2007 post-special session talking points for property tax reform

Phase One: Statutory millage rollback and local government revenue cap.

The main thrust of House Bill 1B is that every taxing authority, except school boards, is required to set rates based upon taxes levied last year, adjusted upward for new construction, then adjusted downward a certain percentage based on past performance.  For many cities and counties this will mean an additional 9% per entity total revenue reduction than 2006-07.  

It is important to note that instead of an assessment cap (such as Save Our Homes), there is an overall revenue cap limiting what governments can collect from property taxes from this point forward.  This will protect everyone, including commercial and rental housing, from big property tax increases from year-to-year.

Realtors will still have to hold their local governments accountable for possible tax increases and cap busting votes, whether that is through showing up at government meetings to have their voices heard, through their votes at the polls in the coming months, and through their pocketbooks and leg power with campaign support.  Two concepts will have become clear because of this legislation:

• Local officials will have to clearly vote to raise taxes and defend their decisions to override those tax savings otherwise available under HB 1B.

• Large spikes in property tax bills are not going to occur in the future.

Details of the tax cap provisions:

For the upcoming 2007-08 fiscal year that begins October 1, all local governments (except school boards) will have to reduce total property tax revenues by a specified percentage (0-9%) based on their 5-year history of levies.  Independent special taxing districts that levy ad valorem taxes are all subject to a 3 percent cut.

For the coming fiscal year, local governments may override the 3, 5, 7, or 9% cut and go up to the 2006 “rolled-back rate” by a 2/3 vote of the governing body.  In order to exceed the 2006 rolled-back rate and maintain the same actual rate that was levied in 2006-07, the vote must be unanimous.  In order to go any higher than the actual 2006 millage rate, there must be voter approval.

EXAMPLE:

• Fantasy County had a 2006 “rolled-back” rate of 5.5 mills.
• Fantasy County levied a millage rate of 6 mills in 2006.
• For 2007, Fantasy County must use the 5.5 millage rate, reduced by the X%.
• With 2/3 vote, Fantasy County Commission can drop the X% cut and levy 5.5 mills.
• With unanimous vote, Fantasy County Commission can levy 6 mills.
• To go any higher than 6 mills, Fantasy County must get voter approval.

Beginning fiscal year 2008-09 and every year thereafter, the bill requires all ad valorem taxing authorities, except school boards, to set millage rates in accordance with the rolled-back rate, plus the annual growth of Florida personal income (typically 4% a year).  Local governments may break this cap in several different ways:

For exceeding the cap in 2008-09 (this would be after the new super homestead exemption plan potentially kicks in as well)

• In order to exceed the required rate cap to recover up to 2/3 of the revenue lost due to new super-homestead exemption and tangible personal property exemption, the governing body must approve by at least 2/3.  This was likely made as a concession to smaller counties who will have much of their homestead property exempt from taxes either through the larger minimum homestead exemption and low overall values.

• In order to adopt an even higher rate, it must be unanimous, unless the board exceeds 9 members in which case a ¾ vote is required.

In 2009 and beyond, local governments will be allowed slightly more room to bust the revenue cap.  In order to adopt a tax rate that levies up to 10% more revenue than is allowed under the rolled-back rate plus personal income, there must be a 2/3 vote of the body.  For more than 10% increase in revenue, there must be a unanimous vote or voter approval by referendum, unless the board exceeds 9 members in which case a ¾ vote is required.

The penalties for not complying with the above votes will mean that the local government will not share in the ½ cent sales tax revenue for the fiscal year, which is significant.  For example, if the Palm Beach County Commission were to ignore the mandates of HB 1B, their budget would suffer by over $74 million for the next fiscal year.  This is also bondable money that would put their ability to raise new money into question.

Phase two: Proposed constitutional amendment changing the nature of the Save Our Homes amendment passed in 1992.

On January 29, 2008, Florida voters will have the opportunity to change the scope of the Save Our Homes amendment. If passed, voters will be able to choose to continue their Save Our Homes protection if they have homesteaded property or choose a super-homestead exemption. The amendment seeks voter approval for changes that will further protect low-income seniors, expressly authorize the legislature to limit the authority of local governments to increase property taxes, create a new tangible personal property tax exemption of $25,000 for businesses, and authorizes the Legislature to help working waterfronts and affordable housing with assessment changes.

The new super-homestead exemption covers 75% of the first $200,000 of a home’s value and 15% of the next $300,000, with every homestead receiving at least a $50,000 exemption.  The maximum homestead exemption would be $195,000.  The upper threshold of $500,000 is indexed to personal income, so it will increase at about 4% a year, but the amendment also allows the Legislature to increase the exemption with a 2/3 vote.  

EXAMPLE 1 – How the new super-homestead exemption works:

• Homestead A has a just value of $400,000.
• Tier 1 would provide an exemption of $150,00 (75% of $200,000)
• Tier 2 would provide an exemption of $30,000 (15% of $200,000)
• Thus, the total exemption would be $180,000
• The taxable value would be $220,000
• With a total tax rate of 20 mills (slightly above statewide average), the tax bill would be $4,400.

