Nabors said. “I still have another six months of budget to be able to actually know what the actuals from the prior year are.”
She says that difference matters. If the cap is based on actual spending rather than the adopted budget, any money the city saves in a given year, whether through a vacancy, an efficiency or a project coming in under budget, would lower the baseline for the following year’s allowable increase.
- Nabors confirmed that under an actuals-based approach, that compounding effect is real.
“If the actuals continue to go down and the CPI is not three, you can see where that math leads,” Davis said.
The ‘use it or lose it’ problem
Both officials described a dynamic created by the cap in which departments feel pressure to spend their full budgets to protect future baselines, the opposite of the behavior Nabors said her role demands.
“My fiduciary duty to the citizens of Fort Walton Beach is to spend as little as possible,” Nabors said. “Under the cap, we have to go by actuals, spend as much as possible so we can have the money next year.”
Nabors pointed to a concrete example in the public works department. An engineering position sat vacant for nearly two years because the department could not find a qualified candidate. The employee who eventually filled it had been hired only to leave shortly after due to a military relocation, extending the vacancy further. During that time, Public Works Director Daniel Payne was absorbing the workload himself.
Under an actuals-based cap, the reduced spending during that vacancy would lower the following year’s allowable budget, potentially making it harder to fund the position once it was finally filled, even though the need for the role never went away.
Costs the city cannot control
Nabors walked through a list of expenses the city has little or no ability to negotiate from year to year: utilities, fuel, property insurance, health insurance, contract pricing and debt service.
She said insurance premiums are a particular challenge because final numbers don’t arrive until June or July, well after budget planning begins. “We have to have property insurance on all of our properties. We have to have health insurance for all of our employees,” she said. “So we have to take those numbers and then adjust within the budget and that could cut services.”
Davis said operating costs rise for the city the same way they do for residents.
“Our FPL bill goes up as well. We don’t get a Groupon because we’re the government,” he said. “Our chemicals to maintain the golf course and treat water and those sorts of things all go up. Tariffs. Who heard of tariffs five years ago?”
When individual cost categories rise faster than the overall CPI figure the cap allows, Nabors said the overage has to come from somewhere else in the budget.
“You can’t just tell a vendor you’re not going to pay the increase this year,” she said. “We have to pull from different places to be able to cover that contract.”
The millage rate and the cap
Davis said the spending cap has no direct connection to property tax rates.
“The spending cap has nothing to do with property taxes,” he said. “The millage is set by council, and then the projects are also set by council. The cap is tied to operations.”
- The council can raise or lower the millage rate regardless of whether the spending cap exists. The cap restricts what the city can spend from the revenue it collects. It does not limit how much revenue it collects.
Nabors explained the annual process for setting the millage rate. The budget cycle begins when departments submit their requests in March. In June, the council sets a tentative maximum millage rate, which is the highest rate the city can adopt for the coming fiscal year. The city cannot go above that number, but it can come in lower.
Davis said he uses that ceiling to build the budget. “I’ll take that tentative high, put all the projects that we can under that. Then they’ll vote on the millage, and then I’ll say, you tell me which projects you want out because these are the ones you said you wanted,” he said.
The final budget is adopted in September after two public hearings, as required by the state’s Truth in Millage process.
On comparisons between the spending cap and the millage caps in cities like Destin, Davis said the two are not equivalent.
“A millage cap is so taxpayers don’t pay more money,” he said. A spending cap, by contrast, limits what a city can spend from the revenue it has already collected. Nabors said Destin is offset by significantly more non-property-tax revenue than Fort Walton Beach receives.
Building it but staffing it
One of the structural tensions both officials described is the gap between capital construction, which is exempt from the cap, and the personnel and operating costs needed to maintain what gets built.
The city’s expansion of the Preston Hood Athletic Complex is funded through a loan and TDC monies, which is not subject to the cap. But the employees needed to maintain the expanded facility, the increased utility costs and the repair and maintenance expenses all fall under the cap because the complex operates within the General Fund.
- “We’re going to have increased utilities, increased repair, maintenance, and personnel,” Nabors said.
Davis said the same tension applies to revenue-generating operations like the municipal golf course, which currently operates within the General Fund. The city has discussed converting it to an enterprise fund, but even under that structure, personnel costs would still fall under the cap.
He pointed to a specific example. The city is considering adding an indoor TrackMan simulator in the currently unused old Edwin Watts room at the golf course, but doing so would require two to three additional staff members to cover the operating hours.
“I can have the shiniest golf course on the planet, but if I can’t hire the staff to take care of it, what’s the point?” Davis said.
Nabors said the same principle applies to infrastructure maintained by enterprise funds. Even though the operating expenses for water and sewer were carved out of the cap during the drafting process, the personnel who maintain that infrastructure are still subject to it.
“If we lose personnel, it still doesn’t matter if we can pay for it or not. We can’t update it,” she said.
The outsourcing question
Davis addressed a frequently cited example from his white paper on the cap’s operational impacts: a utilities locate position that cost the city less than $100,000 in salary and benefits but was outsourced through a contract costing roughly $200,000, because the salary fell under the cap but the contract, paid from an enterprise fund, did not.
Davis said the decision was driven by the cap.
