History shows way on taxes
California in the '70s and Colorado in the '90s heard tell of the sky falling. It didn't.
By ALEX LEARY, Times Staff Writer
Published September 3, 2007
The Florida Legislature sent Alan Reeder-Camponi back in time.
From his home in St. Petersburg, he remembers California, 1978. Everyone talks property taxes. Homeowners demand big rate cuts.
Local governments predict chaos: Parks and libraries will close. Firefighters will lose their jobs.
California 1978 sounds like Florida 2007.
Rising property taxes enrage taxpayers; politicians plunge into a tax-cutting frenzy; local governments warn that the sky will fall.
Reeder-Camponi responds with the voice of experience:
"All the disaster you heard about," said the 61-year-old landlord, "it just never happened."
It didn't happen in California, where local governments got creative in the search for new money. It almost happened in Colorado, where voters in the early '90s approved even more severe budget restrictions. But when the squeeze really began to hurt, voters cried uncle - led by the same conservative Republicans who had championed the cuts.
What happened in California, Colorado and other states suggests that dramatic plans to cut taxes end up with less-than-dramatic results as governments find alternative ways to raise money and citizens settle on what level of reduced services they're willing to live with.
"Nationwide, there's been no systematic effect of tax and expenditure limitations," said Mat McCubbins, a University of California at San Diego political science professor who is an expert on tax policy.
"It's not like (governments) are just going to magically go back to where they were spending before property values started rising. They've gotten used to the new money."
State Sen. Dan Webster, who played a leading role in shaping the Legislature's tax plan, said the intent in Florida was to roll back several years of unchecked spending and remove inequities in the current system - not to crush budgets.
The Florida approach, he said, is different.
Leading the retreat
Colorado has one of the most complex tax structures in the country, and its history of voter-led propositions rivals California's. In 1992, voters approved the Taxpayer's Bill of Rights, or TABOR, which said annual tax revenue increases cannot exceed the rate of inflation and population growth combined.
That is roughly equivalent to the cap Florida's Legislature just imposed on local governments.
For years, TABOR worked fine as the Colorado economy flourished. Then came the 2001 recession. Government revenues declined. TABOR, which said a new budget can only be a little more than the previous year's, exacerbated the crisis by continually ratchetting down the ceiling on the next year's budget. So, even when the economy improved, government could not fully reap the tax benefits.
From 2003 to 2005, state services were slashed by $785-million. Republican Gov. Bill Owens warned of closing community colleges, 11 state parks and eliminating programs for the sick and poor.
In November 2005, voters decided they had had enough.
They passed Referendum C, which gave the state a five-year reprieve from the revenue limits. It is expected to raise revenues by nearly $6-billion.
Perhaps most remarkable about Referendum C was some of the people who backed it: Republicans, including the governor and former Sen. Hank Brown, who went on to become president of the University of Colorado.
"I surprised a lot of my friends," Brown said. "But it's clear that TABOR needed to be fine-tuned."
Jarvis and Prop. 13
Proposition 13 in California is perhaps the best-known citizen initiative in the country. Passed in 1978, it cut property taxes in half. (In 2005, the per capita property tax in California was $942, compared with Florida's $1,148. But the overall per capita state tax in California is $3,054, nearly a thousand dollars more than it is in Florida, which does not have an income tax.)
Proposition 13 remains in effect today and is still as controversial. Howard Jarvis, the political activist who wrote the plan, remains something of a household name two decades after his death.
(He lives on in film, having made a cameo appearance in the comedy Airplane!. Jarvis spends the movie in a parked taxi cab, the meter running, a spoof on his fiscal conservatism.)
Proposition 13 caps property taxes at 1 percent of a home's assessed value and the increase in overall property tax revenue at 2 percent a year.
The 1 percent cap on increases in individual assessments is akin to Florida's Save Our Homes 3 percent annual cap on assessments. But the intent of Proposition 13 is the same as the tax legislation passed this June by the Florida Legislature - to put government on a diet.
For a few years after Proposition 13 passed, government did slim down. Some libraries closed, some park hours were limited. But then government went looking for new revenue streams.
Won't give us property taxes? Fine, then fork over money to use parks and the swimming pool. That lot where you parked for free? Now you have to plug the meter. Staying at a hotel? Pay an extra tax. Problem with mosquitoes? Pay a special tax for spraying.
"We have to be very creative to create revenue," said Gwenn Norton-Perry, mayor of Chino Hills. The Los Angeles suburb recently moved a park to make way for a 400,000-square-foot retail center that promises a sales tax boon. The city built a $16-million baseball facility to rent out to recreation teams.
Already, signs of California-like survival tactics can be seen in Florida.
Pasco County is considering whether to raise or create fees to rent pavilions, use boat ramps, play in sports leagues and send children to day camps. St. Petersburg expects to gain $910,000 in new revenue through permit and recreation fees and increased airport hangar and boat slip rentals. Using a city swimming pool will cost an extra 50 cents.
In Florida, a choice
Florida's tax cut plan comes in two parts. The first is a rollback on local millage rates and a continuing cap on spending by local governments. Cities and counties can only exceed the cap by a supermajority vote (four members of a five-person city council, for instance).
The second part is a proposed constitutional amendment that would greatly expand the homestead exemption. It will be voted on Jan. 29.
State officials considered restricting the ability of local governments to use new fees to make up revenue lost to tax cuts but ultimately decided against it.
Sen. Webster, the Winter Garden Republican, who was at the forefront of the discussions, said the Legislature may revisit the issue if fees get out of hand.
But he noted that with fees, at least people have a choice.
"You don't have to use the community pool if you don't want to," he said. "But if you own a home or business, you're affected by property taxes no matter what."
The plan, he said, also gives that same flexibility to local governments, which can use the supermajority vote to break the cap.
"We openly said that's okay, we allowed it," Webster said. "If it happens, if happens. But it will be a little more public than before."