Property Tax Relief 2011:Who Wins? Who Loses?

2011 Florida League of Cities Annual Conference August, 12, 2011

Alan Johansen

2011 Legislature Passed HJR 381Constitutional amendment grants selective new property tax breaks – 2012 Ballot

•Why did the Legislature approve it?•What does it do?•How will it affect cities and other local governments?•How will it affect taxpayers?•Who wins? Who loses?

August, 12, 2011 2

What Does HJR 381 Do?

Three primary elements:1)Non-homestead Assessment Cap – drops from 10% to 5%. 2)“First-time” Homesteader exemption – 50% of value phased-out over five years.3)Assessment Caps - Anti-Recapture so that assessed value does not go up by CPI or 3%, if just value drops; applies to both Save Our Homes and to the Non-Homestead Assessment Caps.

Only the Save Our Homes Anti-Recapture change affects Schools.August, 12, 2011 3

Why Did Legislature Approve HJR 381?

• Simple answer is that it appears to grant additional tax relief (but not in a way that will affect state finances).

• A more complete answer requires some historical context.

• The 2007 Legislature approved numerous statutory and constitutional property tax measures.

• Why all the changes in 2007?August, 12, 2011 4

I wouldn't ever set out to hurt anyone deliberately unless it was, you know, important —like a league game or something.

Dick Butkus

August, 12, 2011 5

In 2006, Charlie Crist promised to fix the property tax crisis.

• Fiscal 2007, Total Property taxes rose to $30.4 B– Double the $15.3 B in Fiscal 2001– For 6 years, compound annual growth rate of 12.1%

• Non-school property taxes increased even more– from $8.8 B to $18.1, a six-year annual rate of 12.8%

• Increases were fueled by the real estate boom.• As local millage rates fell, non-homestead owners

paid a disproportionate share of the increases.

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What Happened Between Fiscal 2001 and 2007? Why Did Property Tax Shoot Up?

• In the 6 years thru FY 2007, non-school property taxes rose at 12.8% annually, but total economic activity in Florida increased at only 6.8% per year over the same period.

• For most 20+ years before FY 2007, property taxes and economic activity (measured by Florida Personal Income) moved in tandem.

• The impact of the real estate boom on taxable values severed the historic relationship.

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Why Did Property Tax Shoot Up? Weren’t Elected Officials Concerned?

One of the primary reasons was the Save Our Homes Assessment Cap.

– When market values rise rapidly, SOH keeps homestead increases at or below 3%.

– Also, millage rates were falling as taxable value went up, often enough to make homestead taxes fall.

– Property owners without SOH bore the brunt of the tax increase, but homesteaders, the preponderance of voters, were largely satisfied or disinterested.

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The Legislative View – Soaring Property Taxes Spurred Legislature

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The Legislative View – Soaring Property Taxes (Cont’d)

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Legislature Explored Linking Property Tax Growth to Income

• From Fiscal 1991 through 2003, property taxes relative to income stayed in a narrow band– Ratio did not fall below 1.8%– Nor did it rise above 2.1%

• But beginning in Fiscal 2004, property taxes began to grow much faster than the state’s economy.

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Legislature Looks at Property Tax Caps Based on Economic Growth

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Legislative Solution: Millage Rollbacks and Caps on Increases

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The Stated Goals For the 2007 Property Tax Breaks Have Been Met & Exceeded

• Through Fiscal 2011, Non-School Property Taxes have declined by $3.5 billion, or 19%.

• Non-school property taxes are likely to decline again this year, even as rates increase.

• Current and near-term non-school property taxes are well below a cap based on economic activity as measured by income.

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Why is the Legislature Again Proposing New Property Tax Breaks?

• The recent tax levies that exceeded economic growth have been reversed and non-school taxes have fallen.

• In fact, non-school property taxes are currently below an income-based cap, even one with a base year of 1975-76.

• Non-School taxes will fall again this year.• These new tax breaks will benefit narrow groups of

taxpayers, shift the tax burden to others, and will take effect just a the tax base is likely to stop shrinking and to show modest growth.

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FY 2011-12 Non-School Property TaxesWill be Less than an Income-Based Cap

Even a Cap Starting with FY 1975-76 Taxes

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No Real Answer to the Question: « Why is the Legislature Again Proposing New 

Property Tax Breaks in HJR 381? »• Why are the provisions in HJR 381 needed?

