"A Hard Place to Be Poor:" Is Florida Losing Its Sparkle?

Folks with an axe to grind sometimes assert that population growth in certain states (and declines in other states) can be explained by characteristics of state tax systems, and occasionally engage in slipshod efforts to quantify these impacts. This is an easy thing to do poorly, and a hard thing to do correctly: after all, if you want to measure the impact of a tax system on a state's attractiveness to potential residents, it's not enough to simply look at tax rates-- you also have to look at what the state is doing with its tax dollars. Anyone with a school-age child recognizes the importance of quality public schools in making your living decisions.

So, this is a pretty hard thing to measure. But sometimes you can, in fact, look at specific features of a state tax system and say pretty unequivocally that, in fact, this feature makes people less likely to move there.

And, according to the St. Petersburg Times, that's exactly what Florida's property tax system currently does. The "Save our Homes" tax break, which forces first-time homebuyers to pay much higher property taxes, other things equal, than long-time state residents must pay, represents a real barrier against young families seeking to buy their first home in Florida.

This doesn't mean that "Save our Homes" is responsible for the state's slow(er) population growth-- after all, even if it makes the state less attractive for new residents, it makes Florida more attractive for folks who are already there-- and the Times laudably refrains from blaming the property tax system directly for this result. But it's worth reflecting on this question: does Florida really want a tax system that falls most heavily on the young first-time homebuyers who can be the long-term bedrock of the state's population growth?
Because that's what they've got with "Save Our Homes", to say nothing of the state's high reliance on regressive sales taxes.

Check out the complete Census population data here.

St.Petersburg Times Ed Board: No on Property Tax Ballot Proposal

With the Florida public (or at least the small fraction of the Florida public that can be convinced to vote on a non-Presidential ballot) poised to pass judgment on a property tax cut proposal referred by the state legislature in less than a month, the St. Petersburg Times editorial board rings in the new year by letting us know where they stand on this proposal.

They're agin it:

This state and its residents are facing serious economic challenges in 2008, but the amendment on the Jan. 29 ballot is not the answer.

And their reasons for opposing it seem exactly right:

There are many good reasons to vote against the property tax amendment. It
provides little help to businesses and owners of second homes or investment properties who need the most relief. Instead of creating a fairer property tax system it adds to the unfairness by allowing Save Our Homes benefits to be taken to a new home. And even with its projected reduced savings, the amendment still would cut funding for education and local government exactly as their revenues will be dropping because of other tax reforms and the slumping economy.

Put another way, fairness and sustainability are two areas in which the Florida tax system could use some improvement-- and the January proposal would not help in either area.

The striking thing about the debate over Florida property tax reform so far has been the absence of any real concern about fairness. Some participants in this debate would probably take issue with this characterization, but these are the same folks who thinks that the central tax fairness question to be answered in the next month is "do I deserve a $240 tax cut?" And that having answered "hell yes," they've successfully addressed whatever tax fairness concerns might arise.

The broader tax fairness question that should be asked, and answered, over the next month, is "what's wrong with Florida's property tax system, and does the proposal to be voted on fix these problems?"

The folks at the St. Pete Times clearly get this. It remains to be seen whether Florida voters will.

Donald Trump On Board with Crist's Tax Plan

With a month and a half left before Florida voters pass judgment on the Florida legislature's proposed property tax cut in January, folks are choosing up sides. And New York gazillionaire Donald Trump is on the side of the tax cutters.

Turns out Trump is paying $1 million in property tax on one Florida house-- which sounds pretty shocking until you know that the house is worth $56 million.

Left unexamined by the article is whether a $1 million property tax bill is anything disproportionate for such a house. $1 million is about 1.8% of the value of Trump's home-- certainly on the high side by comparison to other states, but not outlandishly so. And, of course, by Florida standards, Trump is being treated exactly the same, for property tax purposes, as a fixed-income retiree with a tiny vacation shack miles away from the beach. In other words, if you think about the fairness of Trump's tax situation by comparison to that of other vacation homeowners in Florida, he's got nothing to complain about.

It's certainly true that broad classes of people have gotten screwed by the Florida property tax system, and vacation homeowners are definitely among them.

But one thing Trump might consider is that if Florida policymakers continue to enact unaffordable property tax cuts, pressure will build in the long run for a new source of state funding for needed public services: and the obvious choice for Florida would be a personal income tax. And while the vast majority of Floridians would be better off if the state traded in its property tax-sales tax mix for a personal income tax, Trump would be one of the relatively small number of wealthy folks who would be unambiguously worse off.

Tax Commission: Let's Tax Services. No, Really.

