REVIEW & COMMENT: Read the tax-reform bill; you'll shudder
by: Matt Walsh, CEO, Publisher
It's the morning after.
The more you dig into the tax-reform legislation adopted in the special session, the sleazier it looks.
It's as predicted - a legislative, leadership failure, in spite of the tax rollback and tax cuts.
But the legislative leaders responsible for "tax reform" have been putting on the spin. Here's what their PR machine pumped out (verbatim):
• "$31.6 billion tax cut - the largest in Florida history.
• "Immediate tax relief for both businesses and homeowners.
• "Protection for all property owners.
• "Restores fairness and affordability."
The only statement that is really true is the first. The second may be partially true; it'll depend on city and county commissions. The third and fourth statements definitely are not true.
Unfortunately, lawmakers lived up to expectations and predictions, which is to say they delivered much less than they could have and should have. It was clear Florida Speaker Marco Rubio and Senate President Ken Pruitt had their agendas and were not going to listen much to anyone. The agenda: Approve a tax cut no matter what - good or bad.
As a result, lawmakers did what was popular, not what was right. They catered to homesteaded property owners (their voters). They didn't fix what they should have. Non-homesteaded property owners gained little relief.
This is also true: What they did is confusing and complicated. And that compounds the legislation's shortfalls.
It's a good bet most lawmakers did not read the entire bill. If you can take the time just to read the preamble to the legislation (page 14), there's no way every state lawmaker understood what he was voting to do. Or read the accompanying language in the proposed constitutional amendment. Fat chance Floridians will understand this, too.
To the good, the tax reform legislation is bringing about fiscal restraint at the local level. As painful as cities and counties are finding that task of cutting their budgets, it's like rooting out your closet. Once in a while you need to clean house, cut back. The task is forcing city and county elected representatives to get serious about prioritizing spending. And that's a good thing.
It probably wouldn't be as bad as it is, however, if the legislation weren't so hypocritical. State lawmakers are mandating local cuts but did nothing to force themselves to whack away at the state's gargantuan budget. The mainstream media has made little of the $500-million increase in school spending lawmakers adopted.
Won't help recovery
Economically, this legislation won't do much to kick-start a recovery.
For one, it did nothing in the way of portability - allowing longtime homesteaded property owners the ability to move without being slaughtered with a killer increase in their property tax assessments.
And the legislation bypassed the whole raison d'etre for property-tax reform in the first place. It did absolutely nothing to provide relief and fairness to non-homesteaded property owners. And it did little to help commercial property owners. To the good was the adoption of a $25,000 exemption on tangible taxes for businesses, but compared to what should have happened, this amounts to a bread crumb.
Another reason this alleged reform will do little to help Florida's economy is the uncertainty and confusion it's creating. Uncertainty and confusion are enemies of the marketplace. Even though this legislation is directed primarily at homeowners, its confusion will deter business expansion and relocation. It also will make potential out-of-state transplants uncertain about retiring or acquiring a second home here. No one wants to buy when he doesn't know what his taxes will be from year to year. (The insurance issue is still weighing down the economy, too. Not much progress on that front, either.)
This tax uncertainty will hover over Florida's real estate market and the overall economy at least until the presidential primary vote and likely through the next legislative session.
No guts to cut education taxes
What a charade. When you evaluate the whole of what came out of the past legislative session - especially after all of the Charlie Crist and Marco Rubio bluster about insurance and property-tax reform - legislative leaders didn't really have a well-vetted plan.
How can you have true property-tax reform if you don't address school spending? When you look at property taxes, that's the killer for most property owners. If lawmakers were truly committed to tax reduction, schools should have been included in the rollback. For instance, public-school spending in Florida since 2002 has risen 60% compared to a combined 18.5% increase in enrollments and inflation in the same period. Not only that, K-12 enrollment statewide has begun declining. But talk about screaming. No one in Tallahassee has the you-know-whats to confront education spending.
