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Business Observer Friday, Aug. 4, 2006 13 years ago

Matt Walsh: Save Our Homes should be repealed

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Sometime in the next two weeks, a Gov. Bush-appointed committee will begin meeting to figure out what, if anything, should be done to change Florida's infamously discriminatory Save Our Homes amendment - the amendment that is driving property taxes beyond tolerance for so many of Florida's part-time property owners and the amendment that, a decade after its adoption, has become a spreading cancer across Florida's economy.The conclusion and recommendations should be clear: It should be repealed.

Matt Walsh: Save Our Homes should be repealed

Sometime in the next two weeks, a Gov. Bush-appointed committee will begin meeting to figure out what, if anything, should be done to change Florida's infamously discriminatory Save Our Homes amendment - the amendment that is driving property taxes beyond tolerance for so many of Florida's part-time property owners and the amendment that, a decade after its adoption, has become a spreading cancer across Florida's economy.

The conclusion and recommendations should be clear: It should be repealed.

In its place Floridians should adopt what Colorado did with much success: a cap on the increase in annual government spending at the state and local levels. A cap on all spending.

This, of course, is wishful thinking.

But it would be a fairer alternative for all property owners - year-round, part-time and commercial owners alike - than what exists. And it would accomplish what Lee County Property Appraiser Ken Wilkinson wanted when he devised and led the campaign for Save Our Homes in 1991 and 1992. (The amendment was adopted in 1992 and went into effect in 1994.)

+ How it came about

At the time, Wilkinson's intent was noble and path-breaking. As Lee's appraiser, he saw in the late 1980s that many fixed-income widows and retirees were being forced to sell their homes because they couldn't afford to pay their constantly increasing property taxes. They were being victimized by two factors seemingly out of their control:

1. The attractiveness of Florida, booming population growth and new development increased the value of nearly all Florida real estate at rates that were greater than the growth in retirees' Social Security and interest income.

2. Local government spending also was rising faster than population growth and inflation combined, in part because of the trifecta of growth, the public's demand for more government services and counties' previous policies of ignoring growth.

Wilkinson devised what appeared to be an ingenious plan that would solve both of those growing problems. His amendment would save Florida's fixed-income, homesteaded widows from losing their homes by limiting their property tax increases to no more than 3% per year or the rate of inflation, whichever was less.

Likewise, Wilkinson figured, if property-tax increases were capped on homesteaded residential properties, this would force local governments to restrain their spending. It makes sense: Limit the money flowing to government, and you'll limit how much it spends.

Florida voters approved the constitutional amendment 53% to 47%.

+ What went wrong

But as with all laws that bestow favors, unintended consequences followed. Indeed, the Save Our Homes amendment mirrors one of Milton Friedman's irrefutable laws of government: what you give to one you must take away from another.

In hindsight, everyone should have realized Save Our Homes was really just a tax shift that dumped on a voiceless minority. It shifted a greater tax burden onto businesses and non-homesteaded property owners - neither of which receives the benefit of the property-tax 3% cap. If assessed values rise, say, 15% in a year in a condominium building because of some high-priced sales, every non-permanent resident-owner in that building is likely to see his taxes rise at the same rate, or close to it. Indeed, throughout the Gulf Coast we've seen seasonal residents absorb double-digit tax increases in three of the past four years - even though the tax rates have stayed about the same.

Another unintended consequence: No one foresaw the effects of the Federal Reserve Bank's monetary policies and the lackluster stock market on real estate values and property taxes. With the Fed expanding the money supply to make credit easy and its holding down of interest rates at historically low levels, borrowers could afford big mortgage payments. They rushed to buy, and prices rose.

As we all know now, this forced property appraisers to adjust their tax assessments upward just as fast. And that, in turn, generated windfall profits for county and city governments.

+ The negative domino effects

The ill-effects of this are spreading like a cancer:

1. Most notably, Florida has an unfair two-tiered tax system that is getting worse by the year. How does it make sense that two property owners with identical square footage in the same condo building pay property taxes that may differ by 100%?

2. Instead of what Wilkinson hoped, Save Our Homes was for government spending what lighter fluid is on a charcoal grill. In the little town of Longboat Key, operating expenses have risen 20% in the past two years while population growth and inflation combined rose less than 10%. Longboat Key's growth in spending is typical of local governments on the Gulf Coast.

3. Florida's business climate is becoming increasingly less competitive vis-à-vis other states and tourist destinations. Businesses don't get the benefit of Save Our Homes on their property taxes, so as property values have risen Florida businesses are either forced to absorb the higher costs or raise prices - both instances making them less competitive.

