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3 tax plans are in play
State lawmakers look at new homestead exemptions as a route to lowering taxes.
By ALEX LEARY
Published May 28, 2007
TALLAHASSEE - Consensus has become an empty word around here.
On the day property tax talks were suspended, legislators insisted they were this close to consensus.
Three weeks later, no consensus.
But for the first time since the debate began, lawmakers have general agreement. In concept, legislators have decided they want to create some type of super homestead exemption that would phase out Save Our Homes, the 3 percent cap on assessments that has been a blessing and a burden.
The trick now is deciding which of the three super homestead exemption plans to pursue when the Legislature's top tax negotiators meet again June 4.
One plan would provide a flat percentage discount for all primary homes statewide. Another would create a tier of percentages that diminish as value grows. The third would link tax discounts to the median value of all homes in a given county.
The median value approach - first proposed by House Democrats - has gained support in the Senate, and even House Speaker Marco Rubio, R-Miami, seems intrigued, though he wants to make the exemption more generous.
"It seems to give the most help to the people who need it most and not devastate too badly local government, " said Sen. Steve Geller, D-Hallandale Beach.
"It's a step in the right direction, " said Pinellas County Commissioner Susan Latvala, who has organized county government opposition to other proposals. "It certainly addresses the issue that one size doesn't fit all."
Even so, much remains unknown.
With the June 12 special session approaching, there are no numbers, no percentages for discounts, attached to the plans. Cities and counties do not know the scope of the budget cuts the tax plans would trigger. Rubio wants as much as $5.6-billion in cuts next year, including all property types. The Democrats' proposals put the figure at $4.1-billion.
Also, lawmakers have yet to address tax breaks for non-homestead property, the businesses and second homes that have picked up an increasing share of the tax burden as Save Our Homes has suppressed tax bills for primary homes for more than a decade.
"Clearly, we can't solve one face of this Rubik's Cube and then worry about resolving the remaining sides, " Rep. Dan Gelber, the House Democratic leader, wrote in a letter to top Republicans Thursday.
Legislators say they must pick one of the three plans, then establish how deep the cuts should be. They hope to have consensus by June 4. The prevailing plan probably would be coupled with a rollback of local property tax bases and a cap on future tax collection.
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Property tax talks were officially suspended a few days before the regular session ended. Despite a standoff between the Senate and Rubio over his plan to eliminate taxes on primary homes for an increased sales tax, both sides said they were closer than ever to agreement.
"I'm as optimistic as I've been since we first started on this, " Rubio said at the time. His comments were confusing then, but less than two weeks later he dropped the sales tax swap.
Instead, Rubio embraced an idea conceived by Rep. David Simmons, R-Altamonte Springs, that would provide a set of tax exemptions based on a percentage of home value.
Rubio proposed giving homes worth up to $300, 000 an 80 percent exemption. From $300, 000 to $1-million, a home would get a 70 percent cut. Anything over $1-million, 30 percent.
The advantage of the stacked approach is percentages can be adjusted to provide more or less relief for particular economic groups. The current homestead exemption is fixed at $25, 000 - an amount most agree is outdated given the rapid rise in property values.
Using a percentage also allows flexibility. If the housing market gets hot, the tax break grows; if it cools, the break decreases.
The flat percentage is the simplest of the three options being considered. But the more expensive a home is, the more benefit in raw dollars the homeowner receives. As a result, lower- and middle-income homeowners may be disinclined to vote for the plan when it comes up for referendum. All three plans involve changing the state Constitution, which means voters must approve.
The House Democrats' plan for an exemption based on the median value of a home was ignored by Rubio and the Republican-led House during the regular session. Now it is being heralded as the fairest plan of all.
Calculating exemptions on a county-by-county basis means a county that experiences huge runups in home appreciation would see its median value rise, which would raise the tax exemption.
The original proposal calls for an exemption based on half the median value. That also softens the blow to local governments in counties with a small tax base because their median prices would be low, and so would the tax cuts.
Rubio has shown interest in the Democrats' idea, with a twist. He recently asked staff to calculate savings based on using 75 percent of the median value, not 50 percent.
"I think we can play with the numbers. But I am getting convinced we need to tie this to median value as opposed to hard numbers, " he wrote in a memo to staff. "Otherwise it will require constant adjustment."
The median approach has its own challenges. Because lower value homes drag down the exemption, there could be resistance to affordable housing projects. And it could pit counties against each other.
Imagine the Villages, the huge retirement development that straddles Lake, Marion and Sumter counties. Residents in identical homes could be paying different taxes because the median values are different in each county.
"That does indicate some constitutional vulnerability, " said Rep. Dean Cannon, the Winter Park Republican heading up negotiations for the House, "but there's a lot of positives."
When lawmakers resume formal talks June 4, they face pressure to pick an exemption method, then choose how big the cut should be. Counties and cities will have to evaluate the impact as well.
All of which makes a tight deadline for negotiators who said they want to have a final plan ready to vote on at the beginning of the special session.
Three ways to expand the homestead exemption:
Flat percent: Give every home the same percentage deduction in the taxable value. Upside: Simple. Downside: Gives the biggest tax cuts, in dollars, to the most expensive homes.
Tiered percent: Create a scale of deductions in taxable value that shrinks as homes get more expensive. Upside: Allows for lots of flexibility to provide tax cuts to particular economic groups. Downside: Complicated, and as home values change so do the percentage deductions applied to them.
County median: Link the tax exemption to the median home value of each county. Upside: The tax exemption is based on the local housing market. Downside: In neighborhoods that straddle county lines, the tax rates could vary widely.