Amendment 3: Property Tax Limit for Non-homestead Property; Added Exemption for New Homestead Owners

Should first-time home buyers get a tax break and certain properties face a lower cap
on annual assessment increases?

Florida's property tax system would have changed if this proposed amendment had survived the legal challenges filed after its approval by the state Legislature. The proposed measure offered a tax break for first-time home buyers and lowered the annual cap on assessment increases for businesses, rental properties and vacation homes. Its sponsors in the Florida Legislature said the measure would revive home sales and attract investors to the state, whose population recently fell for the first time in 60 years.

"It's going to turn renters into buyers," Rep. Carl Domino, the Jupiter Republican who worked on the plan, told reporters in 2009. Critics claimed the proposal would strip millions of dollars from already cash-strapped schools, cities and counties forced to cut services. Others worried that the measure could create tax disparities among businesses or rental and vacation properties similar to what Save Our Homes has done for homestead property owners.

It's a mixed bag, said Kurt Wenner of Florida TaxWatch, a state watchdog group generally supportive of the ballot proposal. "The goal should be to make our taxes more fair and equitable," said Wenner, stressing tax reform before economic stimulus. "This does that to some degree," he said.

As proposed, Amendment 3 would have reduced the maximum annual increase in the assessed value of a non-homestead property from 10 percent to 5 percent annually. The amendment also required the Legislature to provide an additional homestead break to someone who had not owned a principal residence during the previous eight years and bought a home after Jan. 1, 2010. The break would have been a 25 percent exemption on just value, up to $100,000, and would have phased out over five years as savings under Save Our Homes, the 3 percent assessment cap for homestead properties, accumulated.

A detailed summary and full text of Amendment 3 is available here.

Nearly in the trash

Last-minute maneuvers pulled Amendment 3 from the trash bin to the ballot. After weeks of stalled efforts, the proposed package finally passed in one of the final bills on the last evening of the 2009 regular legislative session. "Some things happen by magic," Sen. Evelyn Lynn, the Ormond Beach Republican who sponsored the bill, told one newspaper.

In reality, Gov. Charlie Crist had advocated for the tax breaks and assessment cap before the session started. He, alongside Lynn and the Florida Association of Realtors, which in 2010 changed its name to Florida Realtors, lobbied lawmakers late in the session and highlighted the measure afterward as a worthy effort.

On its Web site, Florida Realtors says it met with bill sponsors and was "able to resurrect this bill from the dead in the final hours of the regular session. This is a big win for owners of businesses, second homes and non-homestead properties."

Revenue estimates predicted the non-homestead assessment cap would have saved property owners $551 million over the next three years. Of course, it would also have reduced local tax revenues by that amount. The additional homestead exemptions would have reduced local non-school collections by another $386 million from 2011 to 2104, according to a bill analysis.

The final version proposed amendments to Sections 4 and 6 of Article VII and the creation of two new sections in Article XII of the state constitution. Read the changes here.

On May 1, 2009, the final measure passed the Senate 26-11 and the House 104-13.The proposal was challenged in court by a group of citizens and labor unions and on July 23 a circuit court judge ordered them removed from the ballot, finding that its summary lacked details about the measure, including a date for when the tax breaks would go into effect. The state Supreme Court upheld the lower court decision on Aug. 31, effectively striking the measure from the 2010 ballot.

Benefit to first-time buyers

If voters had given Amendment 3 the go-ahead, it would havejoined several signififamilycant constitutional changes to Florida's complex property tax structure. Save Our Homes, approved by voters in 1992, was designed to protect longtime homeowners from soaring property values by capping the assessed value of their homestead property to 3 percent each year or the percentage change in the Consumer Price Index, whichever is lower.

Regardless of political affiliation, observers say the amendment has resulted in a wide disparity in the assessed values of similarly situated homes. Further, even backers concede the burden of paying for local services like schools and law enforcement has shifted from primary homeowners to businesses, rentals and other non-homsteaded properties that fall outside Save Our Homes protections.

Florida voters addressed the first issue in January 2008 by approving Amendment 1. The amendment allows homesteaded property owners to transfer their Save Our Homes benefit, up to $500,000, to a new home. The constitutional amendment, which passed with more than 64 percent of the vote, also placed a 10 percent cap on annual assessments of non-homestead properties. Crist says the measure cut nearly $10 billion in property taxes, although it did little to kick-start the state's stagnant housing market, which in April 2010 was still experiencing one of the highest foreclosure rates in the nation, according to RealtyTrac, which monitors mortgage activity across the country.

