"Unfair to Everyone:" Evaluating the Save our Homes Tax Break

The Florida Senate Finance Committee is deliberating this week on property tax reform options-- and opponents of the ill-starred "Save Our Homes" tax cap aren't pulling their punches.

It's "unfair to everyone," Volusia County Property Appraiser Morgan Gilreath told the committee. "It doesn't matter if you're a homeowner. You're discriminated against from when you buy your home. If you come in from another state, you're only equal to someone who comes into the state the same day you did."When you become a Florida citizen, you're not as good as the people who moved here last year, and they're not as good as the people who moved here the year before, and they're all better than the people who are coming," he added.

The big question facing lawmakers this year on "Save Our Homes" is a simple one: reform or repeal? Only too often, lawmakers address problematic taxes not through well-tailored reforms but through outright repeal: witness what the federal government has done with the estate tax (not to mention what Florida did last year with its intangible property tax). So it's a responsible first step, I suppose, to think about ways in which "Save our Homes" can be modified without outright repeal.

But in the case, the angels may not be on the "reform" side at all. What's being "reformed" here isn't a tax-- it's a tax break. A big, fat, unaffordable, poorly targeted tax break. We know from national experience that there are better-targeted ways of achieving meaningful property tax reform, most notably the "circuit breaker" credits that are now in vogue nationwide. So you can make a case that outright repeal is a pretty sensible option for dealing with the Save our Homes fiasco.

Don't Shoot the Tax Assessor

Palm Beach County property tax appraiser Gary Nikolits has been under fire for months for his insistence on ensuring that properties in the county are assessed at their actual value. This is in response to pressure from local elected officials to artificially lowball the assessed values assigned to homes and businesses.

He's right, of course: when assessors lowball properties' value, it makes the tax unambiguously less fair, no matter whether the preferential assessments are being given as special favors or as a general practice. This isn't to belittle the (very real) concerns of homeowners and businesses that rapidly growing assessed values will force them to sell. But anyone (including opportunistic anti-tax legislators) putting the blame on assessors is simply wrong. A new editorial in the Palm Beach Post hits this one dead on:

Commissioners have no business telling him how to do his job. They hope that criticism of Mr. Nikolits will make taxpayers forget that the commission controls taxes, because it controls the tax rate.

Not everything is pure politics, of course: it's possible that the aggressive stance elected officials are taking against Nikolits' assessments has nothing to do with scoring political points and everything to do with helping their constituents to avoid excessive property taxes. But even if their intentions are pure, the county commissioners have chosen a lousy way to achieve tax relief. Here's the Post editorial board again:

Commissioners are wrong, however, when they encourage an appraiser to ease up on a select group of property owners. As Mr. Nikolits correctly points out, such an approach could create enormous inequities in assessments and decimate the overall tax base. Manipulating appraisals for political ends can lead to other problems. Then-Gov. Bob Graham removed David Reid as Palm Beach County property appraiser in 1981. A year later, Reid was convicted of lowering assessments in return for bribes.

Manipulating property values, even in the name of providing property tax "relief," can only undermine the public's faith in the tax system in the long run. You'd be hard pressed to find anyone claiming that the property tax is Florida's fairest revenue sources these days. But you can't take even baby steps toward a fair and equitable property tax until you value property at its true worth. Kudos to Gary Nikolits for standing up to the demagogues on this point.

More Editorial Skepticism on Crist Property Tax Plan

The editorial fallout continues for new Florida Governor Charlie Crist, who signaled this week that he wants to double the state's property tax homestead exemption to $50,000. Here's what the Pensacola News Journal has to say about Crist's plan :

[Hiking the homestead exemption] will further distort a tax system already titled off level by the homestead exemption and the Save our Homes amendment that limits increases in assessed values -- used to compute property taxes -- to 3 percent a year on homesteads.Doubling the homestead exemption will continue the trend of pushing the property tax burden onto businesses, renters and owners of undeveloped property.

This is exactly right. The existing tax breaks for homeowners are already giving big tax breaks to even the wealthiest homeowners, making them more expensive than they need to be. Simply doubling the existing tax breaks further shifts the cost of funding public services away from homeowners and toward, well, everyone else. But the Journal's board goes one (laudable) step further:

[W]hat Crist needs to do is settle the question of whether there is a better method than heavy dependence on the property tax... Can the property tax be eliminated and replaced with something else, such as a state income tax or an increase in the sales tax? Should it be capped in terms of dollars, not just millage rates, and supplemented with another tax? Should it be rolled back and capped? Should the burden be spread more evenly?Put it all on the table, and let's see what the alternatives are.

This is terrific stuff. Observers of Florida tax politics have learned not to expect courage from their elected officials on this issue; it's a sad commentary that the Journal's willingness to "put it all on the table" seems downright courageous rather than simply being sensible.

No Hurry on Property Tax Reform?

A December 29 editorial in the St. Petersburg Times makes the case for doing nothing (at least, nothing major) to fix Florida's property tax system in the near future. The Times argues (correctly) that the politically popular tax cuts recently proposed by candidates and elected officials are quick fixes rather than long-term reform:

The political temptations are great. The incoming governor, Charlie Crist, is among those who campaigned in the fall for doubling the current $25,000 homestead exemption. He and others also called for allowing homeowners to take their lucrative Save Our Homes reductions with them when they move. Neither approach really lessens the growing inequities in taxation and likely would, as TaxWatch suggests, only make things worse.

There's more to say here, of course. The only way to eliminate the "growing inequities" the Times alludes to would be to repeal the "Save Our Homes" tax cap entirely. And the real reason why inaction is arguably better than the reforms proposed in the past six months is that in the long run, Florida needs to diversify its revenue portfolio so it'll have a way to pay for property tax cuts. And in Florida, diversification means enacting a personal income tax. Until elected officials work up the courage to discuss how property tax cuts will be paid for, it will be hard to take their current proposals seriously. But the Times is absolutely right to condemn current leaders' emphasis on just making the existing property tax breaks even bigger.

The Times makes an equally interesting argument that while the big tax cuts proposed so far are non-starters, there are some smaller, "procedural" reforms that should be looked at immediately:

The law directs appraisers to value property at its "highest and best use," which has had the unintended consequence of generating enormous tax bills for some small businesses in hot real estate zones. Those taxes, in turn, pressure the businesses to sell out for high-rise offices or condos. That's bad growth policy, which is reason enough to review the standard.

This seems wrong for a couple of reasons. First, market value is generally what tax assessors ought to be shooting for in setting property values. As long as current market values don't reflect an unrealistic and unsustainable bubble, properties should be valued according to what someone would pay for it right now. Most of the inequities in the property tax world are due to departures from the "market value" standard.

Second, the pressure on business properties is directly traceable to the "Save our Homes" tax break that's currently in place. If lawmakers had the guts to confront this by repealing Save Our Homes in favor of a better-targeted approach to homeowner property taxes, and then recalibrated the state tax system to balance things more evenly between property, sales and income taxes, the current business property tax pinch would not be an issue. Period.

That's a big "if," of course. And until these needed changes are made, the short-run concern for businesses is a very real one. But it's important to remember that "market value" is not the culprit here.