Property Tax Plan: Help Now, Pain Later?
To sell their property tax overhaul, Florida lawmakers are touting the immediate benefits to nearly three-quarters of all homesteaders.
It’s a constituency that makes up an overwhelming majority at the voting booth.
Yet as the lawmakers begin a two-week special session on the issue, they have not advertised the not-so-immediate downside - to those exact same homesteaded exemption qualifiers.
Those who buy under the proposed constitutional amendment, in most cases, eventually would pay more in property taxes than if they had bought the house under the present Save Our Homes amendment.
The proposed plan would save the Florida mortgage applicant of a $200,000 house about $2,500 in the first year in property taxes - but could cost an additional $55 after the seventh year and $2,019 more in the 10th year.
That’s based on the current average property tax rate around the state of about 2 percent of a property’s taxable value.
Just how quickly the proposed tax reform would wind up costing Florida home mortgage holders more in taxes depends on the value of the home in question and the rate that it appreciates.
In other words, the more expensive the house and the faster it increases in fair market value, the sooner the new proposal would cost the homeowners more.
For a house bought for $700,000 that appreciates at 10.6 percent annually - the average rate in Florida during the past two decades - the new plan probably would mean a smaller tax payment for only three years.
If the home were to appreciate at 7 percent annually - the average rate in Florida between 1987-2000, which would exclude a recent run-up in property values - the new plan would start costing more in taxes after six years.
A home bought for $200,000 would cost more in taxes after 12 years if it grew at 7 percent annually and after seven years if it appreciated at 10 percent annually.
Gov. Charlie Crist and legislators agreed that the proposed amendment may not be an easy sell once homeowners understand the long-term costs of the plan as well as the short-term benefits.
If lawmakers place this property tax proposal on the ballot, it would require a 60 percent vote of the electorate to pass.
“I am not convinced that people want to vote for this,” said House Speaker Marco Rubio, R-West Miami, who said homeowners are not interested in the long-term implications of the proposal.
“People don’t buy looking that way. … They want to know what their taxes are this year and most importantly, they don’t want to be trapped.”
Crist, who made property taxes a marquee issue during his campaign for governor, said he understood that voters might well reject the change.
“People have to look at that, and see what they think and see what’s best for their family and their particular situation to determine what they want to do and if they want to support it or not,” Crist said.
“That’s why democracy’s great.”
The proposal would appear to offer the greatest benefit to buyers of inexpensive homes who expect to trade them in within a few years to buy a more expensive home.
The proposal was introduced Friday by Rubio and State Senate President Ken Pruitt, R-Port St. Lucie, and if it is approved by voters it would undo the Save Our Homes limits that voters put into the constitution in 1992.
That Save Our Homes amendment limited increases in the assessed value of homesteaded properties to the lesser of inflation or 3 percent.
The effect has been to decrease the share of taxes paid by homesteaded homeowners, who now pay 32 percent of all property taxes even though their homes account for 49 percent of assessed property in the state.
The new proposal would let homeowners who initially benefit more under Save Our Homes keep that protection until they sell a home, but would otherwise replace Save Our Homes and the existing $25,000 homestead exemption with a new, larger exemption that would vary according to the value of the home.
The new formula would exempt 75 percent of the home’s first $200,000 in value, with a minimum exemption of $50,000, then 15 percent of the next $300,000 in value, though that second tier would increase as per-capita income does the same each year.
For the purposes of its comparison, The Palm Beach Post assumed the maximum 3 percent inflation rate allowed in Save Our Homes calculations and a per-capita income annual increase of 4.2 percent, the average in Florida during the past two decades.
Because the $200,000 tier is fixed and does not increase year to year, the net effect of the new plan would be to diminish the value of the larger homestead exemption as it is eroded by inflation without the safeguard of the Save Our Homes assessment cap.
Even appreciating at just 7 percent annually, a $200,000 home today would be worth $553,000 in 15 years. Under the new plan, its taxable value would be $350,000, compared with $287,000 with continued Save Our Homes rules.
The increase in taxes: $1,262, under the current statewide average tax rate of about 2 percent.
As leaders have undertaken changes in the property tax structure, they understood that pleasing those who have been hurt by the recent Florida housing market boom.
That means commercial real estate or business owners, snowbirds and recent home buyers - means potentially angering long-time residents with property taxes that in some cases have actually decreased because of Save Our Homes.
Although lawmakers trumpet the freeing homeowners who feel trapped in their houses because they do not want to lose a Save Our Homes advantage, many are aware that some 40 percent of current homesteaders have owned the same house since Save Our Homes took effect in 1994.
SOURCE: Palm Beach Post
