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Tax Squeeze

Since 2000, according to research by the state Property Tax Reform Committee, personal income in Florida has grown 39%, and the growth in population plus inflation has been 32%, but property taxes have grown 80% (led by special taxing districts at 110%, followed by cities, counties and schools). Source: Property Tax Reform Committee
Hemant Patel bought a run-down 50-room motel on Biscayne Boulevard in Miami in 1996. He closed the motel for a year, renovated it and since then has enjoyed success renting rooms for $110 to $120 per night inseason and $65 to $70 off-season. What he hasn't enjoyed of late has been the taxes. The tax bill this year on his Midtown Inn is $170,000, up from $40,000 a decade ago. His profit last year was $60,000. "This year we won't make a profit, or we'll have to borrow money to pay the taxes," says Patel. The city and county, he says, are interested in the most taxes they can wring from the property and not "whether we can survive or not."

Snowbirds, landlords, first-time home buyers and other commercial property owners tend to share Patel's feelings -- and their growing dissatisfaction could mount into the kind of taxpayer revolt that spawned California's property tax-capping Proposition 13 or Colorado's government budget-capping Taxpayer's Bill of Rights. The "concern is we're spending money at a higher rate than underlying inflation and population growth," says Don DeFosset, former CEO of Tampa-based Walter Industries and chairman of the state's Property Tax Reform Committee, which is examining whether to recommend local government spending caps. "Taxes are going up dramatically. People are not very happy about it."

Behind much of the unhappiness are the unintended consequences of Florida's Save Our Homes constitutional amendment, which passed in 1992 and took effect in 1995. Save Our Homes caps -- by 3% or the inflation rate, whichever is lower -- how much a Florida resident's primary home can increase in taxable value. The cap doesn't apply to rental property, business property or second homes.

In the years since the law took effect, property values have soared. The overall value of the state's property tax base has increased a minimum 10% each year since 2001, topped off by an 18.4% jump in 2005 and a 25.4% spurt in 2006. And those increases are averages. In Lee County, the Lehigh Fire District saw an 89% increase in value this year. (The effect of this year's real estate slowdown won't show up until the 2007 appraisal.)

As property values have increased, Save Our Homes has produced a sharp divergence in the fortunes of Florida property owners.

? The Haves: Homeowners with Save Our Homes caps. Low inflation has meant that their tax assessments under the cap have risen by an average of only 2.4% annually. They've felt little pain -- as long as they stay put. Moving to a different home means a reassessment at prevailing, uncapped values, resulting in neighbors with similar homes paying widely dissimilar taxes. Even downsizing can result in a higher tax bill.

? The Have-Nots: Property owners like Patel -- including landlords, second-home owners, snowbirds and commercial property owners. Their uncapped assessments have risen along with their property values. And in the process, more of the tax burden has shifted their way.

Payment due: "This year we won't make a profit, or we'll have to borrow money to pay the taxes," says Hemant Patel, who owns a 50-room motel in Miami.

"It's tough to survive," says Patel. "We are literally being forced to sell our business and get out of Miami." Lee County Property Appraiser Ken Wilkinson, who created Save Our Homes and led the drive to put it in the constitution, cites an unintended consequence of his creation. He expected it to control local government spending. Just the opposite happened, and local government spending has followed appraised property values skyward, with some government budgets doubling in a few years. "Whereas I thought it would bring more accountability to the spending side, it didn't," Wilkinson acknowledges. "I thought (Save Our Homes) would put pressure on them to control their millage. It just whetted their appetite.

" Research by Florida State University professor Dean Gatzlaff explains why. Save Our Homes, he says, created a new political dynamic as it shifted the tax burden away from homeowners with Save Our Homes protection. The majority of voters -- those homeowners, who normally would lean on city and county governments to control spending have had no incentive to try to limit increased spending by local governments, Gatzlaff says. The reason? Since their tax assessments are capped, they're not paying their share of the cost of new services, which has fallen on the uncapped.

In Volusia County this year, for instance, only 4% of the annual increase in property tax was borne by Save Our Homes-capped property owners; those not covered by the cap carried the rest, says property appraiser Morgan Gilreath. The average homestead property in Volusia, with the combination of the $25,000 homestead exemption and Save Our Homes protection, gets $110,000 taken off the tax value of the home.

The average value of the break to owneroccupants of Florida homes is nearly $800 as of 2004, Gatzlaff says. His research indicates that those in more affluent homes, wealthier suburban counties and high-growth, highappreciation coastal counties see the greatest benefit in total dollars and in percentage terms. Ironically, given the intent of the Save Our Homes amendment to keep seniors and low-income people from being taxed out of their homes, those who have seen the least benefit are seniors, rural Floridians and owners of lowerincome housing such as mobile homes, Gatzlaff finds.

Florida TaxWatch CEO Dominic Calabro calls the tax shift from homeowners to non-exempt property owners "phenomenal." Save Our Homes, he says, "created more inequities than it solved. It's making Florida increasingly non-competitive" and threatening such traditional economic engines as real estate and snowbirds, he says. Rising taxes and insurance costs are "going to choke off additional supply" of housing, pushing up costs for tenants, predicts apartment developer Joel Altman, chairman of Boca Raton-based The Altman Cos.

Indeed, Save Our Homes now gets blamed for slowing home sales, the lack of affordable housing and unequal and regressive taxation. Talk to city and county officials throughout Florida about who came this year to their budget hearings to complain about taxes, and the consistent answer is those not protected by Save Our Homes.

Backfire: Lee County Property Appraiser Ken Wilkinson, who created Save Our Homes, says he thought the plan would put pressure on local governments to control their millage. "It just whetted their appetite."

It's unlikely that Florida voters will repeal Save Our Homes, but some taxpayers and elected officials are studying changes to the system. Among the considerations, a law or constitutional amendment to directly limit local spending growth -- a prospect that local budget drafters find frightening because of its inflexibility. The Property Tax Reform Committee has members on both sides of the question. "I have a serious fundamental problem with spending caps," member RichardSpears said at a meeting in October in Miami. "Control is with local elected people. If they get crazy about spending, we traditionally throw the bums out.

But committee Chairman DeFosset counters that because of Save Our Homes and the homestead exemption, "the vast majority of voters are not feeling the pain" that taxpayers such as landlords and small-business owners find burdensome. Also, some local districts responsible for spending increases are outside voter control, he notes.

One loud voice in the statewide discussion is Wilkinson, the Save Our Homes creator. He dismisses city and county objections to the amendment. "Have you seen any starving governments?" he says. And as to recent home buyers clobbered by the tax burden shift, "Although they hate me now, they'll love me in 10 years."

But he has proposed a new constitutional amendment to make Save Our Homes a movable tax break. "I don't want (to do) another constitutional amendment. It's not fun. It's not easy," he says. But something must be done, he says.


Coastal homeowners have been the biggest winners from the Save Our Homes amendment. Proof? The closer Florida residents live to the coast, the bigger the differential between the Save Our Homes value of their homes and the appraised value of the homes.

In coastal Monroe County (the Florida Keys), for example, the differential is more than $244,000. The gap between the Save Our Homes value of homes in inland counties is much smaller. In

landlocked Hardee County, the differential is only $6,750.

In Play

The state's Property Tax Reform Committee (propertytaxreform.state.fl.us) is set to release an initial report this month for the Legislature. The Florida Taxation and Budget Reform Commission starts work in 2007.