In Palm Beach, where he previously managed, Davis said outsourcing that function made sense because of frequent pipe breaks and the liability exposure that came with them. Fort Walton Beach, he said, does not have the same volume of issues.
“Here, that’s not what was done. It was to get under the cap,” Davis said. He acknowledged there is some liability benefit to outsourcing the function but said the cost increase was a direct result of the cap’s structure.
Staffing decisions since Davis arrived
Davis said there has not been a single position added to the city’s staffing complement since he became city manager. He said he has eliminated positions, including his own administrative assistant and the fire department’s deputy chief position.
“There have not been any ads,” Davis said. “Any position that’s added to the complement comes from council. We don’t do that internally.”
- He said the 28-position increase that has been cited publicly spans a decade, from fiscal year 2015-16 to the present, and that the characterization that the city is on a hiring spree is not the case.
Davis said he has moved positions around to address operational needs, including shifting a part-time golf course position to customer service to cover extended hours in the finance department. He said he intends to make future staffing decisions based on data from the new financial software system once it is operational.
“I don’t know if we have the right amount of staff in parks & rec and maintenance, because I don’t have the data to support it,” he said. “Once I have data from the new systems, that will drive our business decisions.”
The contingency fund question
Davis said eliminating departmental contingency funds was his personal decision.
“I equate that to a slush fund,” he said. “We build the budget out based on what the council sets for projects. We tell them the operations we need to accommodate that and the millage. And that’s it.”
Nabors explained that under Florida statute, the city had been budgeting up to 3% of revenues (can budget up to 10%) into contingency accounts that could be used for mid-year budget transfers, roughly $900,000 in the general fund alone. She said the accounts had been used when council members requested unplanned projects.
Davis said the practice had been in place long before he arrived.
- “Council would want to do a project mid-year,” Davis said. “I don’t do the mid-year projects. If that happens now, I have no problem saying no. Or tell me which project that’s on the books that you want to punt on for next year.”
Financial reporting and the new software
Nabors said the city’s current financial system is the same DOS-based platform that was in place when she worked as a financial analyst at the city in 2013.
She said the city does post budget-to-actual reports on its website, prepared by the comptroller in a separate program. But the main system cannot produce a readable profit-and-loss style report without generating more than 300 pages of raw data.
- A new financial software system is currently being built out. Nabors estimated it would be complete by the end of the calendar year.
She also addressed the history of financial reporting at the city. She said a previous finance director had used a separate vendor program called Municast to upload data and produce reports, but the city no longer uses that vendor.
“I can’t produce that. We don’t use that vendor anymore,” she said.
Davis said the criticism that the city is hiding financial information frustrates him.
- “I have given out my cell phone. I have offered for people to come in and sit down anytime you want. Nicole will run any report you want. There’s nothing to hide,” Davis said.
Revenue bonds, not general obligation bonds
Nabors addressed a claim that has circulated publicly, that the city avoids general obligation bonds because state law requires putting them before voters in a referendum.
“That’s not the reason,” Nabors said.
She explained that the city uses revenue bonds instead because general obligation bonds are backed by property taxes, and if the city were unable to make payments, it would be required to raise residents’ tax rates to cover the debt.
“We always go for a revenue bond that’s going to be backed by other revenues besides property taxes,” she said. “The last thing we want to do is raise citizens’ taxes because the city can’t pay the debt.”
Looking ahead
Asked to project what the city’s budget would look like in three to five years if the cap remains in place and CPI stays under 3%, Davis said the math leads to a narrowing budget.
“Our revenues are going to continue to go down. Our costs are going to continue to go up. That’s just the way of the world,” Davis said. “Ultimately that’s going to come down to the council selecting which departments we’re going to say no more to, or which services we’re going to cut.”
Nabors said state law adds another constraint: the city cannot cut the police budget by more than 5% overall under Florida statute, and police operations are funded through the General Fund.
Davis said he has declined requests from three council members to recommend which departments should be cut, saying that is a policy decision for the elected body, not the city manager.
- “I manage what the council tells me to manage,” he said. “The second I come in there with a recommendation, I’m going to lose 300 employees’ trust and confidence.”
Davis said he does not take a political stance on how voters should decide the issue. “I’m just the hammer that drives the nail..the blunt instrument that gets it done.”
Both officials said their doors remain open to anyone with questions about the city’s finances.
“Come to Citizens Academy. Ask me the questions. Call me, email me, text me,” Davis said. “If I don’t know the answer, we’ll find it.”
In addition to Coffee with the City Manager, a recurring public event, Davis said he follows up every time a resident reaches out.
- “We’re trying to build a team, and the team consists of the community, council, and staff. We’re all taxpayers too,” he said.
Nabors echoed the message.
“Our door is always open and we encourage citizens to come to the council meetings and get involved because there’s really a lot going on,” she said. Budget-to-actual reports for the charter amendment spending cap are available on the city’s website at fwb.org under the finance department page.
One Response
Bottom line is the city council isn’t getting their claws on as much of your money as they need to fulfill their desires, not the necessities of the city. They are unable to adjust their uncontrolled spending by making logic based decisions and refuse to make changes to the spending rules so funding can go into the correct pot. Fire them all as they come up for reelection.