People have often said that Florida is the new California, but this week the Sunshine State hopes to really drive the point home all the way into homeowners' pockets.
On Tuesday the legislature started a special session to reform Florida's dysfunctional property tax system, aiming to save residents the tens of billions of dollars that Californians reaped a generation ago. It's been almost 30 years since California approved Proposition 13, one of the most dramatic property tax reduction measures in U.S. history and a revolt that emboldened homeowners across the country. Now, with the middle class again feeling squeezed out of the American Dream, Florida's effort to smite spiraling property levies could influence a new generation of revenue rebels. "The hope is that Florida will come up with something that will be mirrored across the nation," says Jose Cancela, chairman of Floridians For Property Tax Reform.
Florida's problem is similar to what California faced in the 1970s: a deluge of new residents and feckless growth management have driven real estate values, and therefore property taxes, beyond the reach of more and more households. In expensive markets like South Florida, for example, homeowners who have yet to qualify for a state property-tax cap say they've seen better than 100% increases over the past few years. It's a large reason why, according to a new Zogby International poll, half of South Floridians and 37% of all Floridians say they're considering moving out of the state.
Some observers suggest Floridians shouldn't gripe too much, since they don't pay a state income tax. But they do pay onerous hurricane insurance premiums (a shock being felt in other coastal states as well) that in many cases exceed what a state income tax would levy. What's more, the relatively low salaries and wages in Florida's tourism-driven economy "are hardly commensurate with those of the states we're being compared with today, like California and New York," says Cancela, who heads the Miami-based marketing firm Hispanic USA. That growing gap between incomes and housing prices has all but wiped away Florida's historical luster as a paradise for new homebuyers.
Some of Florida's recent fixes have only exacerbated the frustration. In the 1990s the state adopted a "homestead" provision that eventually caps a homeowner's property tax increases at 3% a year. But when the house is sold, the cap no longer applies creating absurd situations in which neighbors with similar homes pay wildly disparate property taxes. As a result, "there is now absolute consensus that local property taxes are out of control," says Republican state Senator Mike Haridopolos, co-chairman of the Joint Select Committee on Property Tax Reform and Relief.
When Sergio Martinez, 41, bought his 5-bedroom Miami house three years ago for $405,000, the taxes were only $2,800. But before he became eligible for the homestead cap last year, they'd jumped to $7,400. His house is now valued at more than $900,00 and if he were to sell it, the new owner would be staring at an annual tax bill of almost $20,000. "That's a big reason I'd have trouble finding a buyer for this house, and why I'd have trouble buying a new one here myself," says Martinez, who now works two jobs in order to pay his tax and insurance bills. Unless Martinez wants to leave South Florida, "I'm essentially in jail in my own house."
The pols in Tallahassee, led by Republican state House Speaker Marco Rubio and popular new Republican Governor Charlie Crist, have been trying to mesh three reform plans since the legislature ended its regular session last month, with angry voters lighting up their switchboards. The House called for radical cuts of as much as $85 billion over the next five years, the Senate only $15 billion. Crist whose conservative predecessor, Jeb Bush, was strangely tepid about property tax reform has pledged to "make living in Florida more affordable" and has called for a $34 billion reduction as well as dramatic increases in the $25,000 exemption from taxable home value that homeowners currently receive.
Meanwhile, local government revenues which ballooned lavishly over the past five years as the real estate boom pushed local tax collections up 82% would be rolled back to 2006 levels, with additional cuts of up to 9% depending on each government's past spending habits. That prospect has predictably raised the hackles of mayors and county managers. But state legislators including a large contingent of Democrats appear unsympathetic. "This is not so much a cut," says Republican state Senate Majority Leader Daniel Webster, "as it is bringing local governments back to reality." But critics remind the legislators of another reality: because locally levied property taxes pay for the lion's share of education in Florida and since Florida's dismal schools can't afford new cutbacks the state will have to find ways to compensate.
Over the weekend, legislators indicated they were moving closer to Crist's approach a $31.6 billion reduction over the next five years. One sticking point: in exchange for the higher exemptions, it may do away with the caps, which are confusing but nonetheless popular with if not financially necessary for homeowners who currently benefit from them. But whatever deal is struck, it will probably have to be put to a constitutional voter referendum as part of Florida's presidential primary next January. Which is exactly how Californians voted on Prop 13 in 1978.