This negative effect on businesses also has fueled the demise of Florida's independently owned beachfront resorts. Unable to absorb the rising property taxes, small resort owners have sold to condo developers.

4. Rising tax rates on non-homesteaded properties and businesses also have contributed to the shortage of affordable housing. Indeed, carry out the trend: The rising tax burden on businesses will discourage new businesses from moving here. Those businesses that do operate here will pass along their increased costs to consumers, adding to rising prices for all goods and services and making Florida too expensive to buy a home.

+ Sum of the parts

There's no question that Save Our Homes has been good to the 50% of Florida's homeowners who benefit from it. But they have done so at the expense of the other half, which is carrying 65% of the property-tax burden.

Unless this amendment is repealed, its deleterious cancer cells will continue to spread. All Floridians will be adversely affected - if not in their property tax bills, in the rising costs of goods and services and the never-ending growth of government spending.

EXCERPT: THE FALLACY OF MAJORITY RULE

The essence of democracy is unlimited majority rule. It is the notion that the government should not be constrained, as long as its behavior is sanctioned by majority vote. It is the notion that the very function of government is to implement the "will of the people." ... And it is the notion that was categorically repudiated by the founding of the United States.

America's defining characteristic is freedom. Freedom exists when there are limitations on government, imposed by the principle of individual rights. America was established as a republic, under which the state is restricted to protecting our rights.

This is not a system of "democracy." Thus, you are free to criticize your neighbors, your society, your government - no matter how many people wish to pass a law censoring you. You are free to own your property - no matter how large a mob wants to take it from you.

The rights of the individual are inalienable. But if "popular will" were the standard, the individual would have no rights - only temporary privileges, granted or withdrawn according to the mass mood of the moment.

The tyranny of the majority, as the Founders understood, is just as evil as the tyranny of an absolute monarch. Yes, we have the ability to vote, but that is not the yardstick by which freedom is measured. After all, even dictatorships hold official elections.

It is only the existence of liberty that justifies, and gives meaning to, the ballot box. In a genuinely free country, voting pertains only to the means of safeguarding individual rights. There can be no moral "right" to vote to destroy rights. Unfortunately, like President Bush, most Americans use the antithetical concepts of "freedom" and "democracy" interchangeably.

- Peter Schwartz,

Ayn Rand Institute

HOW TO CREATE A FAIRER FIELD

• Repeal the Save Our Homes amendment. This would take a sales job of capital proportions from the state's elected leaders - a good campaign for outgoing Gov. Jeb Bush, whose political stock is golden.

• Require local governments to start their budgeting at the "rollback rate." This means that at the beginning of each budget cycle, local governments would be required to propose budgets that show spending at the same dollar level as that of the current fiscal year and at a tax rate that would be adjusted downward to provide the same dollar amount of property tax revenues as in the current fiscal year. Governments never do this now. They simply increase spending based on an increase in assessed values. If more money is needed, governments should make a convincing case - not just take the windfall from higher assessed values as they do now.

• Adopt a cap on state and local government spending increases equal to inflation and the population growth rate. Statists, political scientists and the elected government classes will reject this as bad policy, saying governments need flexibility in times of emergency and that we elect our representatives to make tough decisions about spending. But for all of our adult lives we have seen the restraint of our elected leaders, and it is pathetic. Motivated to be re-elected, they cannot stop themselves from forever increasing the size of government. This is why property taxes keep rising. What's more, it is also a well known fact that no amount of government spending will ever create more wealth.

• Let the market continue to determine property values, and let property appraisers determine their assessed values on the basis of market values, as they do now.

• As for the disparity in tax assessments, in which side-by-side, identical properties have far different assessed values, let these differences be evened out over time with property sales.

Take the condo building on Longboat Key with identically sized units, but far different assessed values - $1 million vs. $2 million. If, say, sales in that building cause values to rise 10%, then all units would see a 10% rise in their assessments. When and if the $1 million unit is sold, then its assessment would be brought up to the level of other units when the new buyer takes possession.

• Finally, eliminate the $25,000 homestead exemption altogether. This is an anachronism. The Legislature adopted it before there was air-conditioning - an enticement to move to this mosquito-infested state. Obviously, it's no longer needed. Everyone should be treated the same. But instead of make everyone pay higher property taxes to account for elimination of the homestead exemption, simply enact a one-time $25,000 reduction in assessed values for every property in the state.

Ken Wilkinson had it half right with Save Our Homes. But he also had it half wrong. Capping government spending would get it 100% right - for everyone, not just for the widows and poor retirees.

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