Florida’s Legislature pulls the rug from under real property tax reform, while further off-loading out-of-control expenditures onto part-time resident, out-of-state property owners. Amazingly, Florida’s Legislators placed on the January 29th ballot a constitutional amendment of the following: (1) doubling the homestead exemption from $25,000 to $50,000, thus heaping additional benefit on the already advantaged (voting) homesteaders (further off-loading hundreds of dollars per year from them onto…guess who…non-homesteaders, rental owners and businesses), (2) “portability”, allowing homesteaders’ accumulated Save-Our-Homes (SOH) benefits to be ported when moving to a new property (entrenching discriminatory tax advantages of long-time homesteaders, at the expense of homestead eligible first time buyers, recently homesteaded property owners and renters) (3) a 10%(?) cap on property tax increases for non-homestead properties (a ridiculous insult in a Florida real estate market where property values are “dropping like a rock”…I’ll explain later), and (4) even businesses also received a new $25,000 exemption for tangible personal property.
“Unneeded tax relief, not serious tax reform” was well put by the Palm Beach Post editorial (though link now appears broken) on October 31, 2007! This legislation, which was passed in great haste, is continuing the unfairness without “meaningful reform of a dysfunctional property tax system”. Well actually, this legislation aggravates the unfairness, by providing additional relief to those who are already getting the greatest benefits, and nothing to those who suffered the most as a result of SOH; although melting property values are providing relief to some non-homesteaded owners.
For those of you with a masochistic streak, here are three other articles which summarized well the current state of Florida’s dysfunctional tax system and near-term actions that may be taken to change things in the future. “Anxiety may buoy tax plan” , “Floridians offer their own tax plans for ballot” , “Rubio: Petition for more tax cuts” These cover the discussion of the upcoming January 29th vote, the Tax Reform Committee deliberations, the petitions that citizens’ tax reform groups are collecting signatures for and house Speaker Rubio may undertake, the legal challenge in progress and new likely challenges due to portability having been put on the upcoming ballot.
Palm beach Post reports that “Condos take a sharp slide” with October 2007 values being 30% below the previous year in the county; not a pretty picture, and I have difficulty seeing how any informed out-of-state buyer would be prepared to buy Florida property, given the unwelcome received in this state, compared to other southern states aggressively competing for new home-buyers from the north.
So, tax reform, it is not! Not only is the big squeeze applied non-homesteaded part-time residents, who will get to pay for the fresh savings of the already advantaged homesteaders, even though they already pay 3-10x times the taxes of their homesteaded neighbors in identical properties and even though they are in Florida only 3-4 months a year and use only some of the services supported from property taxes.

Some say that this is about protecting those homesteaders who can’t afford paying higher property taxes and may otherwise lose their homes?!? But the reality still is that the biggest beneficiaries of the Save-Our-Homes are the wealthiest long-time Florida residents, while homesteaded renters who can’t afford to buy a house, are among those who pay their tax bills. Others argue that you can’t cut property taxes as services will suffer. Nothing can be further from the truth.
This is about:
1. Waste of taxpayers’ money. I’ve just received a note from a tax activist indicating (and I haven’t yet verified this, but not wildly inconsistent with personal experience) that between 1996 and 2006 PBC population has grown from 1.1M to 1.3M while the county budget has grown from $1.5B to $4.4B. I’ve been spending 3-5 months in PBC for the past six years and I have seen no visible service improvement (though I do see more police on the road, but so far no impact on crime level). Furthermore from my personal experience between 2001 and 2006 expenses in PBC and Riviera Beach, the municipality that I am part of, have increased about 15-17% annually. This is while inflation and population growth would most likely be in the 5% area.
2. Who pays for the spending of municipalities and counties. My personal taxes have risen between 2001 and 2006 from about $4,000 to $12,000 whereas many of my homesteaded neighbours still pay between $3,000-4,000 on identical condos. Many other non-homesteaders pay ten or more times what their neighbours do for identical properties.
3. An open loop system where those who vote don’t pay for expenditure increases and those who pay can’t vote. Most of those who are voters in Florida (the homesteaded property owners) are largely unaffected by out-of-control spending of counties and municipalities. Those who can’t vote, non-homesteaded part-time residents (and businesses) have borne the cost of all the increases of expenditures over the last six years. With voters desensitised to growth in expenses, this is an open loop system. No doubt, I don’t need to elaborate on this problem to you as an economist! (With falling property values and corresponding decreased proportion of taxable property base borne by non-homesteaders, homesteaders will start to feel the pain of the built-up expenditures as their proportion of the total taxable base increases)
4. Finding ways to continue to transfer the load from homesteaders to non-homesteaders. Finally non-homesteaders were going to get some property tax relief, with the recent plummeting property values in Florida instead the latest bill passed this November, with the additional exemptions for the already advantaged homesteaders and nothing but a ridiculous 10% cap for non-homesteaders, is specially designed to minimize any such relief and insure continuing transfer of the expense load to non-homesteaders.

So where do we go from here?

It is possible that the January 29th vote will not receive the necessary 60% approval by voters of Florida, when they realize that the future of Florida’s economy is at stake. That would put new pressure on the politicians to contemplate urgently needed real property tax reform; a key element in helping Florida’s real estate market to stop its dive to new lows every month and stop Florida’s economy from following property values. If the amendment gets the 60% supports and it passes, it will no doubt be challenged immediately on constitutional grounds, as many experts have repeatedly warned the legislature about its unconstitutionality.

A number of courageous Floridians are demonstrating leadership and have undertaken bold initiatives to raise the required 611,000 signatures by February 1st, 2008 for amendments to be placed on the November 2008 ballot. Some of the initiatives under way are:

1. property taxes capped at 1.35% of taxable property value ( market value for non-homesteaders and existing exemptions preserved for homesteaders); still neither an equitable solution, nor one that make the vast majority of voters focus on government expenditures. However 1.35% is a lot lower than the current 2.0-2.3% in much of southeast Florida, so it would be relief to the non-homesteaded (and many homesteaded) struggling under the yoke of two-tier tax system. There are reports that House Speaker Marco Rubio has thrown his support behind this, and even Governor Crist may have indicated that he would vote for it if it got on the November 2008 ballot. David McKalip heads Cut Property Taxes Now)

2. abolish property taxes altogether and replace them with other state revenue (e.g. sales taxes); this is beginning to sound like the most sensible solution, as it would re-engage the voters into paying attention to government expenditures. (Richard Antolinez head of Florida Ballot Initiative)

Some have hope that the Governor appointed Taxation and Budget Reform Committee (TBRC) tasked with generating recommendations for reform, and even having the power to place these directly on the ballot for the people of Florida, may provide some solutions. But so far there’s been nothing but deadly silence from them.

And finally, there is still the Alabamans’ challenge to the constitutionality of Save-Our-Homes, still winding through appeals in the courts of Florida. (I am currently making the rounds to drum up support from potential sponsors of amicus briefs in the Alabamans’ constitutional challenge.)

Not clear where this is all going to end up. In the meantime, Florida’s property market is one of the worst, if not the worst, in the U.S., cracks are appearing in the once prosperous state economy, and those bearing the discriminatory tax load are spending less for productive purposes while their tax dollars are being wasted by profligate municipalities and counties. The only good news is that there is a growing number of Floridians who are finally starting to realize their two-tier property tax system is destroying the future of the state, and they have started to take the leadership away from the politicians who have abdicated their responsibilities!