EXAMPLE 2 – Compared to current property tax system with average Save Our Homes benefits:

• Homestead A has a just value of $400,000, the $25,000 homestead exemption, and has accumulated $100,000 in Save Our Homes protections.
• The taxable value would be $275,000
• With a 20-mill tax rate, total tax bill would be $5,500.

In the above examples, the new system will save the homesteader $1,100 in their tax bill for 2008.

EXAMPLE 3 – Compare to current property tax system with high Save Our Homes benefits:

• Homestead A has a just value of $400,000, the $25,000 homestead exemption, and has accumulated $200,000 in Save Our Homes protections.
• The taxable value would be $175,000
• With a 20 mill tax rate, total tax bill would be $3,500.

Under this scenario, due to the large Save Our Homes protections, the homeowner would save $900 more under the current system than under the new super homestead exemption system.  Thus, the homeowner should (and has the choice) to stay with the older system and continue all of the benefits, until they move.  When moving, the new super-homestead exemption will begin, saving them more money than the current system.

The new system would NOT include the assessment cap that is currently enjoyed by homesteaders, but there are many benefits to this new plan.  Approximately 73% of homestead properties would immediately save more money under the super homestead than under the current Save Our Homes system.  First time homebuyers and people who move will be afforded substantially bigger savings - up to $195,000 in exemptions, compared to the only $25,000 that they would receive now.  This new plan also assures most people that they won’t be hit with a tax bill many times what they pay now on their next home purchase.

For current homesteaders, the decision to stay with Save Our Homes or adopt the new super homestead system will probably hinge on how long they’ve owned their home. If they purchased a home in the last 2 or 3 years (depending on market and appreciation) the new plan will almost always lead to higher immediate savings.  There is no deadline for the choice, but it can only be made for their current homestead.  Transferring a homestead or moving will put that owner in the new super-homestead exemption system.

Low income seniors (under $24,500 yearly) will also enjoy a big exemption – a minimum of $100,000 from their homestead. 

For small business owners such as Realtors, the amendment calls for a $25,000 tangible personal property tax exemption on business equipment, including shelving, computers, fax machines and other equipment. Sources estimate that 1 million of Florida’s 1.3 million businesses will be completely exempt from this local tax. While the annual dollar savings average $500 per year for each business, the exemption also eliminates the annual filing requirement for those exempt.

Finally, the amendment authorizes the Legislature to make changes that allow lower than fair market value assessments for working waterfronts and affordable housing, thereby lowering those tax bills.  Though most commercial and industrial properties weren’t addressed in special session, it will allow the Legislature to begin work in the important sectors of housing and waterfronts.  FAR has received assurances that assessment methods for commercial and other property types will also be addressed in the next regular session.

These important reforms, supported by FAR, should be approved for the following reasons:

The new super-homestead exemption system will offer immediate savings for first-time homebuyers and most current homesteaders in Florida.  In fact, 73% of homestead properties receive greater immediate tax protection under the proposed amendment than under the current system.  For those who wouldn’t see more savings in their current homestead, they have the choice to remain in their current system and are held harmless.  

The amendment will begin the “unwinding” of the Save Our Homes system, which FAR has opposed, because of inequities caused among similarly-situated property owners, the lock-in effect, and the shift of the tax burden to commercial, rental, and second-home properties. 

This is a great first step that will begin to revert our unfair tax system to something more fair in which all property owners will be encouraged to take an active role in their local budgeting and tax process

The new tangible personal property tax exemption will keep most Realtors from even having to file this onerous tax, much less paying it.

The amendment allows the Legislature to make changes to the assessment methods for affordable housing and working waterfronts, allowing for lower tax bills in the coming year for these properties.  Legislative leaders have also pledged to work with FAR on assessment changes for other non-homesteaded properties next session.

Opponents will argue that portability was not addressed in the amendment.  However, portability would very likely be federally unconstitutional due to the “right to travel” clause, and with the eventual phase out of Save Our Homes, portability becomes obsolete. 

Instead, home purchasers will be allowed a much bigger homestead exemption that is fair to first-time homebuyers (who have no exemption to port) and level the playing field for all Florida property owners when they move.

Opponents will argue that the amendment also takes $7 billion in funding for schools over the next 5 years.  The homestead exemption currently applies to the amount that school boards levy from property, and because this portion makes up at least a third of all property tax bills, the new homestead exemption should apply to schools as well. 

The amendment is not an education cut, but it will simply force the Legislature (who sets the minimum rate for school boards to charge) to reprioritize their budget next year.  The opponent’s plans earlier this year also included applying savings to school board revenues.

As Floridians, we have been given a choice whether to keep our current tax system, which is broken, or take first steps to fix the problems caused primarily by Save Our Homes.  While expectations were raised over the last few months, this amendment represents long deliberation and compromise.  The benefits of a new system far outweigh and deserve support over no changes and continuing the lock-in effect and tax shifts.