No Easy Solutions to Escalating Florida Property Tax Crises

Gov. Charlie Crist gave a jump-start to the quest for property tax relief with his call for an amendment to double the homestead exemption and set property tax limits on annual assessments on non-homestead properties.

The Legislature will consider these and other proposals to reduce property taxes during its upcoming session. Any changes to the state’s tax structure must be approved by Florida voters as a constitutional amendment.

It so happens that the Taxation and Budget Reform Commission has convened this year to review the state’s entire tax structure. The Constitution mandates the review every 20 years - and at a period in our history when Florida mortgage costs are higher than ever before, you can bet that the property tax structure will be given great scrutiny.

The best course for legislators, the Miami Herald urges, would be to hold off making any changes until the commission has made recommendations for comprehensive tax reform. Piecemeal changes can cause more harm than good - the 1996 Save Our Homes amendment is a good example.

But chances of lawmakers waiting on such a popular issue are slim to none. Every elected official in Florida got an earful from their voters about skyrocketing property taxes (and homeowners insurance rates) during the campaign season. Some tinkering with taxes seems inevitable.

This being the case, lawmakers must recognize that what they decide will affect the ability of local governments and school districts to do their jobs - provide for the health and safety of Floridians and educate their children.

Funding for these vital functions primarily comes from ad valorem taxes, which, with the exception of the Required Local Effort for schools, only local governments can levy. The Legislature sets the rate for the local effort, and it should be noted that last year it raised the mill rate by 17.3 percent.

Gov. Crist’s proposed increase in the homestead exemption to $50,000 from $25,000 wouldn’t apply to property taxed by school districts but would be applicable to city and county taxes. Doubling the exemption would reduce Miami-Dade’s tax revenues by about $250 million a year and Broward County’s by about $60 million.

It would cut Miami-Dade’s fire-rescue expansion program, based on an ad valorem taxing district, as is the county’s library program. The culprit behind the property-tax crisis is the 10-year-old Save Our Homes amendment. It caps annual tax assessment increases at 3 percent or the Consumer Price Index, whichever is lower, on homes with a homestead exemption.

When a home is sold, however, the next assessment reflects the property’s market value. Essentially, the amendment shifted the tax burden to commercial real estate and other non-homesteaded property, including rental units, which are assessed at market value as well as highest and best use.

With Florida mortgage loan rates at record lows, the market started heating up 5-6 years ago, greatly inflating property values. Now, new homeowners pay thousands more in taxes than neighbors who stay put. Homeowners who want to downsize are more reluctant to do so because they would pay a higher tax rate for a smaller property.

Since the market has driven up prices, owners of rental properties are feeling the double whammy of soaring taxes and insurance premiums, and are converting to condos. This, along with the inflated cost of housing, has created an acute shortage of affordable housing.

Meantime, commercial real estate owners are being squeezed and want relief. Under Save Our Homes, more real estate taxes are being paid - by fewer people. It is doubtful that voters would ever repeal Save Our Homes, unfortunately. So if lawmakers feel compelled to act this year, they should take a measured approach until the tax-reform commission weighs in.

Below are several recommendatioins from the Florida League of Counties, some of which the governor also proposes, that would bring some relief without eroding the local tax base:

• For business relief: Give a tax exemption of $25,000 from the tangible personal property taxes that cover computers, equipment, office furniture and the like.
• Non-homestead property relief: Limit the annual assessment increase to 10 percent unless the property has a change of use or ownership.
• Rental relief: Assess rental property with rents that meet federal fair-rent standards based on the property’s actual rental income rather than market rates.

What isn’t on the table any longer is “portability” - where an owner who sells and buys another house can transfer the former home’s tax rate. Experts say the concept may be unconstitutional because it creates different standards for homeowners who should be treated equally.

Remedies are elusive. True, local taxing agencies have raked in millions more in recent years thanks to the hot South Florida housing market. But local governments’ costs have risen, too, for necessities like health care and construction materials, for example.

Federal and state governments have cut spending as well - over the last five years $500 million in state and federal Medicaid dollars have been shifted to Florida’s local governments, for instance. So if they are determined to act, Florida lawmakers must find a workable balance that creates Florida property tax relief without crippling local governments and school districts - the backbone of our quality of life.