The Florida Taxation and Budget Reform Commission, which meets once a generation (true) to recommend structural changes to Florida's tax system, has come up with a good one: expanding the sales tax base to include more services.

This very sensible idea has an unfortunate history of inducing groans wherever it's brought up; just ask lawmakers right now in Maryland or Michigan.

But that doesn't mean it's a bad idea: it's not. It just means that implementing a sales tax on services would require taking unwarranted tax breaks away from very specific groups who would like to keep them, thank you very much, and who tend to have lobbyists on call 24-7 ready to defend these tax breaks. And that's a tall order.

Florida lawmakers probably know this better than anyone, since they were among the first (and only) states to pass (and quickly repeal) something approaching a comprehensive sales tax on services, back in the late 1980s. But at least one member of the commission who remembers those days, Martha Barnett, thinks the bitter experience from the last go-round should be used to help push through this always-good idea now. The problem last time, she thinks, was that lawmakers rushed the process:

"We tried to do too much too fast with too little information," she said.

Lawmakers in Maryland and Michigan would probably nod their heads in agreement on that one, as well.

It's easy, of course, for an unelected body such as the Commission to propose something as politically volatile as a services tax. And if lawmakers act on the Commission's recommendation, they can count on a lot of political opposition.

But it's still the right thing to do. Check out Fair Tax Florida's policy brief on taxing services for more information.

Rubio on User Fees

Today's excellent Daytona News-Journal editorial on the likely user fee explosion that would result from passing the legislature's January property tax ballot measure, which we've already commented on today, includes an interesting rationalization from House Speaker Marcio Rubio. Here's Rubio explaining why it would be OK if locals made up for unaffordable property tax cuts by hiking a variety of user fees:

The West Miami Republican told the South Florida Sun-Sentinel newspaper that such fees are fair. "Fees are clear; they're not hidden," he said. "If you don't like that city and county officials are raising them, you can vote them out of
office on Election Day."

But exactly the same thing can be said of local property taxes. And in fact, the transparency and accountability of property taxes is what makes so many advocates of local control very protective about this revenue source.

This isn't to say, of course, that Florida's property taxes are currently all that transparent--they're not. They're unfair and unpredictable, imposing unjustifiable tax penalties on first-time homebuyers and rewarding people for nothing more exceptional than staying in the same home for a long time. But these flaws can be remedied quite easily if lawmakers are willing to renounce the "Save Our Homes" tax break that makes it all go wrong.

Moreover, user fees are actually fairly sneaky, in the same way that the sales tax is sneaky: it nickel-and-dimes you in a way that makes it hard to gauge the overall annual impact on your pocket book. In other words, you can make a pretty good case that user fees are actually less transparent than the property taxes Rubio wants to get rid of.

Tax Cuts= User Fees?

The editorial board at the Daytona Beach News-Journal casts their vote on the January property tax referendum in today's edition:

The bottom line: The proposed ballot issue exacerbates problems caused by the escalating costs of providing basic services. Voting "no" in January is the right choice to avoid large increases in local government fees.

In other words, the folks at the News-Journal aren't buying the argument that local governments can afford the additional property tax cuts the January vote might force them to make.

This is speculative, of course, and the reaction will almost certainly from one locality to the next. But, given that locals have already been forced to pare back their property taxes this year, it's not hard to believe that stacking on even more cuts would force many local governments to make some unappetizing choices: cut services or replace the lost revenue somehow?

The News-Journal editorial cites anecdotal evidence that suggests a lot of governments are already finding there's no fat to trim off their budgetary bones:

Port Orange, DeLand, Ormond Beach, Daytona Beach and Edgewater are looking at a fire-services fee, to cover expenditures that traditionally have been paid with general property taxes. DeLand and Port Orange are also looking at charging for some medical rescue services.
These Volusia County cities are far from alone. Elsewhere, cities are considering new fees or increases for water, sewer use, stormwater drainage, garbage pickup, development impacts, building permits, burial plots, library use, park and pool use -- and more.

As the editorial points out, this should hardly be a surprise. Anyone who remembers the dual legacy of California's Proposition 13-- lousy schools and a sudden growth in creative local user fees--could have told you this is a plausible outcome whenever state lawmakers make it harder for locals to rely on property taxes.

Again, this is all hypothetical. Some locals will find room to cut; others will find that they'd rather look under the cushions for the proverbial loose change rather than imposing further damaging cuts on vital services. But the fundamental point the News-Journal makes is dead on: a shift towards user fees is a poorly-thought-out, downright sneaky way of paying for property tax cuts. So why enact them?