Property Tax Reform

As you may be aware, Governor Crist and the Florida Legislature have called a Special Session from June 12-22nd to reach consensus on legislation that will provide property tax reform for the State of Florida.

Why the need for tax reform? Our current tax system has created significant inequities between property owners of like values. Depending on whether a property is a homesteaded primary residence, a vacation home, or a business without “save our homes” protections, the assessed values of these properties differ significantly. These differences result in property owners of similarly valued properties paying substantially different tax bills.

During the regular legislative session, both the House and Senate proposed tax plans that differed significantly. The House plan sought to completely eliminate property taxes for homesteaded properties and replace it with a 2.5 cent sales tax. One cent would be provided for schools and the remainder would be provided for local governments. Among the critics of this plan were business owners who would see no relief under a plan that would make Florida’s sales tax the highest in the nation, individuals with low incomes who would be taxed more heavily under a regressive tax system, and renters and non homesteaded property owners who would continue to bear the greatest burden of taxes.

The Senate’s proposal included a rollback in property taxes to 2005/2006 providing a cap through 2008. Beginning in 2009, property taxes could not be raised higher than population growth and income. The plan also included a $25,000 tangible personal property exemption for business owners and property assessment standards for affordable housing to be based on rent collected rather than market value. Under this scenario, there would be a 6 ½ % reduction on property tax revenues. A counter-proposal by the House would generate a 33% impact on property tax revenues and the Governor’s proposal would have a 27% impact.

While both chambers attempted to negotiate a compromise during the regular session, the complexity of the issue created the need to address the issue in a special legislative session. Since the end of session, local governments have been going through their budget process. In response to the outcry of citizens who want and need responsible tax reform and to the plans put forth by the Legislature, Palm Beach County has proposed significant reductions in our recommended FY 08 budget. Using the Senate’s proposal as a basis for these reductions, Palm Beach County administration has recommended reductions of over $75 million dollars toward local government services.

Although all of the presented plans generate budget cuts, the Governor and House proposals would have a substantial impact on services provided including a reduction in programs and personnel. Additionally, Fire Rescue service would be equally affected in these reductions because it has its’ own property tax district that provides for a majority of their operating dollars. For instance under the Governor’s proposal, approximately 200 firefighters would be eliminated. Palm Beach County is currently implementing responsible reforms that will save taxpayers money while at the same time not gouging the services they expect and demand.

Since our County has taken the initiative to recommend immediate tax savings, it is incumbent upon the legislature to address the more significant issues involving reform of the inequities created by the current tax structure. The Palm Beach County Board of County Commissioners is in favor of property tax reform and has produced a “White Paper” that includes what we consider long term solutions to the inequities that first time homeowners, second homeowners and businesses owners feel when they receive their property tax bill. Among these solutions is full portability of the “Save Our Homes” savings for homesteaded property owners when they move to a new house so a homeowner will not feel trapped in their home if they need to more into a larger house to support a growing family or move to a smaller home that is more manageable.

Our Board has proposed a 7-10% cap on the assessment of non-homestead and commercial properties so that these property owners are not hit with a significant tax increases and have more certainty when budgeting for these costs. Another recommendation is a reform in the assessment of commercial and rental property so they are based on the greater of its current use or income approach rather than the property’s highest and best use.

Property tax reform is complex and necessitates a partnership between the Legislature and local elected officials to ensure that not only are our residents provided with relief, but to make certain that the underlying inequities created by the constitutional structure of assessing property is corrected.