The 'confusional' amendment
So now we have the January constitutional amendment. It's more bad legislation - primarily because it is so confusing.
The good part of the proposed constitutional amendment is that it would cap all future spending at the city and county levels at the combined rates of new construction revenue growth and personal income growth. (It would have been better to hook the spending cap to the more conservative measurements of population growth and inflation.)
But the biggest question is whether voters will understand the consequences of what they are deciding.
So far, everyone probably understands the amendment will give voters an option if it is approved: to keep their Save Our Homes cap or select a "super exemption" (up to $195,000) on their properties. But once a propety owner selects his poison, he's stuck with it; he cannot go back.
Clearly, taxpayers would pay less with the super exemption. But they also would expose themselves to the possibility that their annual taxable assessments could climb faster than the 3% Save-Our-Homes cap. The super exemption would have no caps on taxable values.
For instance, say Congressman Vern Buchanan opts for the super exemption on his Longboat Key home, which is assessed at $5.3 million. Now say the neighbors on both sides of his home sell their homes for $14 million and $10 million, which is close to their market values. With those two sales, the property appraiser would likely adjust the taxable value of Buchanan's home. And because Buchanan no longer would have the benefit of the 3% Save-Our-Homes cap, his taxable value and property taxes could jump well beyond the 3% limit.
Another risk of giving up Save Our Homes: The constitutional amendment would allow the value of the super exemption to increase annually at the rate of personal income growth - but that's only with a two-thirds vote of the Legislature. In other words, unless the Legislature raises the $500,000 limit annually with inflation, the value of the super exemption will decrease over time.
Do lawmakers really think the average, hard-working, harried, paycheck-to-paycheck Floridian is going to be able to evaluate what makes sense for him?
Crist should 'dis' amendment
To be sure, the proposed constitutional amendment is going to mushroom into great confusion before the January vote. What's more, they'll have the school, police and fire Chicken Littles forecasting doom if the majority of homeowners takes the super exemption. Local governments won't want the amendment to pass because it will cap their annual spending.
On top of this, there are five other citizen-driven constitutional amendments that could end up on the November 2008 ballot, all relating to property taxes.
Suffice it to say, Floridians will be twisted over what's right. And that likely will lead to a rejection of the constitutional amendment, leaving us nowhere.
If Charlie Crist were truly a leader, he would come clean on this issue. He would express his gratitude to lawmakers for trying, but he would advise Floridians to reject the constitutional amendment and vow that the soon-to-be formed Tax and Budget Reform Committee will devise by January 2009 a reform plan that will end the horrible inequities and unintended consequences of Save Our Homes.
In an almost-perfect world, here's what the components of that reform should contain:
1) Eliminate the existing $25,000 homestead exemption and roll back the taxable values of all who take it by that amount. Why even have the homestead exemption? It's an anachronism left over from the late 19th century and early 20th century when the Legislature adopted it actually to get people to move to Florida. It's not needed. Dump it.
2) Freeze property tax assessments for at least three years on all non-homesteaded properties. This would make up (some) for the big leaps in assessments they suffered through the real estate boom from 2003 to 2006 and bring everyone closer to assessment parity.
3) Repeal Save Our Homes. Good intention for fixed-income widows and retirees, bad consequences. It would have worked had Ken Wilkinson in Lee County been able to include a second piece to that 1992 amendment: a cap on government spending. So ... this time ...
4) We should replace Save Our Homes with a Colorado-style Taxpayers Bill of Rights that caps state, county, municipal and school spending at no more than the combined rates of inflation and population growth.
Surely there's a statesman in the Legislature who can lead that group to do what is right, not what is popular.
WILL VOTERS UNDERSTAND THIS?
THE PROPOSED CONSTITUTIONAL AMENDMENT
ARTICLE VII, SECTIONS 3, 4, 6, AND 9; ARTICLE XII, SECTION 27
AD VALOREM PROPERTY TAXATION: ASSESSMENTS, EXEMPTIONS, LIMITATIONS, AND HOMESTEADS.
