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Walsh Review and Comment
Schools tax is insidious, stealth tax that must go
This is the first of two installments on Amendment 5, the proposed "tax swap" amendment that would eliminate the state's required local effort property tax for K-12 public schools.
The hyperbole has begun.
Florida business groups, whose existence depends on members paying for protection in Tallahassee, have joined forces with some of their adversaries to become among the state's biggest cry babies, whiners and Chicken Littles opposed to Amendment 5, the proposal to eliminate the public school property tax and swap it with other sources of revenue.
The directors of Associated Industries of Florida Inc., one of the state's more powerful business lobbies, voted two weeks ago to join Florida's teacher unions, AARP and broadcasters in a lawsuit that aims to keep the proposed constitutional amendment off the November ballot. And if unsuccessful in their legal fight, AIF also has vowed to campaign with these groups and the Coalition to Protect Florida's Economy against the amendment's passage.
The lawsuit is the height of hypocrisy, arrogance and weasel-dom. AIF typically rails against the costs of frivolous lawsuits. Worse, in this instance, AIF and its anti-Amendment 5 cohorts are afraid to let Florida voters have their say in the marketplace of ideas. They want to squelch the public debate.
Amendment 5, about which you will hear a lot in coming months, is the people's amendment. It is one of nine amendments on the November ballot and one of seven that came from the work of the Florida Taxation and Budget Reform Commission. It is the people's amendment, because, as members of the Tax and Budget Reform Commission will tell you, the issue that dominated voters' pleas at the commission's public hearings was the demand for property-tax relief. It was cacophonous.
So if adopted, Amendment 5 will wipe out what is known as "the required local effort" property taxes for public schools - every county's basic school millage rate, or 30% or more of every property owner's tax bill.
While this is clearly property-tax relief, the amendment also calls for the Legislature to hold the state school system harmless. Lawmakers must decide from a series of options how to replace the lost revenue, about $9 billion a year, in the form of other taxes and/or state spending cuts to make up for the lost K-12 tax revenues. Thus the moniker, the "tax swap" amendment.
Fear of services tax
The "swap" has created the shrill whining from AIF and its fellow litigants. They argue the amendment will bring economic doom to Florida's economy and the largest tax increase in history via at least a 1-cent increase in the state sales tax, elimination of some sales tax exemptions and - here's the biggie they fear most - the rebirth of the services tax.
"The potential negative impact of Amendment 5 on the business community is far reaching," AIF said in a release June 25. "Businesses already suffering from the current economic downturn will be hit again by tax increases that discourage consumer spending. Fewer tax exemptions for businesses will likely result in fewer companies setting up shop in Florida.
"Amendment 5 would bring a halt to economic development ... (B)usinesses considering relocation to or expansion in Florida will steer clear of a state mired down in the mess of figuring out whether or not there will be a services tax and which tax exemptions or exclusions will be kept and which have to go. Equally unappealing will be a state that does not invest in a highly-skilled and trained workforce of tomorrow through quality education today."
As we said, economic Armageddon.
But they are wrong. Seriously wrong. And thinking Floridians should take a step back from this hyperbolic hysteria and consider the whole picture.
There are two primary arguments to refute the doomsaying groups opposing Amendment 5. One focuses on "the required local effort" school property tax. The other focuses on the real consequences and effects of removing the school tax and funding the schools with other taxes.
For this week, we will focus on the "required local effort."
Insidious tax
In the words of Florida economist Hank Fishkind, "This is a bad tax.
"A) It's a bad tax because it's opaque," Fishkind says. "People don't understand that it is imposed by the Legislature. They believe the local school board imposes this tax.
"B) It's insidious," he says. "The Legislature cannot help itself from using it. It's free money for them. I've heard some of them say that to me. And there's no consequence for using it."
The tables at the top of the page illustrate Fishkind's assessment. And the numbers are stunning. They clearly show how Florida lawmakers have used what we'll call this "stealth tax," this hidden tax, to cover up their lack of spending discipline.
In the table labeled "Totals at a glance," you'll see that over a seven-year period the Legislature took advantage of the state's increasing property values by raising the state's school property tax collections 84% (!) - three times the growth of inflation and student enrollment combined.
The pattern of behavior is disgraceful. Each year as the state's total taxable values rose, often at double-digit rates, the Legislature did what many of our county and municipal commissions did - they lowered the "local required effort" millage rate, but only slightly. This gave them the cover to say they were lowering tax rates, even though the revenues to be collected at the local level would rise from 6% to 17% a year - two to five times higher than the rate of inflation.
Voters were clueless to this, largely because when lawmakers passed the budget they would never call attention to it. Nor would the weak daily press covering the Legislature catch on. Fishkind often has pointed out that in the state's current fiscal year (2007-08), even though the Legislature required local governments to roll back their tax rates, the Legislature raised school taxes $500 million.
But the most insidious part of the Legislature's stealth tax was that these increased property-tax collections became the burden of those who could do absolutely nothing about their taxes - the non-voting, non-homesteaded property owners and commercial property owners. If these property owners want to blame anyone for the extraordinary rise in property taxes in the first part of this decade, the perpetrators were all sitting in the House and Senate chambers in Tallahassee.
Not to be overlooked are the last two lines of the table above - the comparison of the percentage of school funding that comes from the state and local sources. At the start of the decade, state tax dollars provided 62% of the funding for K-12 schools. By fiscal 2006-2007, that percentage dropped to 54.18%, while local tax dollars for the state's schools rose from 38% to 46% of the funding.
Fishkind is correct. In spite of the hyperbole coming from business groups, the "required local effort" must be eliminated. It is a rotten, corrupting tax.
Next week: The real effects of eliminating the school property tax.
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