As proposed, Amendment 3 offered first-time buyers more equal footing with homeowners, said David Hart, vice president of legislative and governmental affairs for the Florida Home Builders Association. The proposal called for a first-year tax break averaging about $500 for a $200,000 home. Benefits would have been phased out over five years, with the special exemption ending in year six. Total benefits on that same $200,000 home would have been about $1,500.

"We support it because in the case of the additional property tax benefit to first-time buyers, it helps level the playing field with longtime homestead property owners who've enjoyed the benefits of Save Our Homes," Hart said. While the organization had not taken an official vote on the measure, Hart said the group thought it would motivate buyers and spur housing starts and construction jobs.

Long-time homeowners should have supported the measure, too, home builders and Realtors said, because empty homes in their neighborhoods lower their property values and increase their taxes.

Florida isn't the only state looking to attract new homeowners. California offered a $10,000 tax credit to new buyers, with other states following suit. The federal government's first-time homebuyer plan has also been successful in getting new buyers into homes. For potential first-time homebuyer James Brown, those savings would be welcome.

"It wouldn't make or break us," said Brown, a Pinellas County resident. "But [the Florida government] should still provide us any incentive they can. Home ownership is a staple in American society and the basis for long-term wealth."

Brown's property tax savings would probably end up being spent in his community.

A loss to local governments, schools

Critics of Amendment 3 feared local governments and school districts would suffer the brunt of further property tax breaks. If approved, the amendment would have cost those local entities about $1 billion in lost revenue over three years, state economists estimated. The amendment was "of great concern to us because we've seen funding for schools go down over the last couple of years," said Mark Pudlow of the Florida Education Association.

Even more alarming is the state's shift from state funds to local property taxes to pay for schools and at the same time cut property tax revenue, Pudlow added. While schools would have lost money from the additional homestead exemption under the proposed amendment, cities, counties and special tax districts would have lost property tax revenue from both the new exemption and the 5 percent assessment cap on non-homestead properties.

The pain that this amendment would have caused local governments and schools wasn't worth the small benefit it promised, said Sean Snaith, an economist and director of the University of Central Florida's Institute for Economic Competiveness. "Continually tweaking property tax codes in some effort to stimulate a sector of the economy that has far bigger issues makes very little sense to me," Snaith added. "It's not the lack of an incentive that's keeping people on the sidelines from buying homes."

It's double-digit unemployment and the crisis in the U.S. banking system, he said.

Critics of the proposal worried that offering more property tax breaks during the current economic downturn and recovery would have resulted in higher fees or taxes to maintain municipal budgets and services. Because of declining property values, the city of New Port Richey in Pasco County is looking to raise its property tax rate 23 percent. "That just keeps us even," said city Finance Director Rick Snyder. To maintain services, city leaders have already raised a series of fees from street lighting to storm water utility, Snyder said. "Property owners have certainly got tax relief," Snyder said, referring to Amendment 1 and other tax breaks, "while we're talking about what department to let go." Residents in New Port Richey have been supportive of the fee and tax increases so far, he added, because they don't want to see services or jobs lost.

The complicated business tax breaks

The Florida Chamber of Commerce said the non-homestead assessment cap was key totax man making the tax burden fairer for businesses. The proposal would have lowered the cap on non-homestead properties – businesses, rental units, second homes – from 10 percent to 5 percent a year. Under Save Our Homes, "the system was heavily weighted against non-homestead properties," said David Daniel, vice president of governmental affairs for the Florida Chamber. Without a fair assessment cap, he said, businesses are paying higher taxes than other properties and have no recourse but to oppose local government tax rates.

Hart said the Legislature's suggested percentage cap makes sense because "non-homestead properties generally appreciate 5 percent per year." Some worried, however, that the proposal could create the same disparities among businesses and rental properties that Save Our Homes does for homestead property owners, with new non-homestead property owners paying more than existing ones. Some economists also predicted the caps would have prompted property owners to hold on to parcels longer as their advantage over new competitors increased every year.

Over time, newcomers face increasingly higher barriers to entry. "By doing it this way, you're basically going to have the cap create the same problems of unequal taxation," said Wenner of Florida TaxWatch. "There would be fewer inequities, but those inequities would be larger." Plus, Wenner added, there is no portability for non-homestead properties.

While still supportive of the measure, Trey Price, a public policy representative for Florida Realtors, said his group shared the same concerns of creating a "competitive disadvantage" for new businesses or non-homestead property owners. Price said efforts are under way to persuade lawmakers to prevent an assessment from going back to full market value unless the property is substantially changed, if, for example, a gas station is turned into a Walgreens drugstore, he said. Either way, the Chamber's Daniel maintains, Amendment 3 would have been "an incredible stimulus for business."

Businesses are not as mobile as homeowners, and knowing what the costs and taxes would be up front could attract out-of-state interest, he said.