WHAT THE SPECIAL SESSION D DID:

On Monday, October 29, 2007, the Florida House of Representatives approved the new proposed constitutional amendment (SJR 2D) developed by the Senate. The Senate passed it by a 35-4 vote. Senate President Pruitt then told his members they could go home, meaning the House had to take it or leave it. If the House did not approve it, as is, there would be no property tax amendment on the January 29, 2008 ballot.

There was very little real support for the proposal in the House, and members spent the afternoon and early evening making derisive and negative comments at the Senate for leaving town and leaving them with a “mediocre” product. Still, the House voted 97-18 in favor of the joint resolution.

THE NEW PROPOSED CONSTITUTIONAL AMENDMENT WOULD:

• Allow homesteaded homeowners to transfer their Save Our Homes benefit, up to $500,000, to a new home (reduced from the original $1 million).
• Double the homestead exemption, allowing an additional $25,000 of the value of homesteaded property over $50,000. School taxes are exempt from this, making the effective value about $15,000.
• Allow a tangible personal property tax exemption of $25,000 for businesses.
• Put a 10% cap on annual assessments of non-homestead property. School taxes are exempt from this cap.
• The proposed amendment also requires the state to statutorily appropriate state funds annually to reimburse fiscally constrained counties for any revenue lost from this proposal.
• It is expected to save the average homeowner about $240.

NOT INCLUDED:

• An additional exemption for new homeowners
• Low-income senior relief
• Working waterfronts relief
• Affordable housing relief
• The better House approach to homestead exemptions, the 40% minimum exemption that is phased out as SOH rises
• Removing property appraisers’ presumption of correctness
• Requiring all property appraisers to be elected (only Miami-Dade’s is appointed)
  

The new property tax amendment falls far short of what is needed. There are a number of reasons why:

• The plan gives relief to those who need it the least (long-term Save Our Homes property), while giving virtually nothing to those that have seen their taxes rise the most (non-homestead property).
• It will perpetuate and exacerbate the current system that shifts tax burden from homestead to non-homestead property. It will also continue to shift tax burden to new homeowners.
  

While some solution to portability is needed, there are serious constitutional concerns about providing it. While supporters say they “believe” it will pass muster, they concede the question is not answered. It has even been implied by some lawmakers that including portability is just a way to get Save Our Homes thrown out by the courts. A better approach was contained in House proposal, the 40% minimum exemption for all homeowners that is phased out as SOH rises.

The 10% cap for non-homestead property is so high as to be of little value to most properties. The average annual growth in the value of non-homestead property is less than 5%. And since school taxes are not covered under the cap, it only applies to approximately 60% of the average tax bill. Moreover, if the non-homestead cap works the way Save Our homes does, in years where a covered property’s just value does not rise as much as the cap, the assessment can still increase 10%, as long as it does not exceed just value. So while the cap may help some properties with high price spikes, it will be very hard for the vast majority of non-homestead properties to accumulate any savings.

The statutory implementing bill (SB 4D) does not include important language that all the other proposals contained. To ensure that more tax burden is not shifted to non-homestead properties, the statutory mileage cap must be amended to ensure that local governments truly absorb the cost of the double homestead exemption and portability. This can be done by requiring that the rolled-back rate is calculated before the value of these exemptions is removed from taxable value.

This is essential to ensuring that these are true tax cuts and not tax shifts. This language has been omitted, but can be remedied in the next regular session. And perhaps most importantly, now that voters have approved this new amendment, future attempts to reform non-homestead property taxes will be extremely difficult.

This amendment now provides two major benefits to homestead properties -- one needed (portability) and one not needed (double homestead.) It is extremely important to acknowledge that by providing more benefits to homesteaders and attempting to fix problems Save Our Homes created for them, it makes it much more difficult to create a future constitutional amendment to help non-homestead property that would garner enough voter support to pass.

Since any changes to help non-homestead property will likely put upward pressure on homesteaders’ tax burden, these homestead benefits should be part of a comprehensive property tax relief and reform proposal that has “something fair and equitable for everybody.” In my humble opinion, passage of this amendment spells the end of hopes of real reform for non-homestead property. I believe this was the law makers intentions from the start.

After reviewing the plan in great detail I have concluded that that the plan really amounts to tax cuts – not true tax reform. Savings are targeted almost exclusively to homestead property owners, leaving non-homesteaders and businesses with little protection from property taxes that have spiraled out of control. This is bad news for real estate investors.

TO RECAP:

The Florida Legislature, meeting in a mid-June Special Session slated for nine days, passed a property tax relief plan in three days. It required local governments to cut property taxes immediately, it caps future increases, and creates a now-defunct, constitutional “Super Homestead Exemption” that Florida voters approved in the January 29, 2008 election.

Barring overrides by individual local governments, every property taxpayer in the state would have seen a cut in last fall’s property tax bill of about 7 percent. Average savings would have ranged from $174 for homesteads, $199 for non-homesteads and $941 for commercial properties. Collectively, all property owners were estimated to save approximately $15.6 billion over the next five years.

More than a third of Florida’s local governments overrode that mandate, and the property tax cuts some homeowners saw on their TRIM notices this fall were underwhelming. While they’d been promised “property taxes that would fall like a rock,” some were quoted in Florida newspapers characterizing the drop as more like that of a “pebble.” Meanwhile, a Florida judge threw out the proposed Super Homestead exemption on the grounds that the ballot summary language was misleading.

