Property Taxes: Lawmakers Face Uphill Battle

Lawmakers didn’t say tax reform would be easy.

Expectations are high, fueled by vows to lessen taxpayers’ woes and help reignite a sluggish Florida housing market and economy.

But concerns remain, with Florida mortgage payments on the rise, lawmakers proposing to slash city and county taxes and replace the $25,000 homestead exemption and accompanying 3 percent assessment cap with a sort of super-exemption.

Among them is a fear among some lawmakers and others that replacing one exemption on primary homes with another - which would require a state constitutional amendment - could leave other property owners shouldering too much of the burden like under the existing system.

“If we do a constitutional amendment only for homesteaders, what protection will commercial and commercial residential have?” House Democratic leader Dan Gelber, of Miami Beach asked last week.

But, while exemptions do shift the property tax burden, the proposed changes will improve the situation, experts say, and extending an exemption to properties like businesses and second homes hasn’t galvanized state support.

THE PROBLEM

A special session starts Tuesday. After five years when property taxes increased at a rate almost double per capita income, few say taxpayers don’t need a break. The way to give it has proven thorny.

Cutting and capping local government property taxes would address part of the problem, supporters say, though government officials have decried the loss of local control and said proposed tax cuts would lead to service reductions and layoffs.

Another factor has proven more intractable: Save Our Homes, the state constitutional 3 percent assessment cap on primary residences.

Approved by the voters whose Florida mortgage payments it benefits, it would subsequently have to be removed by voters, many of whom have benefited from it greatly.

“If there was no Save Our Homes, the fix is easier by generic rollbacks and things like that,” said Doug Buck, a lobbyist for the Florida Home Builders Association.

Politically, lawmakers want to make changes that appeal to residents with Save Our Homes benefits, he said. But giving them a break makes it harder to help owners of commercial real estate and non-homesteaded property because the costs soar.

Save Our Homes insulates primary homeowners by holding down taxable values but leaves other properties - businesses, rental properties, second homes and newly bought homes - unshielded.

The owners of those properties bore the brunt when market values soared starting in 2003 and many local governments did not roll back tax rates.

The system has also created problems for Florida real estate.

Neighbors may pay significantly different taxes on similar homes because one has benefited from the cap for years and homeowners with Save Our Homes benefits often won’t move because they would pay significantly higher taxes if they did.

THE REMEDY

House and Senate leaders have agreed to a two-phase approach.

The first phase would be a rollback and cap on city and county taxes that would go into effect October 1.

Non-homesteaded properties that recorded the biggest increases also would see the biggest benefits, they say.

The second phase, a new percentage-based super-exemption for homestead properties, would eliminate inequities among primary homeowners.

Lawmakers say it would also eliminate the need for “portability,” which would allow homesteaded residents to transfer Save Our Homes value when they move.

Voters would be asked to approve the change January 29. Lawmakers say people whose benefits under Save Our Homes would be larger than under the new homestead exemption would retain them.

REMEDY PROBLEMS?

The strategy makes some Florida mortgage loan holders nervous.

The same goes for local and state officials.

Andrew Cripps, executive director of the Ormond Beach Chamber of Commerce, said local business people are worried the proposal could exacerbate the tax shift already impacting them unless an exemption or assessment cap is extended to other properties.

Sen. Evelyn Lynn, R-Ormond Beach, shares the concern.

“It’s a severe problem, and I think, certainly, that needs to be addressed as soon as possible,” she said.

But Volusia County Property Appraiser Morgan Gilreath, who supports the proposal, said any shift would be less dramatic than in the past because there won’t be an ever-widening gap between taxable and market values, and tax increases will be capped.

A nonhomestead exemption isn’t at the top of the to-do list for state business groups, either. Leaders of the Florida Chamber of Commerce and Associated Industries of Florida said their priority is cutting and capping property taxes October 1.

Barney Bishop, president of Associated Industries, said he would like for lawmakers to return this fall to consider a constitutional amendment for homeowners.

He cautioned against cutting taxes so deeply it could affect the ability of cities and counties to provide infrastructure needed for growth.

Allen Douglas, legislative affairs director for the National Federation of Independent Business of Florida, said the federation doesn’t seek a constitutional break on assessments because it would be too hard to change or fix - like Save Our Homes.

But Mark Soskin, a University of Central Florida economist, said he thinks businesses and rental-property owners will ultimately have to look for some sort of cap or exemption even if not this year.

The idea of phasing out Save Our Homes with an at least equally valuable super-exemption is the only politically viable option, but the tax system will still be unbalanced, he said. Unlike earlier portability proposals, though, the super-exemption does not lock in Save Our Homes.

“If you have a version of this relief, it allows you to extend it or at least use that as a model to also do that for businesses,” Soskin said.

SOURCE: Daytona Beach News-Journal