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Your neighbor's tax bill

Thanks to the property tax cap known as Save Our Homes, people who have lived in their houses a long time get a huge discount on their tax bill.

Published March 26, 2006

It's the talk of Florida: Can you believe the incredible prices houses are selling for ?

But then there's this conversation when homeowners talk about cashing in on their high-priced houses and moving into something new: The new taxes would be a killer - double, triple or even more.

Why? Because of the very law that has kept property taxes manageable while home values soared. That tax cap doesn't travel with you when buy a new house - even if you buy one for the same price as your old one.

Which means that as the new neighbor on the block, you pay more for schools and roads than people in similar-valued  homes around you.

In Tallahassee, politicians are talking seriously about changing the law so homeowners can keep their tax cap when they move. It would help countless people afford new homes.

But it would cost schools and local governments billions of dollars.

* * *

Over the 11 years since it went into effect, the propertytax cap law known as Save Our Homes has done what it wasdesigned to do: keep countless people from being taxed out of their homes. But it also has distorted the tax picture, from house to house and neighborhood to neighborhood.

People in otherwise identical homes pay wildly different tax bills. Some neighborhoods pay more than their share, others pay less.

The St. Petersburg Times analyzed the property taxes of every homesteaded property in the five-county west-central Florida area - 722,358 properties - and found:

--Boom towns and high growth areas pay taxes on a far higher percentage of home value than do more established neighborhoods. In other words, the new growth so often criticized for not paying for itself is shouldering a higher portion of the tax burden than established neighborhoods.

--The widest disparities, neighbor to neighbor, are found in established areas, where values have skyrocketed the most during the boom. New owners in hot neighborhoods can pay 10 times or more taxes than people who have lived there for years.

--The tax cap has trapped some people in their homes. Empty nesters, for example, can't afford to downsize because of the tax hit they would take if they bought a home - even a smaller one.

If lawmakers in Tallahassee expand the tax cap so people could take it with them, it would let people buy homes without paying what amounts to a tax penalty. But the disparities identified in the Times analysis would grow wider still.

* * *

Jim Smith remembers back to a month after he took office in 1989 and the call he took from a retired couple in Safety Harbor.

Buyers had discovered Safety Harbor's waterfront property, prices were shooting up and the retired callers were afraid they might have to sell their home because they couldn't afford to pay their rising taxes. Smith said he couldn't do anything to help them.

Back then, property was taxed at about the level of the going market rate. If a neighborhood got hot, everybody's taxes shot up.

Horror stories of people taxed out of their homes fueled the citizens petition drive that put the property tax cap, Save Our Homes, on the ballot in November 1992. Voters approved it.

Under the law, taxable values can rise only as fast as inflation or 3 percent, whichever is lower. In 10 years, the cap has hit the full 3 percent only three times, including last year when inflation was 3.4 percent.

Home prices have shot up far more, far faster.

When voters approved Save Our Homes, the typical home in west-central Florida - one with a homestead exemption - was worth about $51,600, according to property appraiser data. Last year, the typical home was worth about $136,700.

The homestead exemption used to be a huge deal. In the early 1990s, the $25,000 break cut the typical tax bill in half. Last year, with home values so much higher, that same break cut just one-fifth off the typical new tax bill.

Save Our Homes? Depending on when the owner bought the house, it could be worth two, three or more times the homestead exemption.

Here's the catch.

You can't take it with you. You can't leave it to your kids. When a house is sold, the tax cap is reset.

The next homeowner pays taxes near the market value, not the discounted bill the previous owner had.

* * *

Mary Eifert could be the poster child of Save Our Homes successes and failures.

Eifert, 71, has owned a three-bedroom home on Clearwater Beach since 1963.

Nowhere have prices gone up more than beach areas, barrier islands and waterfront homes. Longtime homeowners in those areas have benefited most from Save Our Homes.

Eifert could get as much as $800,000 if she sold her home today. But thanks to Save Our Homes, she pays taxes on just $173,000 in value, less than 25 percent what her house is worth. This year, she's paying about $4,000 in property taxes.

Down the block, a homeowner who bought a house worth about the same as Eifert's in 2003 is paying taxes on more than 80 percent of what the home is worth. That's a tax bill of more than $11,000.

Without Save Our Homes, Eifert says she may have had to move: taxed out of her home, precisely the problem the original backers of Save Our Homes set out to stop.

"I don't know that I would have been able to cover it," Eifert said.

But she lives at another crossroads. She's considered downsizing to a beach condominium. With the sale of her home, she could afford something nice.

By moving, though, she would take a huge tax hit. With higher taxes, her new home could end up costing much more than she pays now - to live somewhere smaller, even inland and away from the water.

"For what I have here, to start paying higher property taxes, that doesn't make any sense," Eifert said.

That's the downside of Save Our Homes.

"Florida's tax laws are put together by chewing gum, bailing wire and spit," said Smith, the property appraiser. "It's a mess."

Calculating the percent of market value that is taxable, neighborhood by neighborhood, the Times produced maps that show the average tax burden in areas around Tampa Bay. Patterns popped out.

Homeowners in the shiny new suburbs - Cheval and FishHaw k Ranch in Hillsborough, the Trinity area of Pasco, Lansbrook and Eastlake Woodlands in North Pinellas - all bear a high burden, paying taxes on as much as 85 percent of their value.

Homeowners in the older parts of the core cities, including St. Petersburg and Tampa, pay taxes on as little as 10 percent of their values.

"What this has done, it has redistributed the tax burden," said Mike Wells, the Pasco County property appraiser. "From one residence to another, and from residential to non-residential. Like it or not, that's what it's done."