There are watch dog organizations that are reviewing and analyzing data to formulate the likely impacts of both the statutory and proposed constitutional reforms on local governments and taxpayers. This will include consideration of the key factors of just value growth and personal income, the effects of local government overrides of property tax caps, the on-going shift of tax burden from homestead to non-homestead property owners, non-ad valorem tax revenue changes, and the effects of any future increases in the portion of school property taxes mandated by the Legislature.

They are also offering specialized local budget profiles and cost savings analysis to local taxpayer, business, and civic groups, to help in the fight to reduce property taxes and local spending while providing helpful assistance to local officials in implementing those rollbacks and cuts mandated by the Legislature.

With the 2007 Legislature having provided modest relief, now the constitutionally created Taxation and Budget Reform Commission can perform a more thorough, thoughtful and deliberative study of Florida’s property tax and local government spending crisis.

With more time and a focused mission dedicated to studying the tax and budget systems of Florida, the Taxation and Budget Reform Commission can work toward recommending true, meaningful and long-lasting reforms that will not have the unintended consequences that the Save Our Homes amendment has had on Florida taxpayers.

The Taxation and Budget Reform Commission is positioned to fully evaluate all of the property tax reform options and offers voters in Florida a package that is fair to all taxpayers, helps keep future tax increases in check and creates a system that is good for Florida’s competitiveness and economic vitality.

In a research report released in December 2006, Controlling Escalating Property Taxation and Local Government Spending and Revenue, one of these watchdog organizations recommended repealing the Save Our Homes amendment, a popular three-percent cap on homesteaded property owners’ annual tax bills. Other recommendations include:

• Allowing homeowners who currently enjoy the protection of the amendment’s cap to keep their reduced assessment. Future assessments would be at full market value minus the existing differential under the cap.
• Capping local governments’ revenues. This could include mandating that local governments adopt a millage rate that is no higher than a redefined rolled-back rate that allows for new construction and inflation or growth in personal income or both. The cap could be overridden by a supermajority vote of the local government body.
• Allowing a one-time statewide portability of a homeowner’s assessment reduction. If a homeowner moves within Florida, their new house’s fair market assessment would be reduced by the same amount as their old house, so long as the new home’s assessment is of equal or greater value.
• Assessing commercial property at the value of its existing business, rather than what the property could sell for under the current “highest and best use” criteria.

It is my opinion that Save Our Homes is not a tax limit, but a tax shift. Since it does not control total taxation or government spending, the effect has been a shifting of the tax burden to businesses, renters, second homeowners and real estate investors.

However, it is still popular with many Florida voters and the only way to eliminate these unintended consequences is to change the state constitution (which requires a vote of the electorate). Save Our Homes, with its 3% (or the increase in inflation, whichever is less) annual cap on homesteaded property value assessments, disproportionately helps higher priced homes, treats similarly situated homeowners and property taxpayers differently, and has tended to trap residents in their homes longer, because they wouldn’t be able to afford the tax increase on the next home they would otherwise purchase.

RISING LOCAL GOVERNMENT TAX INCREASES AND SPENDING

Coupled with the impact of Save Our Homes is another dilemma facing Florida taxpayers. Due to rising property values, many local governments in Florida are poised to enact significant tax increases if they don’t roll back millage rates. That should be a big concern for all real estate investors.

The remarkable growth fueled by a housing boom has allowed local governments to often lower millage rates while still increasing taxes. When property values rise like this, some local governments either keep the same millage rate, which amounts to a major property tax hike, or lower the rate only slightly and call it a property tax rate cut, when, in fact, it’s still a tax increase. These are misstatements that aren’t in keeping with the spirit of the Truth in Millage (TRIM) law.

Florida’s TRIM law recognizes that property values are a powerful revenue-producing tool for local governments and rapidly escalating values result in rapidly escalating tax burdens if the tax rate is not reduced. TRIM requires that taxing authorities calculate a ″rolled back millage rate″, which is the millage rate that, when applied to the current year's assessed value, would raise the same amount of revenue as last year.

According to TRIM, any millage rate in excess of the rolled-back rate is considered to be a tax increase and is to be advertised as such by local governments. New construction, additions to existing structures, major rehabilitations and annexations are excluded from the rolled-back rate calculation to allow for some growth revenue. Therefore, even if a taxing authority keeps the same millage rate, if the total assessed value of the property on last year’s tax roll is up, then it’s considered a tax increase.

TRIM notices were mailed to property owners in the month of August and many taxpayers are seeing significant increases in the taxes proposed by their local governments.

The state has forecasted that the total taxable property value in Florida grew by $331 billion in 2006, bringing the statewide tax roll to $1.648 trillion. This remarkable 25.1% growth marks the fifth year in a row that total taxable value has had double-digit annual growth. Some counties have seen their property tax rolls grow by more than 40% this year, and a couple have exceeded 50%.

Real and effective tax reform must be enacted - and quickly. As a Florida taxpayer, you play an important role in this process, with rights and responsibilities to ensure that we have a fair and equitable tax system in our state.

Make your voice heard by contacting your local and state elected officials with your concerns, and by participating in local government budget hearings where final millage rates and budgets are set.