Tuesday, July 10, 2007

Mayor Files Suit to Prevent January Tax Vote

If one Broward County mayor has his way, the referendum scheduled for next January, in which Floridians will decide whether to create a new "super exemption" from homestead property taxes, will never see the light of day. The Miami Herald reports that Westin Mayor Eric Hersh has filed a suit with the State Supreme Court arguing that the proposed super exemption referendum is unconstitutional. The Herald describes three prongs in Hersh's legal argument:
• Misleads voters by failing to tell them that a vote for the amendment is a vote to phase out and ultimately replace Save Our Homes, which now caps taxable assessment increases on primary homes at 3 percent a year.
• Violates the constitutional requirement that a proposal with more than one change to the constitution be voted on only during a general election, not a special election.
• Interferes with the constitutional powers of local governments to increase property taxes because the Legislature allows local governments to make budget cuts in 2007 before the amendment would take effect.
The first two points, at least, are pretty common arguments. Many states have a "single subject" requirement for constitutional amendments, and courts routinely shoot down proposed ballot initiatives because the language is misleading or incomplete.

Whether any of these charges hold water will be up to the courts. But these are all legitimate questions to ask. And the larger question lurking behind it all is: is a vote of the people the best way to decide what's good property tax reform?

Saturday, July 07, 2007

Environmental Cost of Property Tax Cuts?

In the wake of a June special session of the state legislature that imposed major property tax cuts on Florida local governments, the drumboat of endangered local government services continues. The Orlando Sentinel documents the potential impact of these cuts on efforts to preserve Florida's delicate ecosystem:

State property-tax changes could put a financial pinch on some of the area's biggest environmental efforts.The Lake County Water Authority has planned for years to start two projects aimed at cleaning up the Harris Chain of Lakes. A $15 million proposal would remove a delta of sand and organic materials from Lake Beauclair -- a massive mound of deposits caused by years of polluted water coming downstream from Lake Apopka.Another project would divert water from Apopka-Beauclair Canal and clean up pollutants before the water reaches Lake Beauclair and the rest of the Harris chain. That could cost more than $7 million to build and up to $1.2 million each year to operate. The Water Authority has saved millions to help pay for some of the work. But the agency still needs future funding for these and other proposals.

Does this mean these projects will be hamstrung, or even cancelled outright, as a result of the pending property tax cuts? It's clearly too soon to tell. But the folks who are making the planning decisions on these important projects are obviously nervous about the impact Florida property tax cuts could have on their ability to fund these services-- and this nervousness is affecting their decision-making process:
The financial uncertainty may impact how the Water Authority moves ahead with its huge projects."With us needing more and fearing a cut in property taxes, we're like most everybody else -- we don't know what will happen," said Water Authority board member Nancy Fullerton.
For Floridians who are desperate to understand whether the property tax proposal they'll vote on in January is going to be affordable or not, it's of the highest importance to know whether the Water Authority boards and their ilk are crying wolf, or whether the pending cuts would eviscerate important local efforts at environmental conservation. Neither the Sentinel's article, nor this blog post, can pretend to answer this question. But this uncertainty is a direct consequence of the way Florida lawmakers decided to cut taxes this year. If they'd cut state taxes, they could have simultaneously identified cuts on the spending side that would make these tax cuts affordable, and brought things into balance. But because they chose to cut local taxes, Florida lawmakers didn't have to worry about enacting these cuts at a level that would be affordable. They could enact big cuts, and let locals figure out how (if at all) they could pay for them.

When the state mandates local tax cuts, but doesn't provide the financial support needed to ensure that these cuts will be affordable, that's a recipe for fiscal uncertainty at the very least-- and, in the worst case, fiscal disaster.

Friday, July 06, 2007

Proposition 13 Redux?

Survivors of California's "Proposition 13" tax revolt know that good intentions can go bad pretty fast. In particular, the lesson Californians have learned is that when you force unaffordable local property tax cuts, locals usually can't just reduce their total revenues by the full amount of the cut. Some of the property tax cut will have to be made up through hikes in other taxes or fees. And the most likely outcome is that the revenue will be made up in a way that's less visible- instead of one big tax, a lot of little nickel-and-dime stuff.

There's evidence emerging already that this is exactly what's going on in Florida, as local governments deal with the state-mandated property tax cut passed in a June 2007 special session. Florida Today has the story:
Facing a property tax shortfall of $4.1 million, city leaders may start enacting a minor tax on residents for drinking water,taking showers and filling swimming pools.
After more than an hour of debate recently, the Melbourne City Council decided to pursue a new 10 percent utility tax on water sales.
This is nothing new in Florida, of course. Local government collections from utility taxes on electricity, water and other utilities are estimated at about $1 billion for fiscal year 2007. Even in Florida, that's some serious money.

The question is, how can this tax swap be justified on fairness grounds? Lawmakers have demonstrated an (arguably sensible) aversion to taxing what they consider "necessities" such as food and utilities. The city of Melbourne is about to take exactly the opposite step, taking a path that many other Florida municipalities have already followed.

Of course, a tax on water consumption will hit businesses too. But that was also true of the property taxes the city will no longer be able to collect this year as a result of the state's actions in June. So this can't really be justified as an effort to make businesses pay more-- not that any city council member in Melbourne would have said so anyway.

The truth is most likely that Melbourne is taxing water because it's the tool that is available to them. They're doing it because the alternative is painful cuts in the services the city provides to its constituents.

This may be smart politics, at least for state lawmakers. But it's dumb policy-- and it's a policy that will inevitably make Florida's tax system even more unfair.

Monday, July 02, 2007

WSJ Weighs In on Florida's Property Tax Debacle

As a state lawmaker, you know you've made the big time when the Wall Street Journal's editorial board singles your tax ideas out for attention. A June 30 WSJ editorial (sorry, no link for nonsubscribers) takes note of Florida's property tax situation:
Florida family incomes have risen by a healthy 37% since 2001, but average property tax bills have climbed by 83%. In some communities, such as Boynton Beach, average property tax bills have tripled in seven years. Politicians tell of town hall meetings where angry constituents announce they are literally being taxed out of their homes.
The Journal notes approvingly that lawmakers have voted to cut property taxes-- but sees a danger ahead:
The catch is that this must be approved by 60% of the voters in a January 2008 ballot referendum. And already the liberal interests that feast on local spending -- government employee unions, contractors and local politicians -- are predicting Armageddon for schools and city services if the tax cuts are enacted.
House Speaker Marco Rubio, who has led the charge for property tax relief, says local governments have already spent $24 million of taxpayer money to lobby against the initiative.
With many municipal budgets having doubled in size over the past eight years, many Floridians are unimpressed with these sudden exclamations of empty city wallets. Taxpayer groups point to numerous examples of flush spending by cities and counties in recent years, including $32 million for a new municipal golf course in Palm Beach -- a county that already has 160 courses.
So, the Journal's story is basically the same as Rubio's: local governments are crying wolf. They've made out like bandits over this decade, and are terrified that the fat times will end. But in the end (the Journal's narrative goes), they'll be able to trim the fat in a way that makes these tax cuts eminently unaffordable.

The missing link here, of course, is a sense of what's happening to state tax collections--and state aid to local governments. The narrative the other side is telling is that the state has enacted a raft of unaffordable tax cuts over the past decade, and has paid for them by cutting state aid to locals--which has inevitably meant that locals must hike their property taxes just to pay for basic services. Is the other side correct? Maybe-- I haven't seen a compelling statistical argument on this front, but that doesn't mean it's not out there. But the WSJ is following the Rubio party line by pretending that cuts in state aid aren't even part of the story.