Proposing amendments to the State Constitution to increase the homestead exemption from $25,000 to 75% of the just value of the property up to $200,000 and 15% of the just value of the property above $200,000 up to $500,000, to subject the $500,000 threshold to annual adjustments based on the percentage change in per capita personal income, to authorize an increase in the $500,000 threshold amount by a two-thirds vote of the Legislature, and to specify minimum homestead exemption amounts of $50,000 for everyone except low-income seniors and $100,000 for low-income seniors; to provide for transitional assessments of homestead property under the increased homestead exemption that include preserving application of Save-Our-Homes provisions until an irrevocable election is made; to revise Save-Our-Homes provisions to conform to provisions providing for the increased homestead exemption and transitional assessments of homestead property; to require the Legislature to limit the authority of counties, municipalities, and special districts to increase ad valorem taxes; to authorize an exemption from ad valorem taxes of no less than $25,000 of assessed value of tangible personal property; to provide for assessing rent-restricted affordable housing property and waterfront property used for commercial fishing, commercial water-dependent activities, and public access at less than just value; and to schedule the amendments to take effect upon approval by the voters and operate retroactively to Jan. 1, 2008, if approved in a special election held on Jan. 29, 2008, or shall take effect Jan. 1, 2009, if approved in the general election held in November of 2008.
THE DEVILISH DETAILS
Did legislators understand all they voted on? Just try reading the preamble to the property-tax reform bill. It's so full of details we had to reduce our type size to get it all in.
An act relating to ad valorem taxation; amending s. 200.001, F.S.; providing definitions for purposes of provisions governing the fixing of millage rates; amending s. 200.065, F.S.; revising the method for computing the rolled-back rate; providing that the rolled-back rate excludes the amount paid or applied as a consequence of an obligation measured by the dedicated increment value; requiring that the property appraiser provide instructions to the taxing authorities for computing the maximum millage rate; revising the method of calculating the maximum millage rate beginning in the 2009-2010 fiscal year;
Providing for higher millage rates if adopted by certain required votes of the governing body of the taxing authority or approved by referendum; providing certain exceptions to the limitations on millage rates; providing that a county or municipality is subject to forfeiture of the distribution of the local government half-cent sales tax revenues for 12 months if it or its municipal service taxing units or dependent special districts do not comply with provisions limiting maximum millage rates;
Requiring the tax collector to hold revenues in escrow during the pendency of any procedure to correct a millage rate or any administrative or judicial challenge to such forfeiture; specifying procedures that a county or municipality, special district dependent thereto, or municipal service taxing unit must follow if it fails to remedy such noncompliance; requiring that the taxing authority repeat its hearing and notice process with respect to preparing a budget and setting millage rates; amending s. 200.068, F.S.; requiring each taxing authority to include calculations upon which maximum millage rates are based in the certification of value; amending s. 218.63, F.S.; prohibiting a county or municipality that levies taxes in excess of the maximum aggregate taxes permitted by law from participating in the distribution of local government half-cent sales tax revenues; amending ss. 193.1142, 194.037, and 1011.71, F.S., relating to approval of the assessment rolls, disclosure of tax impact, and school district taxes; conforming cross-references; creating s. 200.185, F.S.;
Providing definitions; specifying the maximum millage rates that a county, municipal service taxing unit, municipality, dependent district, or independent district may levy for the 2007-2008 fiscal year based on per capita growth in ad valorem taxes; requiring the Department of Revenue to calculate, in consultation with the Revenue Estimating Conference, and publish the annual growth rate in per capita ad valorem taxes for each taxing authority;
Providing certain exceptions to the limitations on maximum millage rates; authorizing the Department of Revenue to adopt emergency rules; authorizing the executive director of the Department of Revenue to extend the time specified in law or rule for a local government to adopt its millage rate and budget for the 2007 calendar year;
