By Melissa Nelson Gabriel, PNJ.com

Less than a year after cutting annual lease fees in half for Pensacola Beach residents and businesses, the Santa Rosa Island Authority is considering hiking the fees to make up for potential lost revenue from an ongoing property tax dispute.

At issue is the complex system of lease agreements created by the county since the late 1940s to allow development on the barrier island, which was deeded to the county by the federal government after World War II. Under the deed agreement, the county was prohibited from selling Pensacola Beach land outright. To promote development, the county entered into thousands of 99-year lease agreements with people wanting to live or open businesses on the beach.

County tax appraisers later began to assesses property taxes on the beach leaseholders. The move promoted a series of lawsuits over several decades questioning whether the lease holders could be taxed for property that is leased and, technically, not owned.

In the latest court case, an appeals court overturned a decision by a lower court judge. The appeal court's decision meant that the county could not collect taxes on 12 acres of land where two Portofino Resort towers are scheduled to be built. The Florida Supreme Court recently declined to the county's request to hear the case. The decision governed taxes on the actual land and not on structures built on the land.

The case hinged on language in the lease agreement stating it would not be automatically renewed after 99 years. Other leases state that the agreements will be automatically renewed after 99 years.

Since the ruling, Chris Jones, Escambia County tax appraiser, said his staff has reviewed more than 4,500 lease agreements and determined that about half of the agreements are not automatically renewable. The county will not assess taxes on land leased to those lease holders in its upcoming notice of proposed taxes, he said. The land that will not be taxed represents about $80 million in assessed property value, which translates into about $1.2 million in tax revenue that would have been split between the county and the Escambia County School district, Jones said.

The ruling does not affect the proposed tax assessments for unit owners in about 26 condo buildings on the beach because a court case involving condominiums is still pending in the courts, Jones said. Homeowners associations for many of the condominiums are expected to file separate lawsuits this fall questioning the property tax system on the beach.

At a meeting of the Santa Rosa Island Authority last week, commission chairman Dave Pavlock suggested that the SRIA might need to raise lease fees in the future to make up for the lost revenue.

In October, the island authority cut lease fees in half for most commercial and residential leaseholders. The move came after Escambia County took over public works and public safety operations on the island, which meant the authority no longer had to cover those expenses with lease fees. But Pavlock said the loss to county coffers because of the tax case could potentially affect services on Pensacola Beach. The Island Authority might need to make up for the lost revenue by raising lease fees, he said.

"The decision we will have to face as a board is whether to look at reestablishing the fees that we cut," he said.

Escambia County Commissioner Grover Robinson, whose district includes Pensacola Beach, said uncertainty over beach tax revenue has created a difficult situation for county financial planners.

"Right now, the county is reacting to whatever happens in the courts. The board (of county commissioners) is not involved in the lawsuit in any way but we are the ones that have to deal with ramifications," he said. "It is extremely difficult when you don't know how you are going to drive the revenues needed to provide necessary services."

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