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Politics

Legislators' big challenge: taxes

The trick will be fixing the system, without making it worse.

By STEVE BOUSQUET
Published March 6, 2007

ADVERTISEMENT [Times photo: Scott Keeler] Lawmakers, lobbyists and reporters mingle at the annual Associated Industries of Florida party in Tallahassee on Monday.

TALLAHASSEE - The start of the 2007 legislative session today could set in motion the biggest changes to Florida's tax system in two decades.

Frustrated taxpayers all over the state are pleading for help, and politicians are listening. The question is what the changes will be, and whether they will create new problems - like the last big changes did.

Not since 1987, when the Legislature taxed most professional services and later backed down in the face of a ferocious lobbying campaign, has the topic of taxes so dominated the Florida political agenda.

As a candidate for governor, Charlie Crist called property taxes part of the "double whammy" of pocketbook issues hurting Floridians along with high insurance costs, and he promised help.

"They need their property taxes to go down," Crist said. "I'm very sympathetic to that. I campaigned on it."

Crist and legislators in both parties agree on the need to cut property taxes and to address inequities in the Save Our Homes tax cap that have shifted a growing part of the property tax burden to business owners, snowbirds and renters.

"It really is a shame that property taxes are chasing so many people away," said Connie Conord, a winter "snowbird" at Sun City Center near Tampa who pays more than $3,000 a year in property taxes on her condo. "We're really tired of getting the shaft."

The task for Crist and lawmakers is to build on the bipartisan spirit of cooperation forged during a special session on insurance in December. But they are a long way from a consensus on how to fix the tax problem and they have 60 days to find solutions, some of which will require approval by voters to take effect.

The only area of widespread agreement is that the rate of local government spending must be curtailed somehow.

Crist has proposed doubling the homestead exemption to $50,000, allowing homeowners to take the 3 percent tax cap with them when they move, and extending the cap to owners of businesses and second homes.

Critics, including House leaders and a tax law expert, have said Crist's plan will only make things worse and may be unconstitutional.

The House has offered a much bolder plan, including eliminating property taxes on owner-occupied homes, increasing the statewide sales tax by 2.5 cents to 8.5 percent, and rolling back city and county revenues to 2001 levels, with allowances for inflation and growth.

Talk of a higher sales tax worries retailers. They say the popularity of tax-free holidays for back-to-school items shows that lifting the sales tax encourages consumer spending.

"I have to believe that the reverse is also true," said Rick McAllister of the Florida Retail Federation, "that if it went up substantially it would reduce spending, which is the last thing we need to have happen."

The Senate will soon present its plan, following weeks of hearings at which hundreds of taxpayers poured forth their anger and frustration.

"We're looking at several options and we're not firm on any," said Senate Majority Leader Dan Webster, R-Winter Garden.

Webster, whose 27 years in the House and Senate make him the most seasoned lawmaker in Tallahassee, worries about policymakers pushing tax policy changes too quickly.

"I think we have to look at it in a very prudent way," he said.

At the Senate hearings, homeowners spoke tearfully of taking out loans to pay property taxes. Others voiced regret for moving to Florida.

Firefighters, teachers and other workers said they have given up hope of ever buying a home on a public employee's salary.

But the most common complaint is that cities and counties spend too much money.

"Not only reduce taxes, but you've got to reduce the spending," Stan Fox of Punta Gorda said in a refrain heard often in recent weeks. "And when you do the taxing, it's got to be equitable."

Fox said that for him, his wife and daughters, the happiest day of his life was when they moved to Florida.

"The second happiest day of my life might be when we move out," Fox added as the Fort Myers crowd burst into applause.

Such scenes, unthinkable a generation ago, may have damaged Florida's image as a low-tax haven.

As Crist and lawmakers look for ways to cut taxes, they got more worrisome news Monday. Senate leaders say they expect tax revenues to be $500-million to $800-million less than what has been budgeted, which could mean tighter budgets for state agencies under Crist's control.

The history of Florida's tax system is simple: Keep taxes as low as possible to encourage population growth and to lure well-off retirees to move here.

It worked so well that by the 1980s, people were clamoring for help from steady increases in property taxes.

The Save Our Homes amendment, a citizen-led ballot initiative in 1992, was hailed as a shield against increasing property taxes.

Over time, the 3 percent annual assessment growth cap has created separate groups of tax haves and have-nots, by shifting an ever-increasing property tax burden to business owners, snowbirds and renters.

Even before voters put Save Our Homes into the Constitution in 1992, Florida TaxWatch and others warned that it would be a property tax time bomb that would shift the tax burden to businesses and future home buyers without reducing government spending.

That's what happened.

Making things worse was the real estate bubble in the past decade that resulted in dramatic increases in property values that allowed local governments to dramatically increase spending without raising tax rates.

At the same time, a tax-cutting mind-set in Tallahassee resulted in the shift of some costs of government to counties and cities.

Now it's one big mess.

Property owners blame counties and cities for spending too much. Counties and cities fault the state for passing the buck to them.

Four years ago, in a report titled "The Unfair Burden," the Florida Association of Counties warned lawmakers that there would be a heavy price for the state's increasing reliance on local property taxes for education, juvenile detention and day treatment programs.

"In practice, property value growth should prevent the need for millage increases, but state shifts in funding responsibilities to the local level have made that increasingly difficult and in many cases impossible," the report said.

The House proposal to replace property taxes with a higher sales tax has focused attention on the tax that is the primary source of state revenue.

In recent years, a bipartisan group of leaders tried without success to compel the Legislature to periodically review hundreds of special interest tax breaks to determine whether they are good for the state.

In Florida, dog food is taxed, but ostrich feed is not. Movie tickets are taxed, but Super Bowl tickets are not. Swimming pool chemicals are taxed but pool services are not.

Five years ago, Senate President John McKay, a Bradenton Republican, proposed a cut in the sales tax to 4.5 cents in exchange for elimination of billions of dollars in tax exemptions. Gov. Jeb Bush and the House saw it as a back-door attempt to raise taxes, and they soundly rejected it.

The experience showed that it is not easy to develop a broad consensus in the Legislature for an overhaul of the tax system.

A 2003 study by the liberal-leaning Institute on Taxation and Economic Policy concluded that Florida's tax system was the second most regressive of the 50 states, in part because the state lacks a broad-based income tax.

The study found that the poorest 20 percent of Floridians paid nearly five times as great a share of their earnings in taxes as did the wealthy.

The challenge facing Crist and lawmakers is to fine-tune the system enough to provide tax relief without creating new problems.

"There's a reason why the tax code looks the way it does," Webster said. "I may not know the reason. But there is a reason."

Steve Bousquet can be reached at bousquet@sptimes.com or (850)224-7263. Times staff writer Jennifer Liberto contributed to this report.

[Last modified March 6, 2007, 06:34:57]