Providing an optional method by which a county or municipality may determine fiscal hardship for purposes of a reduction or waiver of processing fees and may be eligible for a road assistance program; repealing s. 3, ch. 2006-311, Laws of Florida, relating to provisions requiring the Department of Revenue to conduct a study of the state's property tax structure and analyze the current homestead exemptions and homestead assessment limitations; amending ss. 193.155 and 193.1551, F.S.; revising the method of calculating homestead assessments pursuant to amendments to the State Constitution; limiting the continued applicability of certain assessment criteria provided under the State Constitution;
Providing that a change, addition, or improvement to homestead property or the destruction or removal of homestead property may limit the continued applicability of certain assessment criteria; amending s. 196.031, F.S.; revising the exemption from taxation provided for homesteads; specifying the amount of the exemption based on just value; providing that a owner of property is entitled to an alternative exemption under certain circumstances; deleting certain obsolete provisions;
Deleting a requirement that each property appraiser compile a list of properties removed from the assessment roll of the school district as a result of exempt value; amending s. 196.002, F.S.; revising certain reporting requirements for the property appraiser in order to conform to changes made by the act; amending s. 197.252, F.S., relating to the homestead tax deferral; conforming provisions to changes made by the act; creating s. 196.183, F.S.;
Exempting each tangible personal property tax return from a specified amount of assessed value; limiting a single business operation within a county to one exemption; providing a procedure for waiving the requirement to file an annual tangible personal property tax return if the taxpayer is entitled to the exemption; requiring the Department of Revenue to prescribe a form; providing penalties for failure to file a return as required or to claim more exemptions than allowed;
Providing that the exemption does not apply to mobile homes; amending s. 193.017, F.S.; revising provisions providing for the assessment of property receiving the low-income housing tax credit; providing for the assessment of structural improvements on land owned by a community land trust and used to provide affordable housing; defining the term "community land trust"; providing for the conveyance of structural improvements, subject to certain conditions; specifying the criteria to be used in arriving at just valuation of a structural improvement; creating s. 193.803, F.S.;
Providing for the assessment of rental property used for workforce housing or affordable housing; authorizing a property owner to appeal a denial of eligibility to the value adjustment board; requiring that a property owner file an application for such classification with the property appraiser or file a petition with the value adjustment board; providing a fee for filing a petition; providing for reapplication to be made on a short form provided by the Department of Revenue;
Defining the term "extenuating circumstances" for purposes of granting classification for January 1, 2008; specifying the types of property that are eligible to be classified as workforce rental housing or affordable rental housing; requiring that property be removed from such classification if its use or program eligibility changes; providing the methodologies for assessing workforce rental housing and affordable rental housing;
Requiring that the property owner annually provide a rent roll and income and expense statement to the property appraiser for the preceding year; authorizing the property appraiser to base the assessment on the best available information if the property owner fails to provide the rent roll and statement;
Providing for a tax lien to be filed against property that is misclassified as workforce rental housing or affordable rental housing within a specified period; amending ss. 196.1978, 192.0105, 193.052, 193.461, 194.011, 195.073, and 195.096, F.S., relating to the affordable housing property exemption, taxpayer rights, the preparation and serving of returns, assessments involving agricultural lands, assessment notices and objections, the classification of property, and the review of assessment rolls; conforming provisions to changes made by the act; creating s. 200.186, F.S.; specifying a formula for counties, municipalities, municipal service taxing units, dependent districts, and independent districts to determine a maximum millage rate for the 2008-2009 fiscal year; providing that a taxing authority in violation of such provision forfeits its local government half-cent sales tax revenues;
Providing certain exceptions to the limitations on millage rates; providing that certain provisions of the act apply retroactively; providing for construction of the act in pari materia with laws enacted during the 2007 Regular Session or any 2007 special session of the Legislature; providing effective dates, one of which is contingent.