SENATOR STEVEN A. GELLER
Senate Democratic Leader
PROPERTY TAXES: A RESPONSIBLE WAY FORWARD
There has been much discussion recently about property tax cuts. I agree that we need to reduce our property taxes. Because of Save Our Homes, longtime homeowners are trapped in their current homes. Property taxes and insurance are preventing many people from buying their first home. Small landlords and small business owners are paying excessive taxes. We must ensure that property tax increases do not out pace the ability of Florida citizens to pay these taxes. However, before we make permanent tax cuts in the State Constitution, we need to have serious discussions about what are reasonable rate cuts, who should receive these, and what affects these rate cuts would have.
Although we need to reduce taxes, and ensure that taxpayers get good value for what they pay in taxes, it is inaccurate to say that there is a statewide tax crisis in the State of Florida. According to the 2006 Report of the Tax Foundation, Florida is the 12th lowest taxed state in the nation in combined taxes as a percentage of income. I have seen other reports indicating that we are in the mid to low 40's. For 2007, our property taxes are 20th lowest in the nation. Although many people have been moving to North Carolina because of lower property taxes, we must remember that Florida does not have an income tax, does not have an estate tax, and has relatively low excise taxes. The overall tax burden in North Carolina is substantially higher than the overall tax burden in the State of Florida. Although we do not have a statewide tax crisis, we do have a property tax crisis for some people.
Some politicians have been saying that we can reduce property taxes by 30%, 40%, 50%, or more without dramatic cutbacks in services. This is not an honest statement. I believe most people would agree that you can reduce local government budgets by 5% without any dramatic cutbacks; I don't know at what percentage the cutbacks become severe. Is it 10%, 20%, 30%, 40%, 50% or higher? At some point in time, it should be apparent to everyone that the cutbacks will be severe. An honest debate would involve what level of taxes are people willing to pay, and what level of services they demand. Leading people to believe that there is a free lunch and that they can have dramatic cutbacks in taxes without dramatic cutbacks in services is not an honest debate.
I have reviewed thousands of letters and emails commenting on the "windfall" that local government received from 2001 through the present time, and implying that therefore local governments can withstand huge tax cuts without huge cuts in services. Let's examine this.
Property values soared from 2001 through 2006, although they appear to be headed down right now. Local governments did not receive all of this windfall, however, for several reasons. First, a significant percentage of the properties in the State were protected by Save Our Homes, and their taxes did not soar with their home values. Second, most local governments did at least some reduction in millage. For example, Broward County reduced its millage rates by 23% over the past 10 years. Between these two, I estimate that the "windfall" is only one-half as big as it would have been.
Even with this reduction, local government spending still went up far higher than population growth plus Consumer Price Index (CPI). This is accurate, and completely irrelevant. Governments do not spend according to the CPI, they spend according to the Government Purchasing Index (GPI). CPI is a basket of goods such as food, clothing and appliances. This has had an average annual increase over the past 6 years of about 2 1/2%. GPI is a basket of health insurance benefits, pension benefits, gasoline for emergency vehicles, and other local government expenses. GPI has grown at a far faster rate than CPI, as would be obvious by looking at what the items in it are. In St. Petersburg, for example, where there are now 57 fewer full time employees than in FY 01, city employee retirement expenses - the largest being public safety defined benefit plans - are 235% higher in FY07 than FY01, a budget increase of $15.5 million.
The stagnant stock market has also been a major contributor to increases in local government spending, because of the effect that low stock returns have had on pension plans. For example, the City of Hallandale Beach reported that in 2000-2001, the height of the stock market boom, they had to pay less than .01 ¢ per dollar of salary into pensions. Because of years of stagnant of returns, this year the City is paying 4O¢ on the dollar into pensions for the general employees and .65¢ on the dollar for their high risk employees (police and fire fighters).
Another reason for increases in local government spending is the cost of police and fire protection. We should not be surprised that we are spending more on police and fire today than we were before 9/11. Also, in 2001 President Bush began a 3-year phase-out of the COPS Program which put approximately 118,000 police on the street nationwide, and which was paid for by the federal government. For example, the City of West Palm Beach alone had 14 police officers that had been paid for by the COPS Program. The City of West Palm Beach, like most local governments, chose to keep these police officers on, and begin paying them from City funds.
There remained a small "windfall". Most local governments, recognizing that this would be a temporary windfall, adopted one of three policies. Some, like Jacksonville reduced taxes sufficiently to return most of the windfall to the taxpayers, recognizing that this could require tax increases when property values return to normal. Some boosted their reserves, or rainy day funds, to the point where some cities now have reserves of 40% to 80%, which is far higher than usual. Others chose to make one-time expenditures from this temporary windfall, primarily purchasing parks, although in some cases buying additional police stations, fire stations, or other needed and planned municipal or county buildings.
I have given well over 100 speeches on this topic, and have asked thousands of people what percentages of municipal government expenditures are spent in five categories: administration and overhead, police and fire, parks and recreation, roads and bridges, and everything else. I have really only been interested in their responses to the first two categories. The consensus opinion appears to be that local governments are spending between 1/3 and 40% of their budget on administration and overhead. That number is actually between 5% and 8%. The consensus belief appears to be that municipalities are spending between 25% and 33% of their budgets on police and fire. That number is really 50% to 65%.
We need property tax reform in the State of Florida. We need to free people that are. trapped in their homes, and ensure affordability of taxes for many people cannot otherwise afford their property taxes. We need to balance this with the need to protect our local services, such as police and fire, libraries, parks, juvenile programs, animal and mosquito control, etc. We need to have an honest discussion of what the appropriate balance here is. Those people that are suggesting that we can have massive tax cuts without massive service cuts are doing a disservice to the residents of the State of Florida.
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