A group of elected local property appraisers came up with what they thought was the solution: A state constitutional amendment that placed limits on the rate at which property values could increase. After nine years of organizing, they succeeded in placing the measure on the 1992 statewide ballot. It passed and went into effect earlier this year.
High inflation is no longer a problem. But the amendment lives on and continues to have lots of effects - many of them unanticipated by its boosters.
For starters, several new studies suggest that the amendment, known as Save Our Homes, is likely to produce hugely disproportionate tax benefits for the privileged few who own expensive homes - more so than even critics of the amendment had expected. Indeed, according to one study, most homeowners actually are likely to pay more taxes because of Save Our Homes, not less. That group includes many owners of modest homes.
Commercial property owners can also expect to pay more taxes, a reality that will hinder the state's efforts to attract new business. In addition, the amendment is likely to place a noticeable drag on residential real estate markets.
Even its political backers - comprising interests concentrated in coastal counties where values have increased fastest - are disappointed because state officials have interpreted it in a way that places more tax-assessing power in the hands of Tallahassee.
Constitutional amendments, it seems, cannot change the law of unintended consequences. "It's the side effects that make life interesting," says Ron Schultz, Citrus County's elected property appraiser, who chaired a statewide committee on Save Our Homes implementation. Unfortunately, the side effects from Save Our Homes cannot be eliminated without another constitutional amendment.
First, the consequences for homeowners:
By its terms, Save Our Homes limits increases in appraisals on all homestead property to the annual Consumer Price Index or 3%, whichever is lower. (Homestead property is an owner's permanent residence.) On paper, Save Our Homes appeared to be a relatively modest alternative to California's infamous Proposition 13 of 1978, which placed stringent controls on property tax appraisals and rates. By comparison, Save Our Homes did not limit rates at all, just appraisals.
During the 1992 campaign, opponents warned that Save Our Homes primarily would benefit fast-appreciating property on waterfronts and golf courses. But few guessed the extent of the disparity between owners of expensive homes and owners of modest homes. According to a new study by the Legislature's research arm, about 55.7% of all homesteads in Florida are valued between $50,000 and $100,000. Yet those homeowners will save the least of any group - only about 9.8% or less on average over the next 20 years - and even that modest savings assumes that they won't be hit by any increase in property tax rates as local governments struggle to make up lost revenue. By contrast, homes worth more than $200,000 make up only 5.4% of all homesteads. Yet owners of those homes on the average will receive breaks between 20.3% and 33.7%.
The reason for the disparity: Homes worth less than $100,000 historically appreciate very slowly - between 2% and 3.5% - while homes worth more than $200,000 have been increasing in value up to 12% a year, according to the report. Owners of homes valued from $100,000 to $200,000 comprise 24.8% of homeowners and will receive savings of 14.3% to 20.3%.
What is even more ominous for many middle- and low-income owners is the outlook for tax shifting. Somebody has to pay for schools and other local services. Over time, most homeowners actually could be net losers under Save Our Homes if local governments, as expected, raise rates to cover 3% of the 5% that experts say they will lose under the amendment.
For now, tax shifting isn't a serious problem, though. Based on preliminary 1995 assessments and last year's tax rates, the state Department of Revenue (DOR) estimates that Save Our Homes resulted in only about $76.7 million in property taxes being lost or shifted to other property owners - not a substantial amount in a state the size of Florida.
The long-term outlook, however, is far worse. By 2004, Save Our Homes will be costing $942.2 million in lost revenue a year. By 2014, that number will rise to $2.2 billion. It's unlikely that local governments will be able to eat all of those losses.
Instead, some of those losses likely will be shifted to other property owners through increases in local property tax rates, at least in places that have not already reached the long-standing local tax limits set out in the state constitution.
To whom will the taxes be shifted?
