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Tax debate needs light, not heat

By Times Editorial
Published March 25, 2007

As Gov. Charlie Crist and state lawmakers continue to wrestle with property tax relief, they should consider some lessons from their handling of the last crisis. Early indications suggest their solution to the property insurance mess is not working out nearly as well as expected. 

LESSON 1: Don't overpromise.

Legislators threw around wild estimates of how far property insurance premiums would drop when they had no solid numbers. After January's special session, state regulators pegged the average savings at a more modest but still significant 24 percent. It's turning out to be far less than that for most homeowners, including policyholders with State Farm (7 percent) and Nationwide (4.5 percent). No wonder many homeowners feel deceived.

The numbers are more reliable in the property tax debate, but House Republicans are again raising expectations by pushing proposals that are too punitive toward local governments and, in some cases, too reckless. House Speaker Marco Rubio's pitch to roll back property tax rates, abolish property taxes on homesteads and replace part of the money by raising the sales tax by 2.5 cents on every dollar is irresponsible and not based on sound economic theory.

LESSON 2: Don't focus solely on short-term relief.

The new property insurance law attempts to trigger immediate cuts in premiums by shifting enormous risk to taxpayers following a major hurricane. For relief now, Floridians face huge assessments and significant tax increases after a major storm. Citizens Property Insurance Corp., created as the insurer of last resort, is now expanding to a once-unimaginable size with rates that are not financially sound. The bond-rating firms are casting a skeptical eye toward the additional risk facing the state. If the premium rate reductions remain in the single digits, Crist and state legislators have to ask themselves whether mortgaging the state's future was worth it.

There is no question that newer homeowners, businesses and the owners of investment properties could use immediate property tax relief. But the governor and lawmakers cannot ignore the long-term impact of their response. Florida has never recovered from the 1987 services tax debacle, and the 1992 Save Our Homes amendment is responsible for many of the inequities that are triggering the current crisis.

LESSON 3: Don't make it a partisan fight.

One of the most encouraging aspects of the insurance special session was the way Republicans who control both chambers worked with Democrats to develop a consensus approach. Republicans averse to government embraced a larger role for the state, and Democrats gave the private insurance market another chance to help ease the crisis.

Bipartisan property tax relief will be more difficult to achieve. It will require an approach that doesn't strangle government and provides tax relief that is fair and equitable. The current discussion is focused too much on slashing government spending and not enough on correcting the basic unfairness of the current system.

Of course, there are other strategies that worked in the special session on property insurance that don't translate well to the debate on property taxes. For example, Crist stayed away from most of the property insurance details and just insisted on significant rate relief. While he's using that same fly-above-it-all strategy now on property taxes, at some point the governor is going to have to weigh in if lawmakers get too far off track.

In the insurance special session, it also was easy to demonize private insurers who made significant profits last year and are still jacking up rates and canceling thousands of policies. But legislators are making a mistake by casting elected local officials as the free-spending villains in the tax debate. Local governments can always tighten their belts, but don't forget that mayors and county commissioners also were elected. This should not be a fight between different levels of government.

The governor and the Legislature had no good options when they rolled the dice, focused on the immediate property insurance crisis and hoped for divine intervention during hurricane season. They have many more options with regard to property taxes, and they need to take the long view.

[Last modified March 25, 2007, 07:46:21]