The tax system's not fair and might become even less so
For a better Florida: Issues facing the 2007 Legislature
By ALEX LEARY
Published February 18, 2007
Before the shouting, before the headlines screaming "taxpayer revolt," Judi Reed stood alone at St. Petersburg City Hall.
It was summer 2005, and Reed had just moved from Washington, D.C. She was angered to learn her neighbors were paying thousands less in taxes even though their homes were similar to hers.
But Reed, facing a $6,100 property tax bill, never got to complain at the city budget hearing.
"They told me, 'You need to go to Tallahassee.' "
Today the cry for help ricochets around the state, making property taxes the top issue the Legislature will face next month.
The debate will run along two overarching questions: How fairly is the tax burden shared? And does government collect too much in taxes, period?
New homeowners like Reed aren't the only ones hurting. Hardest hit in the property value run-up of the last five years are owners of commercial or rental properties, who are increasingly paying more of Florida's property tax bill.
Gov. Charlie Crist, who campaigned on promises to address the problem, has offered a broad proposal and wants something done fast.
But Florida's property tax system has been decades in the making, and changes to benefit any group of property owners are likely to face backlash from everyone else.
The governor's plan does not address some of the current inequities in the state's tax system. In fact, it creates some new ones and benefits the class already most favored in the current tax system: homesteaded property owners.
His main proposals:
- Double the $25,000 home-stead exemption to $50,000.
- Allow homesteaded property owners, who enjoy a 3 percent annual cap on increases to the assessed value of their property, to take the tax break with them when they buy a new home.
- Apply the same 3 percent cap to business and rental property.
In each case, those savings for taxpayers mean less money for government. Billions less.
Crist says that's good, that cities and counties have grown fat at the trough of a hot real estate market and need to pare back the spending.
In the past six years, property tax levies have doubled to $30-billion, far outpacing population and personal income growth.
What Crist does not mention is this: The state budget has also grown substantially, even as Tallahassee has passed more of the cost of education to the local level. Last year, the state required school property taxes to increase by 17 percent, or $1.1-billion.
Crist's ideas are only the most visible. Leaders in the Senate may push for an overall cap on local government spending.
"Everything is on the table," said Sen. Mike Haridopolos, R-Melbourne. "This is policy, this is politics and this is money."
Old, new tax breaks
Property tax breaks are nothing new in Florida. The homestead exemption was created in 1934 as a way to counter the Great Depression. The $5,000 break lasted until the early 1980s, when it was bumped to $25,000.
The 3 percent cap followed in 1992. Known as Save Our Homes, the cap was sold as a way to keep the elderly from being taxed out of their homes. In the end, however, the benefit applied to every homestead.
It restricts annual increases in taxable value on property to 3 percent or the inflation rate, whichever is lower. The average annual increase since inception has been 2.4 percent - minuscule in comparison to double-digit increases in assessed value.
In 2006, Save Our Homes removed an estimated $404-billion in property value from taxation. The average savings per property was about $1,700.
Of course, one man's tax cut is another's tax increase. Save Our Homes has put a significant tax burden on second-home owners and businesses that don't qualify for the Save Our Homes cap. Each now pays about 25 percent more in property taxes than they would if there were no Save Our Homes.
"To me they've made a law to legalize banditry," said Peter Damick, 76, a snowbird from Rochester, N.Y., who has a home in Pinellas Park.
Save Our Homes has also created inequity between its beneficiaries, giving the most relief to the wealthiest and pitting new owners against established ones.
Judi Reed, the woman who went to complain in St. Petersburg, bought her home in 2005. The previous owners paid about $1,700 a year in property taxes. Reed now pays $7,400.
"You feel like you're subsidizing everybody else," said Reed, 63, a retired U.S. Treasury regulator.
Crist's plan would not help newcomers. Instead it would benefit those who already enjoy Save Our Homes but feel "locked in" as a result.
Because Save Our Homes is not transferable, moving to a larger or even smaller home can result in a significantly higher tax bill.
Crist wants to resolve that by making the 3 percent cap portable. His plan would vary the amount of tax savings carried from the old home to the new one depending on whether the new home is more expensive or less expensive than the old one.
A number of Republicans say portability should be good only for one move and within a single county. Crist said he is open to changing his proposal.
Also under scrutiny is Crist's idea to extend a 3 percent cap to businesses and other non-homestead property. Critics feel creating a new class of tax-sheltered property owners will only create the same inequities that Save Our Homes does today.
Doubling the homestead exemption has pitfalls as well. The additional $25,000 exemption could trim a couple hundred dollars off the average tax bill, but it helps those who already get help. And for governments in rural counties, budget time could become grim.
"If it doubles, it will be devastating," said Dixie County Commissioner Buddy Lamb, who estimates a majority of homesteads, mostly mobile homes, are already off the tax rolls.
Because Dixie is one of 12 counties already at the 10-mill tax rate cap, it would not have room to make up revenue. "Our only option would be to cut services: fire, ambulance, law enforcement," Lamb said.
One idea being floated: Make the extra exemption apply only to homes above $75,000.
A short 60 days
Given the complexity and emotion of property taxes, it will test the mettle and aptitude of the Legislature to get something done in the 60-day session.
There is also the threat that Democrats, who control roughly one out of three seats, could put the brakes on. All three of the proposals Crist is pushing would need to be done as amendments to the state Constitution, and changing the Constitution in a special election requires a three-fourths vote of the Legislature.
"I hate to say it," observed Rep. Ed Hooper, R-Clearwater. "But this is probably going to make the property insurance issue look easy."
Staff writer Joni James contributed to this report.