If local governments raise tax rates by just 3%, legislative researchers say, more than half of Florida homeowners will have higher bills than they would without Save Our Homes. Losers would include homeowners who experience no significant increase in their values, as well as those who move frequently. (The sale or transfer of a homestead property erases the amendment's effects and restores the property to its full value.)
Which raises yet another troubling possibility: that Save Our Homes could kill a portion of our real estate business by discouraging people from moving. Without making an attempt to quantify the problem, a recent study by Florida State University professor Dean Gatzlaff suggests that Save Our Homes "may cause a sizable reduction in the number of home sales occurring each year."
Not surprisingly, owners of non-homestead property - that is, businesses and investors - will be hurt most of all from tax shifting. That's because they represent roughly two-thirds of the state's taxable property and gain no benefit from Save Our Homes. As taxes on commercial property rise, this will only increase the state's difficulties in attracting and keeping business.
So, are Save Our Homes boosters happy at least? Hardly.
For boosters, the unintended consequence came when DOR issued rules this year implementing Save Our Homes. The rules will not eliminate the windfalls flowing to affluent homeowners under Save Our Homes, but they may make them somewhat less grand than they otherwise would be, while also granting the tax man more powers over all property owners.
Here's how: Before Save Our Homes, appraisers were obliged by the state constitution to maintain "just" values on their tax rolls. As the term was interpreted, "just" value came to mean market value, minus certain percentages for sales costs and margins of error.
When Save Our Homes came along, people at DOR decided that "just" values meant this: Annual property assessments would be capped, but they still would have to keep rising to "just" value, even in years when the market value did not rise. For example, consider a home that jumps in value 9% in one year, then remains flat the next two years (and the CPI during that period is at least 3% annually). Under DOR's interpretation, the home's valuation would have to go up 3% each of the three years.
DOR's decision came at a time when the agency already was looking over the shoulder of local property appraisers to an unprecedented degree because of past failure to keep values at "just" levels. DOR is charged with overseeing local tax rolls because the state has to put in more money when local school taxes are insufficient.
To some property appraisers, DOR's new Save Our Homes rules look like just another weapon in the state's ever-increasing arsenal of ways to squeeze more school funds out of their local taxpayers.
"One unintended consequence of Save Our Homes may be to greatly increase the state's control over the tax rolls and the appraisal process," says Schultz, the Citrus County appraiser, who believes DOR correctly interpreted the amendment.
Schultz thinks that many appraisers were not really surprised by DOR's rules. They are only trying to shift the blame for their amendment's apparent shortcomings.
Counters William Markham, Broward County's property appraiser and an opponent of the DOR rules: "I just look upon this as an action of the bureaucracy and some political people to subvert what the taxpayers voted for."
Ken Wilkinson, the Lee County property appraiser who led the drive for Save Our Homes, admits to being "very frustrated" by DOR's new rules. Still, he insists he is pleased with the amendment's results. He also questions the validity of the studies that suggest it will produce tax inequities.
Despite the windfalls his prime constituents are receiving, David Biddulph, chairman of the grassroots Tax Cap Committee and a major backer of Save Our Homes, is more embittered: "To me it's a sad day when the people have spoken at the ballot box and their will is overturned by bureaucrats intent on raising revenue."
Does this mean Biddulph has become a believer in the law of unintended consequences? Not yet. Biddulph says he is pushing plans for at least three more initiatives in 1996, including measures to require voter approval of new taxes, to require super-majorities for new taxes written into the state constitution and to adopt sweeping property rights. Others, including state Sen. Mario Diaz-Balart (see story p. 58), are pushing a new initiative called "Save Our Seniors" that would increase the homestead exemption for elderly residents on fixed incomes.
Meanwhile, old hands at amendment-writing worry about the potential for more unforeseen consequences. Says Dominic Calabro, president and CEO of Florida TaxWatch, which has helped write several budget-related amendments: "I'm a strong proponent of the citizen initiative process. But you don't have the opportunity for give and take or compromise. That makes the course of the citizen initiative riskier."