Where Save Our Homes and the real estate market most collide is the hot neighborhoods that have rising values and turnover.

Take the 600 block of Oregon Avenue in the Hyde Park North area of Tampa. There are 12 homesteaded properties on the block. On the extremes, two of them pay taxes on 75 percent of their market value. Two pay taxes on less than 25 percent of that same market value.

"We're not all paying the same and this is sort of an American foundation," said Warren Weathers, the chief deputy property appraiser in Hillsborough County. "We don't mind paying - and this is what we've heard a thousand times, a million times probably - we don't mind paying as long as I pay what everyone else pays or my fair share."

But that's not Save Our Homes.

"It's not fair," said Rick Butler, a Realtor and Pinellas Park City Council member. "It's not even close."

The cap is not fair - by design - according to David Zachem, who as head of Floridians For Tax Relief helped get Save Our Homes onto the ballot.

"It was never intended to be equitable," he said. "It was designed to keep people from being driven out of their homestead by rising assessments."

It worked.

* * *

Just a year ago, the idea of allowing homeowners to transfer their tax cap savings to a new, more expensive house was considered radical because it could cost local governments billions in tax revenues. This year, though, three legislative committees have overwhelmingly approved the idea.

"All Floridians ought to be able to live where they want to," said Rep. Carl Domino, a Republican from Jupiter who is the original proponent of portability. "All I'm doing, and it is a very small tweak, is (responding to homeowners who say) "We want this protection and we want to be able to move this protection."'

This is the third year Domino has filed legislation, but the first time he has gotten traction.

Escalating real estate prices combined with election-year politics have turned the proposal into a political darling, a touchstone for gubernatorial candidates and legislators anxious to respond to citizen complaints. They reject all concerns about portability's impact on local government collections and all questions about whether it would make an inequitable tax system more inequitable.

"Taxes have become so oppressive, it's the major make-or-break decision on whether a citizen can downsize or if a growing family can buy a new home," said Rep. Jeff Kottkamp, a Republican from Cape Coral. "It's a glaring reason to do something."

Critics point to a legislative analysis that shows that the tax cap most benefits the owners of Florida's most expensive homes.

Last year, $250-billion in property was not taxed because of the cap. Of that, Save Our Homes gave $50-billion in tax breaks to the 99,711 owners of the state's most expensive homes. The average market value of these homes: $989,215.

Another $50-billion in tax breaks went to the 2.6-million owners of the state's least expensive homes. The average market value of these homes: $131,011.

Senate President Tom Lee, a Republican candidate for chief financial officer, acknowledges reservations about the inequities under portability. "I sure like the politics of it. I'm not sure the policy of it is very fair."

The next stop for Domino's portability proposal is before the House Finance and Tax Committee, chaired by Rep. Fred Brummer, an Apopka Republican who has single-handedly stalled Domino's plan for two years. A fervent supporter of tax cuts, Brummer argues that portability would only exacerbate the inequities of Save Our Homes.

"In any taxing policy you must have some shred of fairness, and Rep. Domino removes the last shred of fairness from the property tax law in the state of Florida," Brummer said. "You can put lipstick on a pig, (but) it doesn't make this one any better looking."

But he has no illusions: If a measure to allow portability makes it to the ballot, voters will approve it. Self-interest will triumph.

"How would you level the playing field?" Brummer said. "Go back to 1994 and repeal Save Our Homes. That's not happening.

"I can count all the people who will vote to repeal Save Our Homes on my closed fist."

* * *

What would portability mean? Again, it depends.

It would mean Mary Eifert could downsize, move to a smaller condo on the beach she has lived on for more than 40 years and not have to absorb a tax hit on her fixed income.

Expanding families could do the same, adding bedrooms with little tax penalty.

The downsides, though, loom large.

By 2012, if tax rates don't change, state economists estimate portablility would mean government and schools would have to get by without $2.4-billion a year they otherwise would get.

As Butler, the Pinellas Park City Council member put it, "I hope you like the old road, because I have your old tax bill."

Portability won't reduce disparities, it will help people already getting the biggest break.

"They don't need tax relief, they have tax relief," said Brummer. "It's their next-door neighbor that needs tax relief; the neighbor who buys the same house 12 years after their (Save Our Homes benefit) has gone into effect and pays double, triple, quadruple, 10 times as much."

Some ask: Is portability a reach, stretching the original intent of Save Our Homes?

"We did Save Our Homes for a good reason, at least that's what we thought," said John Wayne Smith, a former legislative staffer who now lobbies for the Florida League of Cities.

"Now we've turned it around and said Save Our Homes is bad. Or has this negative result because it's doing what it's supposed to do: It's allowing folks to stay in their home without having these huge spikes in property tax increases."

Sen. Mike Bennett, a Republican from Bradenton, voted for the universal portability plan in January during its first committee stop in the Senate. But now he's having second thoughts, given how hard it is for first-time home buyers to enter Florida's market.

"If I paid $100,000 for my house in 1970 and I can sell it for $500,000 today, I have a pretty hard time convincing me" that you are trapped, Bennett said. "I think we are reacting too quickly. ... We better take a hard look at this thing and do a real study."

Wells, the Pasco appraiser, said portability would increase the burden on rental, commercial and industrial property.

"Is a transportable Save Our Homes in the spirit of the original law? I think not. I don't know if all this other fiddling with it is going to help Florida as a whole.

"I'm just glad I don't have to build my house now. My taxes would be a lot of money."

--Times staff writer Aaron Sharockman contributed to this report.

[Last modified March 26, 2006, 12:16:50]

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