– Little to no policy justification was offered in support.– The state’s Revenue Estimating Conference provided

only aggregated, statewide impact estimates and even those estimates are found in footnotes.

• Legislators who voted for HJR 381 did so with little to no idea what the potential impacts would be on their constituents and on the local governments in their districts.

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HJR 381 WILL HAVE SIGNIFICANT IMPACTS ON THE TAX BASETHESE IMPACTS ARE DELAYED & GROW IN AN ATYPICAL FASHION.

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Estimated Impacts of Provisions* in HJR 381(All Amounts in $ millions)

IMPACTS ON COUNTY TAXABLE VALUETAX ROLL

ISSUES 2013 2014 2015 2016***First-Time Homesteader 50% / 5-Year Exempt. (3,555.7) (7,109.7) (10,439.0) (13,329.9)Non-Homestead Cap from 10% to 5% (10,839.2) (23,536.0) (37,298.2) (52,217.4)Anti-Recapture - All Capped Properties** (952.0) (1,922.0) (2,827.0) (2,981.0)ALL IMPACTS OF HJR 381 (15,346.9) (32,567.6) (50,564.2) (68,528.3)

2013 2014 2015 2016COUNTY TAXABLE VALUE - CURRENT LAW 1,358,338.3 1,434,844.0 1,524,207.0 1,620,294.4ALL IMPACTS OF HJR 381 (15,346.9) (32,567.6) (50,564.2) (68,528.3)HJR 381 Impact as % of County Taxable Value -1.1% -2.3% -3.3% -4.2%

* If approved at the general election in November 2012, the first impacts will be on the 2013 tax roll.** The Anti-Recapture provisions require implementing legislation, and the provisions will not apply unless the legislature acts.***The August 3, 2011 Ad Valorem Estimating Conference included comprehensive estimates for 2016, as did the workpapers for 2 of the issues. The reduction in the non-homestead cap had no 2016 impacts so a total impact was developed that is not inconsistent with the estimates for prior years.

THE IMPACTS OF HJR 381 ON THE NON-SCHOOL TAX BASE CAN BEUSED TO DEVELOP TAX IMPACTS ON NON-SCHOOL GOVTS

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Estimated Impacts of Provisions* in HJR 381(All Amounts in $ millions)

IMPACTS ON COUNTY TAXABLE VALUETAX ROLL

ISSUES 2013 2014 2015 2016***First-Time Homesteader 50% / 5-Year Exempt. (3,555.7) (7,109.7) (10,439.0) (13,329.9)Non-Homestead Cap from 10% to 5% (10,839.2) (23,536.0) (37,298.2) (52,217.4)Anti-Recapture - All Capped Properties** (952.0) (1,922.0) (2,827.0) (2,981.0)ALL IMPACTS OF HJR 381 (15,346.9) (32,567.6) (50,564.2) (68,528.3)

TAX IMPACTS ON LOCAL GOVERNEMENTSTAX ROLL

HJR 381 Estimated Tax Impacts Tax Rates**** 2013 2014 2015 2016***

County Governments 6.837 (103.7) (219.9) (341.3) (462.4)

Municipal Governments 2.547 (37.7) (80.4) (125.5) (171.1)

Independent Special Districts 1.521 (23.1) (49.2) (76.6) (104.2)

Tax Impacts --All Non-School 10.905 (164.6) (349.5) (543.4) (737.7)

* If approved at the general election in November 2012, the first impacts will be on the 2013 tax roll.** The Anti-Recapture provisions require implementing legislation, and the provisions will not apply unless the legislature acts.***The August 3, 2011 Ad Valorem Estimating Conference included comprehensive estimates for 2016, as did the workpapers for 2 of the issues. The reduction in the non-homestead cap had no 2016 impacts so a total impact was developed that is not inconsistent with the estimates for prior years.****Aggregate Millage Rates for 2010 were developed from the applicable rates and taxes by county cities, and independent districts levying within the county and across couties. The aggregate millage rate is the statewide average rate, based on county taxable value.

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Conclusions:• Non-school property taxes in Florida experienced

unprecedented increases through FY 2006-07.• Those increases have since been reversed; current

levies are well below the appropriate levels established by the 2007 Legislature; and non-school levies are expected remain suppressed for some time.

• Additional reductions in the property tax base do not appear warranted without clear, specific policy objectives and should take into account the impacts on local governments and on taxpayers unlikely to benefit from the changes.