Lawmakers are in Tallahassee this week to decide whether to send a controversial policy to voters that would dramatically cut property taxes for most homeowners.
Local governments are warning that those cuts would have chaotic and disparate ramifications between communities that could force them to hike fees and other taxes to make up for the cuts, or else terminate funding for programs and services, including libraries, parks and community centers.
The proposal
Gov. Ron DeSantis called the special session last week in an effort to help with affordability, which remains high nationwide but especially in Florida.
For several years, DeSantis and lawmakers from both parties have tried to wrangle Florida’s home insurance prices to address affordability. Premiums have remained high despite those efforts, and total home insurance costs in Florida remain the highest in the country by a wide margin.
Now, the Governor and lawmakers are looking at major changes to property tax. Here’s how the proposed cuts would work: Florida already has what it calls a homestead tax exemption, which applies only to primary residences. Rental properties, businesses and second homes aren’t eligible.
People who own homestead property can claim the exemption to discount the value of their homes before they actually calculate property taxes, currently by up to tens of thousands of dollars.
If adopted by voters, the DeSantis proposal would immediately increase the size of that exemption to $150,000, then boost it to $250,000 next July.
There would be room to increase the exemption even further in the future — DeSantis has suggested raising it to $500,000 — to achieve essentially a policy that eliminates most residential property taxes.
“Core public needs”
Cutting property taxes would translate to cuts for cities, counties and even special districts for hospitals or water and sewer management.
In announcing the special session last week, DeSantis suggested that local governments are currently wasting tax dollars and can continue to operate with the cuts. Earlier this year, Republicans passed a law that requires that local governments create and publicize mock budgets that cut spending 10%.
His proposal would “[require] local governments to use remaining property taxes solely for core public needs including public safety, education and schools, infrastructure, and natural resources,” according to his announcement.
But policy experts aren’t clear on what counts as core public needs, such as child support or sanitation programs.
“What’s going to happen to my libraries? What’s going to happen to my public parks, community centers, anything that falls outside of what the state is mandating?” said Esteban Santis, director of research at the progressive-leaning Florida Policy Institute.
Even if those programs are protected, governments might not have enough money after the cuts to actually fund them.
Shifting costs
The homestead tax exemption would leave out renters and businesses. They could end up paying more to offset the cuts for homeowners, according to Santis.
“So people who are renting — what happens when the landlord gets a higher tax bill, because the localities have to make up the difference? They're going to shift those costs,” said Santis.
The governor’s proposal offers relief to commercial property owners in other ways. Assessed property values on small businesses can’t jump by more than 10% per year under state law, but under his proposal that cap would be lowered to 5%.
It’s a different kind of relief. Limiting how quickly property taxes can grow wouldn’t lower existing taxes.
Raising the homestead exemption would affect funding for schools. The ultimate $250,000 homestead exemption would cut $5 billion from public schools in Florida per year, Santis said — though the school-by-school ramifications would be difficult to predict.
“Floridians are facing an affordability crisis. I think we do need real affordability solutions,” said Santis. “But the short of it is that this is not a real affordability solution, it's simply a cost shift, because the money's going to have to come from somewhere.”
Budget aftershocks
Exempting property taxes would depress revenues for communities across the state, but the effects would vary.
In places like Orlando, apartments, businesses, tourists and sales taxes would help to curb the losses for governments.
The budgetary repercussions would be far more pronounced in communities dominated by residential homes.
One such place is Oakland, a small town on the western edge of Orange County, on the shore of Lake Apopka. With about 5,600 residents, it stands to be among the worst-hit by the property tax exemption relative to its total budget, according to data from Orange County and the Florida League of Cities.
The full homestead exemption would open up a $1.5 million hole in their budget — about a third of their General Fund budget that isn’t dedicated to public safety ($5.5 million) or repaying debt ($1 million), according to Oakland Town Manager Elise Hui.
“I don’t know — it's so tight, our budget, already,” she said. “We're not against reasonable property tax reform, right? … but you know, to go up to [$150,000] and then [$250,000] in two years? That's a lot.”
Hard cuts
Despite DeSantis’s claims of local government misspending, small municipalities like Oakland say they’re struggling to keep up with exploding costs for essential equipment, like fire engines, while maintaining competitive pay for employees.
“It's like there's no consideration for somebody of our size,” she said.
Without fee hikes or tax increases, cities would have to cut services to cover the difference.
“If you're used to operating the rest of the services at $4.5 [million] and you're reducing that approximately by half, how do you fund the rest of the services?” said Hui, of the expected burden for a full homestead exemption. “… I honestly don't even know what that would look like.”
Oakland could have to cut its funding for the Oakland Nature Reserve and the town arts and history center, which hosts its farmer’s market and other community events.
The 150-acre reserve is owned by the town, but a nonprofit manages it. The town allocates $200,000 to the nonprofit each year.
“That's really our parks and rec program,” said Hui. “Along with our arts and heritage center, that would fall into that non-essential category: … our arts programs, heritage history programs and any of our town events.”
Also, though it’s small, Oakland is roughly as large as the average Florida municipality, Hui said, which only has about 7,500 residents. That means the problems her community faces aren’t unique.
“There's a lot of municipalities that are going to be in our situation that just don't have extra stuff to cut, and then it's like, well, who's going to pick that up?”
The property tax special session is scheduled to end on Wednesday.
